Invest in Alibaba Group? High risk, high reward? (Updated on 3 Dec 21.)

A reader left me a comment asking me to talk to myself on Alibaba as an investment but requested that I do not publish the comment.

Apparently, he followed the advice of a local blogger and got it at a share price of $220 and is now very worried especially after reading in the news that Temasek Holdings has started trimming their stake.

Article from The Business Times: HERE. 

The reader told me the name of the blog and because I know the blogger he mentioned, I went and took a look. 

I had to ascertain if the blogger indeed advised his readers to buy into Alibaba.

After looking at the blogs, I do not think the blogger meant to push readers to buy shares of Alibaba but one blog title went "If you have not bought a position in Alibaba, NOW is the right time to do so."

Yes, all 3 letters of the word "now" are in caps.

That was back in July this year and I see why it could easily be interpreted as investment advice to his readers.

I haven't blogged about Alibaba because I don't really have an interest in Chinese companies.

OK, I did mention Alibaba in a blog a couple of months ago in September and if you are interested, read: 

"Investing with some common sense for peace of mind."

I haven't invested in a Chinese company since China Minzhong and readers who have been following my blog for a long time might remember the name.

Newer readers might be interested in this blog: 

"How to make recovering from investment losses easier?"

The blog isn't just about China Minzhong and, so, it should be an interesting read for most.

To the reader who wrote to me about following the blogger and investing in Alibaba, I can only say that all of us should have our own plan and not just ride on someone else's coattail.

The blogger could have vastly different circumstances, risk appetite and even goals compared to his readers.

Without a thorough understanding of the blogger and checking to see that we are wearing the same shoes as him, it would be very hard to stomach paper losses especially big ones.

Why is this so?

Well, it is because we would be going in with only the thought (or dream) of making money.

So, when we lose money instead, we get hit and it could hit very hard for some.

For example, another reader followed a famous local trader and bought into Noble Group a few years ago.

What happened?

See: 

Noble Group will be worth $7.00 a share.

In that blog, I said that if we wanted to own a zhi char store, we must know how to handle a wok.

Rely on someone else to do the work and we are at his mercy.

So, how do we prevent ourselves from getting into a situation like the reader who wrote to me about Alibaba has found himself in?

Of course, some might also be interested on when might be a better time to invest in Alibaba?

Read the blogs which I have linked earlier in this blog and you will have an idea.

Peace of mind is priceless and it is not something to gamble away.

When people say "high risk, high reward," we have to pay more attention to "high risk" and what it means if things go wrong.

Focus on "high reward" instead and money might not be the only thing we lose.

Of course, AK is only talking to himself like the crazy fellow that he is, as usual.

-------

UPDATE: 3rd December 2021.

For those inclined towards Technical Analysis, remember that the trend is our friend.

Don't fight the trend.

I waited for the dust to settle during the last bear market and for share prices to find a bottom before increasing my investment in the local banks.

If I were interested in investing in Alibaba, I would do the same.

Related posts:

1. To retire by 45, have a plan.

2. Investors eat crusty bread with ink slowly for peace of mind.
3. My investment portfolio or investment philosophy?

Spotting the next OSIM?

This is freshly taken from TheFinance's wall in FB. I made a few comments and I think this is substantial enough to share with readers who do not follow me on FB:

I have to go out in a while.

Have a good Sunday, everyone.

Related posts:
Managing exposure in investment portfolio.

How to make recovering from investment losses easier?

Although we might feel quite clever or even smug from time to time, it is good to remind ourselves that we are not infallible and that we make mistakes.

In the same vein, it is quite impossible to make money in all our investments. Sometimes, we lose money. It is only natural. 





Of course, I always say that if we know our motivations for being invested, we will know what to do when thrown into any situation.

However, what if we were to suffer massive losses? 

Is the decision making process going to be any different?

Well, from a principled perspective, it shouldn't be any different. 

If an investment is no longer the investment it was, if it no longer fits our motivation for being invested, then, it should be removed from our portfolio. 

For many, this might be hard to do.

Avoid investing with borrowed funds.

I am assuming that no one likes a hard time. Normally, anyway. It could mean lots of stress, depression and sleepless nights. 

