Wolf Money(portfolio update end Sept 2024)part 2
Lone Wolf Fund(LWF)
Portfolio as at end of Sept 2024
1.) Cash
Commentary
STI did a stunning turnaround to become one of Asia’s best performing markets since hitting the lows in Aug. Although, I am critical of the past performance of the Singapore market. The Sept performance was the best I had seen in years. I do need to give credit to our market when it is due. I have been selling some of my positions which I have held for a few months. Wilmar was sold due to its underperformance and the additional hurdle for GRAB to turn a profit with the mandated CPF contribution was the main reason for the sale.
The timing of the Second Chance Ltd delisting was impeccable. Second Chance $300m worth of marketable securities are mostly comprised of REITs. With the share price of REITs running up, the owner of Second Chance is sitting on an additional paper gain. Other gains include the rise in value of their gold inventory held by their Goldsmith, Golden Chance. It was their golden opportunity to take the company private, and they took it well.
GRAB Holdings(sold)
I have sold my insignificant holdings in GRAB. As you might have seen it on the news, government have approved the CPF contribution to gig workers. The CPF contribution will likely add an extra layer of cost to GRAB. Fortunately for them, the contribution wouldn’t be significant till 2026 as the government will be providing financial support in 2025. The second point I want to make from comparing other digital bank offerings in the market. GRAB without an online retail platform is at a slight disadvantage in offering direct consumer loan. For example, Mari Bank, owned by SEA limited, can offer BNPL on their check-out page for purchases made with Shopee. GRAB having a tire up with an online store will be key to having more channels to offer loan to consumers. The recent trouble at Qoo10 may represent an opportunity for them to acquire an online shopping platform.
GRAB was up for the month, in line with the bullish sentiment in US. If the company can exhibit a clearer path to profitability, I will relook at my assumptions and maybe buy back a more significant amount.
Singapore Post
Market chatter from the Australian business review, the bankers involved in SingPost’s non-core asset divestment submitted information on SingPost’s Australian logistics business to potential suitors. There is no indication of the type of asset sales. Will it be a full sale, a partial sale or an IPO? No information was shared. SingPost’s days as a listed company is likely to be numbered if they decide to sell the whole Aussie business. The Australia business accounts for more than 50% of SingPost’s business. The online paper went as far as predicting the time of the sale to be concluded by the end of this year. I would advise caution on the information given SingPost past record of disappointing the market. Any asset sales should be done with urgency as the window of opportunity is likely to be narrow.
Personally, I also don’t like the fact the company has been beating the “divestment drum” for far too long. Very little was done to divest their non core over the last two years. First, it build on expectations of an asset sale is imminent. What if it doesn’t happened for whatever reasons? The share price get punished for a non-event. Secondly, when one is trying to sell assets, no one goes through a loud hailer announcing that their assets are on sale. Potential buyers will drive a hard bargain to drive down the price of assets. It also affect the morale of the staffs of the affected subsidiary. An asset sale shouldn’t sound desperate. Thirdly, the involvement of too many bankers and deal makers. Last year group review should have incorporated an Australia business review rather than appointing another set of bankers to do a separate Australia review. All those money paid to those dealmakers are substantial figures which came out of shareholders’ pocket. Shareholders should also get a regular update from management regarding the sale of 4px to Cainiao which is long overdue.
SingPost can also work on doing a reorganisation of its workforce in Singapore. It is in my humble view hard to justify the current Singapore headcount. A reducing in C-Suite positions are also necessary. Last count there are 8 C-Suites at the group level excluding the C-suite positions at their Australia unit. One such example, without hurting anyone pride, why do you need a Singapore CEO position where the group CEO is base in Singapore? Can the group or international CEO take up the Singapore portfolio? There are definitely layers of fats at the top level. Just my thoughts as a shareholder. As usual no malice involved. Only a healthy business can supports healthy employment. SingPost has a competent group CEO. He has stabilised the situation at SingPost since he took over the leadership during the worst period in their corporate history, but more could be done to instil confidence among investors, selling SingPost as a different sort of “animal” from the past.
