Jan 19 – An Investment Update

I purchased S$70k worth of Swiber (SGX:BKG) lately. I held it for a week before I decided to dispose it for a small profit of $100 thereabouts. The moment I spotted poison in my stock, there was no hesitation. It was a good learning lesson. For me, I want to fail as many times as I can so that when I manage bigger assets, I will do so with wider eyes.

I first decided to purchase it due to

1. low P/B
2. Gain from disposal of Kruez
3. Paper gain from Vallianz

However, after further digging, I saw that it was burning up a lot of cash in the area of “Cash Used in Operating Activities” and a majority of its assets are in “Trade Receivables”. In their Trade Receivable analysis portion, a lot of them are due but not impaired. It is dangerous.  It also had a debt ratio of 68%. I don’t foresee them having a competitive edge over its competitors in terms of their capabilities. Swiber is very alike to Ezra Holdings – both of their businesses are capital intensive. Moving forward, I don’t think Mr. market would value such businesses well. This could partially explain the discount seen in P/B.

This shows that to value a company based on Price to Book could be a heavy mistake. End of the day, cash flow still needs to come in. When I am wrong, I take swift actions or else mistakes will compound and its cancerous cells will damage the health of the entire portfolio.

When I am wrong, I take swift actions or else mistakes will compound and its cancerous cells will damage the health of the entire portfolio. No hesitation.

I had switched my interest back to Penguin International since then. I looked into it since it was a 11 cents stock with great enthusiasm. It had a NAV of 15cts then, and the trailing EPS made Penguin a good bargain. Keppel and SembCorp owned shares in it as well. Our Singapore Army uses Penguin ferries to bring our Army boys to and fro Pulau Tekong.

I particularly liked how the annual report was written, the words are earnest.

To watch some of their videos, click here.

Merits of Investment:

1. newer innovation such as faster speed and green fuel boats
2. able to build boats within time frame of 6 months
3. upward trend in the cyclical industry
4. NPM of 12% compared to Swiber’s 6%
5. Ability to generate positive cash flow.
6. Debt of 34%
7. Trailing EPS vs Price , P/E of 7.

After investing for certain months, I do understand that despite a low P/B, it doesn’t mean the company is good. The health of the company is very important, in this case, Penguin is superior. I switched from an Engineering, Procurement, Installation and Construction (EPIC) company to a safer company.

I shall let time decide whether I’ve made the right choice, though.