So, how do we avoid situations like this?

This might not be new to regular readers but if I were to distil what I have to say to just two points, they would be:

1. Do not invest more money than what we can afford to lose.

2. Recovery is made easier when we have a war chest ready.




Yes, AK sounds like a broken recorder but when the same things keep popping up, they are probably very important in one way or another and deserve some repeat mention.

Now, some might remember my experience with China Minzhong. 

I was convinced it made a good investment. 

The outcome was a good one but what if things had gone bad instead?

I said, "it might come as a surprise that I am not too affected by the possibility of a total loss if all allegations by Glaucus Research were proven true in due course...

"However, for people who have invested much more than they should have in China Minzhong, this could be a tall order. This is why I have said time and time again that we should always only invest with money we can afford to lose and not more."




For anyone who might not know what I am talking about or who might be interested in the blog post, here is the link: 

China Minzhong: What could happen and what to do?

In a reply to a reader and guest blogger then, I said,

"It is fortunate that I limited my exposure to S-chips to no more than 10% of my portfolio. It is unfortunate the exposure to S-chips at this point in time is in a single stock."

So, what was the worst case scenario then? 

10% of my investment portfolio could have gone down the toilet. 

Painful? Yes. 

Catastrophic? Not really. 

I could probably recover the potential losses in a year, give or take a couple of months and this brings me to the next point.

Losing 10% of all our bananas?

Not investing more money than what we can comfortably lose in the worst case scenario makes it easier to have closure in case things go wrong. 

However, it is my experience that it is easier to have complete closure if we are able to make up for the losses through future gains.

"Remember, we do not have to be 100% invested all the time although it is easy to feel a bit left out or a bit regretful that we are not putting more of our money to work as stock prices climb higher. Now, it might not be a bad thing to have a war chest full of cash and not do anything with it."

See related post #1.




I have had my fair share, maybe more than my fair share, of bad investments in my life as an investor. 

What I have shared in this blog post, distilled really to just 2 points, will hopefully be useful to anyone who is realistic enough to accept that investments can turn bad and how closure does not have to be too hard a process.

Related posts:

1. Revisiting AK's simple strategy with Charlie Munger.

2. Achieving $1 million in retirement funds.
"... without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap! Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime ... "

9M 2013 income from S-REITs and more.

Three more months to the end of the year. Lots of things have happened in the first 9 months of the year. I want to zoom in on the investment front and record some of my thoughts.

The strategy to be invested in S-REITs for income is still working. Of course, with the spectre of the Fed cutting back on QE and a possible increase in interest rates in the next 2 or 3 years, Mr. Market has turned cautious on leveraged investments like S-REITs. This is only natural. Unit prices of S-REITs have become more realistic as a result.

When Mr. Market is pessimistic, that is when we are likely to get good deals. As to what is a good deal, I am sure this is rather subjective. Every person would have a different idea of what is an acceptable margin of safety. Every person would have a different perception of a REIT's prospects.

Having built up a relatively large portfolio of S-REITs, I devoted more resources to investing in what I believe are undervalued stocks, something which I continue to do in 2013.

So, essentially, what I have done is to keep what has worked well for me thus far while expanding my investments in certain companies, recognising possibly more difficult times ahead for S-REITs. 

This is an approach that requires more work than simply getting passive income from S-REITs but the time when it was a no-brainer to buy and hold S-REITs probably ended sometime in the second half of 2012.

For 9M 2013, how much did I receive in passive income from S-REITs? 

$92,872.65

Full year 2013 income from S-REITs is most likely going to be lower compared to 2012 because I sold a significant portion of my investment in LMIR earlier this year and also because Saizen REIT distributes income half yearly (i.e. there is no income distribution in December from Saizen REIT).

Also, we might want to bear in mind that, although hedged, the weaker Indonesian Rupiah and Japanese Yen could result in lower income distributions in S$ terms for unit holders of these REITs in the year 2014.

With twice as much industrial space being scheduled for completion in 2014 and 2015 than any single year in the past decade, the possibility of stagnating or even a reduction in income for industrial S-REITs in future cannot be discounted. This is why looking at WALE (Weighted Average Lease Expiry) of industrial S-REITs is more important now.