Local revenue had fallen in term of packing order to a low 12% of total revenue. Singapore Post has closed a couple of post offices recently. Is it a sign they have come to their senses of the need to cut fixed costs associated with the post office business? I hope so.
Post office is a dying institution. Very few people walk into a post office to send physical mail. The business will likely get worse. I estimate a cost savings from the closure of each post office operating out of shopping malls to be $1m annually.
I foreshadow two possible outcomes with government adopting the bus contracting model by directly awarding contracts to general postal operators or using the “SPH” method. Where government takes over the current infrastructure of the mail service and runs it under a non-profit trust with public money funding the general mail operation. Either option will be beneficial to SingPost. The discussion with the government on the future of the postal service will likely be concluded by the end of financial year (March 2025). SingPost shares went up more than 8% in Sept. The company will be reporting 1st half earnings on the 6th of Nov.
Wilmar International(sold)
I sold Wilmar due to its underperformance. It is part of my approach to portfolio management of selling the underperformance. With the share underperforming the STI by a wide margin, it will call into question how the share price will perform if STI goes through a huge pullback? Although I am less than satisfied with Wilmar’s performance, the sale does give me plenty of liquidity and a few free lunches were made along with the sale. The other reason for the sale is the continued weakening of the Chinese economy. Given Wilmar having more than half of their business coming from China, I am taking a wait and see approach. After STI massive run up since early August, I thought it might be the right thing to lock in some gains and wait for the bargains to reappear. Lone Wolf Fund walked away with a small gain. Although the sale can be done in a better timing. Just after my sale, the Chinese government unleashed a big stimulus which benefits Chinese play in general. Wilmar was up for the month. Wilmar remains undervalued.
Cash
After the sale of portfolio stocks, the cash level has climbed further to 86% of the portfolio. Cash level has reached the highest point since 2022. As the Fed started to cut rate, deposit rates came down slightly. I am expecting cash yield to decrease over the next few months. I am looking at some saving accounts offered by our digital banks to earn a higher savings rate.
Summary
As we count down to US election in Nov. The market might adopt a wait and see attitude in Oct. We have also seen the normalisation of the yield curve. Will the market be in for a recession just right after the election? I am looking at my own indicators for confirmation. In the meantime, take out your popcorn and enjoy the political prime time of the US election.
As for my personal outlook, we might be close or near an interim peak in the market. Holding 100% cash in my portfolio sometime in the near future is a possibility given this year reasonable performance. Lone Wolf Fund added another 2% this month due to profit taken from Wilmar sale and stronger price action of SingPost. YTD gain stands at 30% (unleveraged returns excluding cash and dividend yield).This market had given Lone Wolf Fund more than 2 years worth of my average return in 2024. One thing for sure, 2025 will be the year I will underperformed my average return due to my conservative outlook. I have to settle for a risk-free return around 2.5% for a period of time next year.
The current US bull market is into its 24th months. The current duration for the bull market is at the upper end of a typical 18-24 months range. I am holding a high level of cash due to my experience with previous bear markets. It is very common to have a 10-20% pull back during a bull market. A bear is always hiding among the bulls, just remember that. It can also be frustrating to see plenty of bargains and not having the capital to undertake an investment in a corrective market.
It is far easier to be a stock guru during a bull market, one shouldn’t get carry away by irrational exuberance. A rising tide lift all boats. Furthermore, the situation in the Middle East is getting out of hands. With the possibility of a wider conflict, oil at current price looks mildly attractive. I have no idea whether I will add an oil play into my portfolio, but we shall see if I can find one. I am willing to tolerate a period of underperforming in order to get a chance of a moonshot. Given the uncertainty surrounding the US election and Middle East, I have consolidated my portfolio into my sole position in SingPost. I hope the company delivers on their asset divestment soon. God bless.
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