Wolf Money(Portfolio update for end Feb 2025) part 2
Lone Wolf Fund(LWF)
Portfolio as at end of Feb 2025
1.) Cash
2.) Delfi Ltd
Commentary
The market can’t pass another month without Trump showing his trump card, playing his triumphant trumping tariff trumpet. Even his closest allies got an earful. All these trumpeting might turn out to be trumpery. The tariff is likely to slowdown the US economy. Companies affected by higher import prices will start sounding the profit warning alarm as soon as the April to June quarter. It depends on the magnitude of the profit warning storm. Market might have trouble reaching new highs if profit warnings and consumer sentiment failed to hold. The US has a trade surplus with Singapore. Should we impose a reciprocal tariff on the US too? Just saying 🙃 . The cutting of government spending and jobs are deflationary. At the same time, it continues to be a tough balancing act for Trump to impose tariffs which in nature are inflationary.
As for the Singapore market. MAS review fired the first shot of reviving our stock market. The tax incentives to encourage listing wouldn’t be enough without first solving the liquidity issue that has plagued our market for the past decade. I appreciate the initial response. I hope more can be done. The second set of measures after the first were more impactful. There were changes to composition on the type of investments a qualified GIP under family office scheme can invest. MAS is nudging the family offices to invest directly in our stock market. It is a game changer. It creates the liquidity our stock market badly needs especially in those small and mid-cap companies that are not in most investors’ radar. Let me encourage MAS to do more by doubling the fund to $10b from the $5b proposed. A striving market can be good for our domestic economy.
Lone Wolf Fund’s sluggish start to the year continues. The portfolio seemed to be gaining traction in the middle of the month until results of Wilmar and Genting Singapore were reported. It was a mixed bag. I was rubbing my hands with a gleam until the results sent my enthusiasm back to earth.
Wilmar continues to struggle for earnings growth. Genting shows encouraging signs of recovery in 4Q. The rolling out of new attractions in 2025 is likely to attract more tourists to Resorts World Sentosa. As for Wilmar, I have given up on trying to analyse their profit. Their earnings are all over the place. LWF put on a 1.5% gain this month with YTD returns stand at minus 0.5%(excluding dividends and cash yield). This month’s gains were help by Wilmar. There are some movements in the “in” department where a small test case purchase of Delfi was made.
Genting Singapore
Shares of Genting SP was unchanged in Feb(plus 1 day). Genting Singapore reported a 5% drop in profit for the period year ending Dec 2024. Q4 shows a good turnaround with gaming revenue going up 26% due to better win rates. The company is proposing a final dividend of 2c, bringing the total dividend to 4c for the year. Dividends will be paid towards the end of May. The company continues to accumulate cash in their latest financial result. With the opening of Minion Land this month and the strong tourist numbers coming to Singapore in January 2025. Tourist numbers were up close to 15% year-on-year. More Chinese tourist avoiding Thailand might have a spillover for Singapore in Feb. I am hopeful of a good 1Q 25. There were news of the company firming up the opening dates for their luxury hotel and Sea Oceanium in Q3. Tourists visiting RWS are likely to increase this year.
Wilmar International
Wilmar International’s net profit was down 23.3% to USD $1.17b in FY2024. The bigger percentage drop was due to a USD $231m ex.gain from the sale of their Moroccan unit during last year results. The drop in full-year net profit was around 10% if gains were excluded. The company is proposing a cash dividend of SGD 10c per share to be paid in the middle of May. Mr. Kuok remains optimistic and confident of producing satisfactory results in 2025. The gearing ratio went up to 0.94x. The company attributed it to the company stocking up for the Chinese New Year which came earlier than usual. I will be looking at the next q result to see if the gearing is short term in nature. As I mentioned in the past, the company should consider undertaking a strategic review with an eye of creating shareholders’ value. Selling of non-core business or assets could help reduce gearing. Even though the company mentions debts were mostly trade financing due to the purchase of commodities. I still believe that even if the management is comfortable with the borrowing, they shouldn’t be oblivious to how the market feels about the seemingly high gearing. With STI breaking new highs, Wilmar is still trading at decade-low valuation. Can one of the reason be the high gearing ratio? Maybe.
Some self-help measures are critical. Btw, the 1c cut in dividend did nothing to inspire confidence. The cut to save $63m is difficult to fathom given the amount is small in the grand scheme of things. Wilmar’s finance cost alone in 2024 amounted to $1.2b. Cutting borrowing to save on interest cost makes more sense to me. The stock is trading in excess of a 5% dividend. Chairman bought millions in Wilmar’s shares after the result with ID George Yeo joining in with his purchase. Wilmar’s share was up about 5% in Feb (plus 1 day).
Delfi Ltd
Delfi Ltd reported a 27% drop in net profit to USD $33m for FY2024. The previously communicated challenges of high cocoa price and USD vs IDR having an ongoing impact on profitability. The company mentioned they are gaining market share in their home market and sales momentum in the first few months of the years looks strong, but it did sound a word of caution on the continued challenges facing the industry. In my observation, the high cocoa price and strong usd are having a negative impact on the company. Any reversal of those two factors will be helpful to Delfi’s bottomline. The business, as far as I am concern, is not suffering from a permanent decline. With a market share exceeding 40% in Indonesia, it does create a strong moat for the company. To be fair, they are not the only chocolate companies suffering from high cocoa prices. Hershey and Mondelez, both American chocolate giants, did warn about high cocoa prices having an impact on this year’s profits. Cocoa prices had fallen by more than 30% since the highs it reached in Dec last year.
Delfi do have a cost advantage as their factories are located in Indonesia and the Philippines respectively. Production is likely to be lower than imported chocolate. They also sourced the majority of their cocoa beans from Indonesian suppliers. Indonesia produces 650,000 mt of cocoa beans a year. Other ways of lowering input costs is to introduce chocolate treats with less cocoa content. I have no idea how cocoa and USD are going to fare in the next few weeks or even months. Given the historically high cocoa bean prices, one would expect some hardworking West African farmers working their socks off to meet the demand. Maybe proactively replying shareholder’s email will be a good starting point to drum up more interest in the company. Delfi remains a test case. At this juncture, I have no preconceived ideas on whether to increase, hold or sell the share. I will let the market guide my decision.
Summary
I continue to be steadfast with my investment decisions even though I had plenty of chances to make a quick profit in some of my holdings. I avoid those companies that export or rely heavily on US market for their revenues.
The recent measures to increase our stock market vibrancy reopened an opportunity in the small and mid-cap space, but be very careful: not all companies are created equally. A poorly managed company will continue its downward drift. Only those companies with good fundamentals will be triumphant . God Bless. 🙏
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