Although I would have liked nothing better than to sit back and collect passive income regularly from S-REITs, doing very little else, I decided to move out of my comfort zone. For sure, there were bumps along the way but my efforts have generally been rewarding thus far. 

What did I do?

I increased my investments in stocks which are likely to be dependable passive income generators such as SPH and NeraTel. 

I also hold long positions in stocks which I believe would benefit from the Chinese consumption story such as CapitaMalls Asia, PCRT and Wilmar. 

Any dividend from investing in these stocks and any gain from trading would go towards cushioning the possible decline in income from S-REITs in future.

Up to 15 September 2013, the total gain from trading this year amounts to: 

$188,625.13

It was fortuitous the way the China Minzhong saga turned out. It preserved my trading gains and grew it rather significantly at the same time. Apart from my long position in Wilmar, all other investments are in the black. 

So, what is my plan for the future? 

Nothing profound really. 

If prices were to decline much more, I hope I would be brave enough to buy more. If prices were to rise much more, I hope I would remember to sell some.

The grand scheme is to augment and not to replace my passive income portfolio. 

For sure, it doesn't mean that I think S-REITs are going the way of the Dodo. Indeed, they are still good investments for income at the right prices. For me, passive income from S-REITs will still be an important pillar in achieving financial freedom. This is unlikely to change in the foreseeable future.

Remember, this blog is not meant to instruct but if anyone finds it inspiring, I will be happy enough.

Related posts:
1. 2012 full year income from S-REITs.
2. Never lose money in real estate and S-REITs?
3. Do not love unless it is worth the loving.
4. Motivations and methods in investing.
5. Be cautious climbing the S-REIT tree.
6. Be comfortable with being invested.

China Minzhong: A fully substantiated point by point rebuttal.

Now, we know why it took China Minzhong so long to respond to Glaucus Research. Call me impressionable but the response is rather breath taking. A shock and awe operation almost.

No effort has been spared as a full force encyclopaedic response has been issued:

See:
1. China Minzhong strongly refutes allegations.
2. Annex A to D.
3. Annex G.
4. Annex H to K.

Is China Minzhong's response good enough to restore confidence in Mr. Market?

Glaucus Research could have done the shareholders of China Minzhong's a favour if Mr. Market buys up with a vengeance upon lifting of the trading halt. Anyway, if Glaucus Research has indeed made a colossal boo-boo, they will be scrambling to cover their short position.

Well, I am only talking to myself and I could be bias since I have a long position here.

Related post:
China Minzhong: What could happen and what to do?

China Minzhong: What could happen and what to do?

I received an SMS from a friend that CIMB and Lim & Tan ceased coverage of China Minzhong. I responded by saying that maybe I should do it too. Seems like an easy way out of the mess. If analysts who are paid to do what they do are jumping ship, shouldn't an amateur investor and part time blogger do the same?

On a more serious note, with this event following so closely another event which recently affected a few readers, I am thinking more deeply about the future direction of my blog. ASSI today is not the ASSI from almost four years ago, after all. Blogging is meant to be an enjoyable past time for me but with the rising popularity of my blog, naturally, there will be greater expectations and, with this, greater responsibility, whether I want it or not.

It should not come as a surprise that I have been thinking quite a bit about China Minzhong since yesterday. However, it might come as a surprise that I am not too affected by the possibility of a total loss if all allegations by Glaucus Research were proven true in due course.

I am more affected by the possibility that some readers might have followed my moves to buy into China Minzhong when I did. Well, if they should make money, all well and good, but if they should lose money, then, I would be quite unhappy. This is something that is constantly on my mind now.

I was really thinking of not blogging at least until China Minzhong's management has issued a more substantial response which, hopefully, would be a point by point rebuttal against the allegations made by Glaucus Research. Although some might disagree, I maintain that unless we have heard from both parties, it is too early to conclude anything.

So, what changed my mind and why am I blogging now? Well, as some might guess, I received quite a few emails, comments and messages over this matter. To all the people who have sent me encouraging messages and who have shown concern, my heartfelt thanks. I also received a suggestion that I could share my thoughts on what am I going to do now.

I read some unkind remarks that some have made about people who are invested in China Minzhong and some also made conjectures as to how we might hold demonstrations in Hong Lim Park, asking the government to intervene and, perhaps, even to hold GIC accountable. Well, apart from being unhelpful, these remarks might make affected investors feel worse about the whole matter. I will ignore these people. It is not a productive use of time and energy to engage in a debate with them.

Instead, all who are vested should think of what could happen and what to do.

Obviously, there isn't anything we could do until the trading halt has been lifted and this is unlikely to happen until China Minzhong has issued a more substantial response. There is always a likelihood that the stock could be suspended, pending further investigation. Whether a suspension takes place or not, we might want to make provision in our books for the possibility of a total loss.

Assuming that the stock were not suspended and that trading were to resume, shareholders would have to determine for themselves if they were satisfied with China Minzhong's reply. To stay invested or to divest would depend largely on this.

I will say that even if some of the allegations against China Minzhong should be proven false, this episode would still cast a pall over the stock and might affect its share price negatively. Only if all of the allegations were proven false would China Minzhong live to see the light of day once more.

Of course, there is really no way anyone could tell for sure how things would turn out next. Instead of guessing and losing sleep, the best thing to do is to get on with life and wait for further developments.

However, for people who have invested much more than they should have in China Minzhong, this could be a tall order. This is why I have said time and time again that we should always only invest with money we can afford to lose and not more.

Related post:
Share price plunged by more than 50%!

China Minzhong: Share price plunged by more than 50%!

There are so many unexpected things which happen in life. The drastic plunge of more than 50% in China Minzhong's share price at one point this morning was definitely unexpected.

A quick search online found the probable reason behind the selling:

Glaucus Research Group which is based in California accused China Minzhong of irregularities in its sales figures, involving sales to top two customers, according to "corporate registry records".

Glaucus Research Group said they and their associates have a direct or indirect short position in the company. So, they stand to make money if its share price declines. They probably made a bundle today.

Definitely, I do not know whether the accusations are true and if they should be true, how bad are such irregularities? Since the alleged irregularities involve China Minzhong's top two customers, how significant are the contributions of the top two customers' to China Minzhong's revenue?

It is not hard to then imagine whether all other numbers reported by China Minzhong have irregularities. However, if we think logically, if there should be other irregularities, Glaucus Research Group would have tipped them all out. The more negative the news the better it is for their short position.

Since I do not know what is the total revenue contribution by the top two customers, I will make the extreme assumption that all of China Minzhong's trade receivables go to zero. This would wipe out shareholders' equity by 24%. NAV would then be RMB 5.34 per share or S$ 0.89 per share.

Looking at the year on year improvement in cash flow from operations and how the company is now in a net cash position as well as how it was able to pay down some of its bank loans, I came to the conclusion that the selling this morning was overdone and bought some shares at 52c a piece.

China Minzhong has requested for a trading halt and the company is due to release full year results on Thursday (29 August). Let us see what happens next.

See: 3Q FY2013 presentation.

China Minzhong: Increased long position at $1.065.

The last time I sold shares of China Minzhong's was at $1.185 a share.  Since then, I added to my long position twice at $0.97 and $1.025. Today, I added to my long position again at $1.065.

Technically, even though there is some volatility in the share price, the MACD is supportive as a higher low was formed even as a lower low in price was seen. Another higher low in the MACD would mean that momentum is relatively strong.

$1.055 seems to be the immediate support which is being reinforced by the rising 50d MA. The 100d MA seems to be flattening at $1.065. Of course, there exists a chance that the 200d MA might once again be tested and it now approximates $0.995. I am willing to hazard a guess that it would bring out the buyers if it should happen.

Apart from the technical picture, why am I willing to buy at $1.065 today? Well, quite simply, I believe that China Minzhong's share price is relatively cheap. Its stock is undervalued even at $1.065. With a NAV/share of RMB7.00 or S$1.47, the stock is currently trading at a 27.5% discount to its book value. At $1.065 a share, if we could simply repeat the last quarter's EPS, we are looking at a PER of some 3.44x for 2013. This is hardly expensive even after taking into account that the PERs of companies in the business of farming seem to be rather low.

On 13 May 2013, I said that China Minzhong reported what I thought to be a good set of numbers. Both revenue and net profit were up. What was also really impressive was the 260.5% increase in cash flow from operation for the first 9 months, year on year. The company is now effectively in a net cash position.

What is the free cash flow? This is what many value investors would say is generally more important than earnings. It is harder to fake cash flow but easier to fake earnings.

For the first 9 months, China Minzhong generated a free cash flow of some RMB 299.9 million. This is about S$ 62.98 million. We will have to wait for its 4Q results to see if this goes up or reduces. As there are about 653 million shares in issue, it means that there is already a FCF of about S$ 0.096 per share.

There is intention to pay a dividend in 2013 and with FCF positive, there is a good chance of this happening. The practice of paying an annual dividend could also become a standard because of Indofood which has an almost 30% stake in China Minzhong. Indofood pays out 40% of its earnings as dividends consistently, according to sources.

With China Minzhong's full year earnings possibly at S$ 0.30 per share, a 40% pay out is equivalent to S$ 0.12. Even if FCF bumps up proportionally in the 4Q, this is unlikely to happen as China Minzhong still needs to fund growth initiatives.

I would be quite happy if China Minzhong is able to provide a 5% dividend yield which will move the investment from the growth category to the income and growth category in my portfolio. Based on today's price of $1.065, it would require a DPS of $0.053. Possible?

Well, this could be wishful thinking. I will just have to wait and see.

Related posts:
1. China Minzhong: Good results and long black candle.
2. Tea with Mark Mobius: Focus on long term goals.

Tea with Mark Mobius: Focus on long term goals.

Mark Mobius, chairman of Templeton Emerging Markets, says as the Fed tapers QE and eventually raises rates, volatility will probably increase, but investors should keep focused on long term goals instead of trying to time the market.

"We are telling our investors to sit back, relax and ride it out."

Templeton is also a substantial shareholder of China Minzhong with a stake in excess of 11%.

Related posts:
1. Be comfortable with being invested.
2. China Minzhong: Looking into the TA crystal ball.

China Minzhong: Looking into the TA crystal ball.

I like China Minzhong's business and I like its prospects. I still have about a third of my original investment in the company which I paid about 58c a share for, having sold the rest for rather attractive capital gains.

In May this year, I increased slightly my exposure to the stock as its share price pulled back to $1.025 and $0.97 per share. The positive divergence between price and MACD has played out and the downtrend has been broken. Currently, the stock trades at $1.12 per share.

Based on Fibo lines, there is resistance at $1.13 and there needs to be a big push up on the back of higher volume to break this barrier. Otherwise, a pulling back to $1.05 or even $0.99 would not surprise me.

I am wondering if we could see the formation of a reverse head and shoulders pattern here which could be part of a bigger bowl formation. Ok, perhaps a saucer formation.

This could pan out to be a very nice trading opportunity. Pardon the pun.

Related post:
China Minzhong: Long black candle on good results.

China Minzhong: Good results produced long black candle!

Share price of China Minzhong opened higher at $1.11 and touched $1.12 today before closing much lower at the end of the day at $1.025.

Why has Mr. Market turned bearish on China Minzhong? Did the company report dismal results? No, on the contrary, results although not stellar are pretty encouraging.

China Minzhong actually saw a 5.9% increase in net profit to RMB 255 m for 3Q FY2013. This was on the back of higher revenue which increased by 27.7% to RMB 962.2 m.

Both cultivated and processed vegetables segments did well. Driven by growing domestic demand, the former's revenue improved 36%, year on year, while, driven by export demand, the latter's revenue improved 22%. Revenue from other processed products improved some 51.5%, reflecting strong demand for China Minzhong's branded products which include beverages.

What do all these tell me? The business is growing rather nicely. Then, why is Mr. Market selling down the stock? I have no idea and it really doesn't bother me. What matters is what I am going to do and I am definitely not selling.

With lowering share price, valuation is becoming cheaper. Do I want to sell something cheap? Or would I rather buy something cheap?

Technically, however, a long black candle, an engulfing one in this case, no less, is very bearish. We could see share price declining even more as I have little doubt that this could have brought out the shortists amongst us.

It would, therefore, not surprise me if the recent low of 96.5c should be retested if the gap covers at $1.005. Immediate support is provided by the 20d MA at $1.025.

Of course, we don't want to catch a falling knife. Even if we believe that fundamentals are good, to wait and see could be a better thing to do now. What am I waiting to see?

See if price should retest 96.5c. See if volume dries up as price goes lower. See if the momentum oscillators form higher lows especially if price should form a lower low.

Cheap could get cheaper and I am sure everyone likes to buy a good stock cheaper. However, there is nothing wrong with buying cheap and buying again even cheaper later on (or is there)?

See China Minzhong's 3Q FY2013 results: here.

You might also be interested in these blog posts:
1. China Minzhong: Bought more at $1.025.
2. How to tell if a company is a potential takeover target?
3. Teach yourself fundamental and technical analysis.

How to tell if a company is a potential takeover target?

Sometimes, we see companies being taken over and, many times, at a huge premium. Have you wondered how takeover targets are determined?

Well, quantitatively, one way to determine if a company has the potential to be a takeover target is to look at its Enterprise Multiple. This is a financial ratio that is arrived at by dividing Enterprise Value by EBITDA (earnings before interest, taxes, depreciation and amortisation).

So, to understand Enterprise Multiple, we have to understand Enterprise Value and EBITDA.

Enterprise Value is the company's market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. This is a more accurate takeover valuation than just looking at the company's market capitalisation.

EBITDA is used to evaluate profitability of a company. EBIT looks at operating profits and EBITDA looks at earnings before any accounting or financing adjustments come into the picture.

Put Enterprise Value over EBITDA and we get a ratio. The lower the ratio, the more attractive the company is as a takeover target because a lower ratio suggests that the company's valuation is cheaper.

Of course, each industry has its own norms. So, a low Enterprise Multiple does not make a company a more attractive takeover target if every company in the industry has the same low ratio. If, however, a company has a much lower Enterprise Multiple than its peers, then, it is probably an attractive takeover target.

See the Enterprise Multiple of China Minzhong: here.
See the Enterprise Multiple of ASL Marine, Marco Polo Marine and Jaya Holdings: here.

The above links bring us to a service provided by "Infinancial Analytics" which I discovered quite by accident. I wish to draw readers' attention to the section on "About Market Valuation" at the bottom of the pages.

Although useful, EV/EBITDA is only one approach in valuing a company and shouldn't be the be all and end all.

Related posts:
1. China Minzhong: New substantial shareholder.
2. Marco Polo Marine: A neglected gem.
3. Recommended books for FA.

China Minzhong: Bought more at $1.025.

By end of February, I had divested a big part of my investment in China Minzhong, locking in some sizeable gains. The remaining shares which I am holding are from a purchase made in June 2012 at under 60c a share. I can say that these shares are free of cost as the gains from the partial divestments are enough to cover their cost.

If the share price of China Minzhong had continued rising, I would have been quite happy to simply hold on to my remaining investment until a time when I feel valuations are no longer cheap.

However, as all of us know, prices do not go up in a straight line and will climb a wall of worries. So, if there should be pull backs or corrections, I would be quite happy to add to my long position.

Some might say that China Minzhong is now in a downtrend and that it is risky to add to our long positions. So, we should instead short the stock. There is perhaps some truth in this but I would argue that the uptrend which started in early August 2012 is very much intact, that the share price is now merely retracing to a longer term trendline support.

Of course, no one can tell if the share price has bottomed until it has happened. So, why not wait for more clarity before buying more? Shouldn't we wait for the dust to settle?

Indeed, the safer thing to do is to wait for the dust to settle and take action when we can see clearly. However, when everyone could see clearly, it could be too late. So, I am taking a chance here by buying more at $1.025 when I feel that the dust is not fully settled.

Not fully settled? Well, the longer term trendline support will be at $1.00 some one month from now. So, in the meantime, there is some room for volatility and I would not be surprised to see share price dip under a dollar in the next few weeks even. What would I do then? Buy more.

Why am I so confident? I see higher lows in the Chaikin Money Flow as share price formed lower lows. This positive divergence suggests to me that smart money is flowing back into the stock even as share price declines.

This observation suggests to me that although we could see more downside, it could be limited. Even if we do not see a big upward movement in share price in the near future, it could be rewarding in the longer run to buy in now.

Related post:
China Minzhong: Going higher?

China Minzhong: Sharply up! Going higher?

Mr. Market certainly likes the news that Indofood has become a substantial shareholder of China Minzhong. Like a child on a sugar high, its share price rushed upwards today.

I did another partial divestment as share price closed the gap at $1.20. This tranche which was divested had shares which were purchased in June last year at 55.5c a piece. So, the ROI is pretty high.

Together with the tranche of shares I divested last month, I have in total sold about 60% of my investment in China Minzhong. With the gains from these divestments, it also means that my remaining investment in China Minzhong is "free".

Will China Minzhong's share price continue to rise tomorrow? Only Mr. Market has the answer.

If share price should progress higher, watch those golden ratios.

138.2% is at $1.30.

150% is at $1.37.

161.8% is at $1.435.

Related posts:
1. China Minzhong: Indofood is a new substantial shareholder.
2. China Minzhong: 2Q FY2013 stellar results.

China Minzhong: Indofood is a new substantial shareholder.

The reason for China Minzhong's trading halt in the last session has been published.

Indofood is paying 91.5c per share to take up a 14.95% stake in China Minzhong. Indofood is, of course, a leading food producer in Indonesia and some of us are familiar with their instant noodles in Singapore.

This surprise development is strongly positive for China Minzhong as they receive funds for further expansion of industrial farming facilities which will raise productivity and lower costs, making them more competitive. Industrial farming also means greater accountability and ease of audit which in turn should raise investor confidence.

There is also expected synergies between Indofood and China Minzhong, both established food companies in their respective countries of Indonesia and China which have huge populations which, of course, have to be fed.

However, before we send in the lion dancers and drums, Indofood is buying into China Minzhong through the purchase of new shares to be issued. So, unlike what happened in December last year when Olympus Capital Holdings sold its 10.3% stake for 80c a piece to various institutional funds and HNWIs, Indofood's buying into China Minzhong is dilutive for current shareholders.

The new shares which are being issued at a discount of about 10% from market price will water down the valuation of China Minzhong's shares by about 13%. On a per share basis, everything else remaining constant, we would see a lower EPS and a higher PER, for instance.

So, from a valuation perspective, if Mr. Market should go into protest mode on Monday and sell China Minzhong's shares at 90c a piece next week, it is actually not any cheaper than buying the shares at $1.03 this week.

If Mr. Market should go into a buying frenzy because of this development and push the share price to gap close at $1.20 per share, we should note that $1.20 is actually the old $1.38 from a valuation perspective. So, if we had a target price of $1.38 to sell, we should sell at the gap close of $1.20.

Of course, if we believe that this tie up will add fuel to the growth trajectory of China Minzhong, then, a higher PER becomes more acceptable. If Mr. Market believes this, it will be reflected in a much higher share price.

Unfortunately, there is no way to tell in which direction and by how much share price would move. We can only tell what this latest development means for the valuation of the stock.

See press release: here.

Related post:
China Minzhong: 2Q FY2013 stellar results.

China Minzhong: 2Q FY2013 stellar results.

There is a slight slippage in gross profit margins and I do mean slight but the rest looks good:

For the 6 months ended 31 Dec 2012:

Revenue improved 45.7% y-o-y

Gross profit improved 19.9% y-o-y

Gross profit margin is at 33.9%

Net profit margin is at 22.9%


Within a 6 months period, the balance sheet of the company has also strengthened with cash and bank balances increasing by 642.6% from RMB 66.2 million to RMB 491.6 million.

NAV per share improved 9.5% to RMB 7.05.

The improvement in its cash position is directly related to an improvement in cash flow from operations which increased 336.2% for the 6 months ended 31 Dec 2012, year on year.

I am still concerned about the TR which although reduced by 5.5% is still a hefty RMB 913.9 million. Out of this, RMB 158 million are overdue.

Overall, however, the results should please shareholders.

Could another round of re-rating upwards be on the cards?

See presentation slides: here.

Related posts:
1. China Minzhong: Share price to go higher.
2. China Minzhong: Partial divestment at $1.01.
3. China Minzhong: Going higher to $1.22 to $1.46.

Sound Global and China Minzhong: Retracing.

Sound Global is going through a low volume pull back now but with the CMF negative and forming a lower low, I was probably too hasty in adding to my long position today at 66c.

Let us see if 64.5c is tested next. I have an inkling that a very strong support is at 61.5c, the many times tested resistance in the middle of 2012. 

59.5c would be an even stronger support as that is also where we find the 100w MA. In the short term, there could be further weakness but in the longer term, I see strength.

China Minzhong is taking a breather too. Immediate support is at 96.5c. If that should go, the next support is at 87.5c.

Related posts:
1. Sound Global: Another resistance level broken.
2. China Minzhong: Partial divestment at $1.01.

China Minzhong: Going higher to $1.22 - $1.46!

I received an email and a very interesting chart on China Minzhong from a reader, RayNg, this evening.

See what he had to say:

Historically, Mr. Market paid ~10X PER during the first 2 years of IPO. It went down south due to EU crisis and bearish outlook of China economy. I think the main concern is its high account receivable (double from fy11).

However, the fy13, its account receivable and cashflow is back to norm and this might ease investors’ concern.

CMZ’s current PE is ~ 4X (base on EPS of 0.244). If Mr. Market is willing to pay 5X or 6X, then its potential share price will be $1.22 and $1.46, respectively. I think this is possible because China has bottomed out and is in recovery phase. In fact, looking at past 3Q/fy13 result, I believe its EPS will be > 0.244.

I bought some shares during the consolidation period (Jun-Aug 2012) when the price was ranging around 55-65c. That was the time when the PE was ~3X. The reason I bought this counter is because it has good fundamentals, low PE with high ROE, strong balance sheet (retain earning) and low gearing ratio. Still holding.

Yes, I do have some concern on S-chips as most people are very scared of S-chips.

So, let us see if Mr. market is willing to pay 5-6X PER for China Minzhong's shares.

RayNg

Related post:
China Minzhong: Breakout or fake out?

China Minzhong: Breakout or fake out?

There was a bit of excitement in the price action of China Minzhong towards the end of the day. It broke the long term resistance provided by the declining 100w MA to touch a high of $1.05.

Daily chart.

However, volume was lower than the day before and without higher volume, share price closed at $1.025 or just one bid under the long term resistance. A long legged white spinning top was formed in the process, suggesting that bulls and bears are evenly matched.

Weekly chart.

With three more sessions to go this week, we could see a new high in China Minzhong's share price if volume expands while it continues to push higher.

That volume was lower suggests that many are waiting on the sides to see who would win the tug of war.

A convincing break above resistance would invite a mad rush from the bulls. An obvious decline would invite a mad rush from the bears.

Which camp do you think I am in?

Related post:
China Minzhong: Partial divestment at $1.01.

China Minzhong: Partial divestment at $1.01.

My sell order for China Minzhong at $1.01 was filled today. I retained some 50% of my investment in the company in case resistance should break which would send share price higher.

There is always a chance of a retracement in share price to supports. So, locking in some gains at resistance frees up resources for me to take advantage of any such retracement if it should happen.

Whether share price should rise or fall, I have a plan in place and could potentially benefit either way.

With 99c resistance broken, the declining 100w MA which approximates $1.03 is the immediate resistance to watch. Being a long term MA, the 100w MA is likely to be a tough nut to crack in the shorter term.

If I were to hazard a guess, I would say the 100w MA could force share price lower. In such an instance, share price could decline to as low as 80c which is where we find a flattening 50w MA. 80c is some 20% lower than where we are now.

However, in the event that resistance provided by the 100w MA is broken, Mr. Market is likely to become quite euphoric and we could see the gap formed in September 2011 covered at $1.20 eventually in such a case.

Since risk and reward analysis gives me a 50/50 chance either way, divesting 50% of my investment seems like a logical thing to do.

Related post:
China Minzhong: Share price to go higher.