$Delong(BQO.SI) now, for those who do not have idea why this company has risen furiously in such a short time, let me explain.
1. The company is run by a very reputable person- Ding Liguo, his track records speak for themselves. He is Ma Yun in steel industry. a philosophical visionary.
2. I cant find a company which has higher profit margin than delong. it probably has the most efficient operation in whole industry. the company also has set the new standard of managing inventory that alot of its competitors follows.
3. china has force many steel factory to shut their doors. and reduce their output by half this winter. which will result steel price shot up and ore price go down. and infrastructure spending is rising due to various development including one belt one road. which makes me think steel is on uptrend for foreseeable future.
4. many big steel state own companies are looking for acquisition and merger. it is encouraged by china government for supply side reform.
5. it also probably has the top environmental standard in whole industry as reported in many china newspapers. which government will love.
6. you can invest in those opportunities only if you willing to buy the company's share whose price was(is?) lower than its cash per share.( last i check it was around 3.6 ) not including other liquid assets.
7. there are some chart reader or shorties who keep giving the buyers money.

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11 likes 12 comments
opy

Noticed high debt/equity ratio (sgx web), any concern on this?

Opportunistic_Investor

so my big qn is. how come they only gotten attention till recently.

vincentwong10

Reply to @Opportunistic_Investor : 1. less information, or... information in mandarin
2. s-chip eww effect
3. steel/ore price
4. institutional fund cant enter this due to illiquidity and regulations

market is mostly efficient especially in mainboard. but you can make money when you spot the inefficiency ;)

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opy

Last saw Delong at 40 cents... now $4!!! Sia! Sounds like bitcoin to me!

weekee0

Reply to @Opportunistic_Investor : Go check yourself if u still able to find their px record lol

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vincentwong10

Reply to @weekee0 : who knows? might go down. price is only what you pay, value is what you get.

Revision History


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$AEM(AWX.SI) $Delong(BQO.SI)

Portfolio update
Sold AEM at 5.35

70.9% Delong
28.99% Cash

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Expiry:
Target Price
$76.0
(+1874.03%)
NOW:

After a boost of confidence by @humayunmohamme
like him I'm rising my target price to $76 as well!!
#LifeIsChiong

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$AEM(AWX.SI) $Delong(BQO.SI)

disclaimer: I'm not professional finance advisor so don't believe everything I wrote.

Hey guys, last week good thing happened to my portfolio which is good. My fight against poverty has certainly advanced. In a good mood I decided to write in investingnote again. XD

I intended to reveal my portfolio on regular basis and calculate and conclude the performance on a yearly basis. In addition, I would like to write down my investing method and principle not only to share but to remind myself to follow them(To prevent myself from doing silly thing.).

Just sold AusGroup because its profit margin is thin and it has some risk there before they pay their huge debt maturity in FY19. Therefore the margin of safety at current price is not comparable to what I bought about a month ago.

AEM is still undervalue in my opinion despite the strong rally past few days. The reason is I believe the market is still pricing the company based on the profit generate by HDMT's machine. I however view it bit differently. I think that each machine the company deliver to Intel, they are creating a cash flow machine for themselves. There are 3 reasons why, they are

1)Most of the profit per HDMT sold is going to come from recurring consumables(kits, spares and services) which have higher profit margin.

2)Most of the profit per HDMT sold is going to come from recurring consumables(kits, spares and services) which have higher profit margin.

3)See 1) and 2)

Hopefully the sales orders they stated for this year does not include those consumables. Nevertheless, as they are still ramping up their HTMD production for intel, I think that they will have strong cash flow in the future as the consumables sales slowly build up at the same time.
Intel recently has some problem but I think that HTMD is cost cutting tool instead of some sort of investment, so I think they orders should be fine in foreseeable future.
AEM is very likely to go down because of profit taking, but it is not my game to time it and I hope I'm smart enough not to take profit trying to time the market.

Delong is a vastly undervalue company I think in the long term it is very likely to deliver huge performance.(Long term=3-5 years for me). I once hope that management will give out dividend soon so that market will recognise its value sooner but I've changed my mind. I hope they use the money instead for M&A.
Let me explain the economic and political background advantages first that makes this company attractive before valuation.

http://www.gov.cn/zhengce/content/2016-02/...
Above link is the original policy documents that are in Chinese. One of the original resource.
To makes things easy for you to read, I’m sending another link for the report on china steel sector by DBS bank.
https://www.dbs.com.sg/treasures/templated...

You could download the full report at the end of the webpage. It is really worth reading if you own a steel company.

To make the long story short,

1. China government has effectively and strictly been eliminating IFF steel and cut more capacity than planned. Yes, they really being ruthless and strict this time.

2. They also emphasise that they will do everything to stop capacity to rise again. (I read some news that indicate they will even use satellite to monitor the mills.)

3. They will further eliminate the inefficient and technical sub par steel mill after they are done with those dirty steel mills.

4. They wish to stabilise the industry by enhancing industrial concentration through M&A. They would like to increase the market share of the top 10 biggest steel producer from 35% in 2015 to 60% in 2025. News says they will put in some new policies and test it out in 2018 to encourage and incentives the steel mills to merge.

In my opinion, the China’s government effectively pushing the steel price up globally and at the same time not making the cost of producing steel go up at the same pace. As a result, China steel mills in 2017 enjoy a profitable year although they are still struggling with their debt. (huge debt.)

The efficient and environmental friendly steel companies will slowly take over the less efficient one. The strict environmental policies and stricter bank lending is disadvantage to some but advantage for the few. You only find out who is swimming naked when the tide goes out, those who are wearing nice swimsuit will flex their muscle while other try to find cover.

The consolidation will benefit the whole industry, as the supply, efficiency, and quality of the steel is controlled. One belt one road will open up a lot more opportunities for China’s steel company to expand oversea in continents like Africa, South East Asia, and Middle East if they can deal with their debt in China.

Now, what if I tell you that there is a steel company that is well known among the steel industry in China for its efficiency(2017 industry net profit 4% vs Delong’s 11%. Latest quarter pretax operating margin actually is 23.97%).
and highly regard as one of the best environmental friendly steel mill.(The steel mill receive AAA tourism rating from province government.) The management and owner who is respected and reputable in China.(Ding LiGuo). Recently I saw an article from the Edge in which the Evraz's CEO said that the company fair value is between 4-5 billons USD... for now...

Thank you for the patient to read this far, hahaa
Performance
I started investing almost 2 years ago(march 2016) with almost half of my salary put into my portfolio every month. buying only one stock at that time - Best World. Lazy to calculate the average return each year(will do so in future) so I will just calculate return on invested capital for 2 years. In addition, I will use S&P 500(which is better than STI) as yardstick. and I lazy to calculate dividend, will do so in the future. Lastly I obviously can't show you the evidence so it is ok if you choose not to believe me.

Compounded return of my portfolio since March 2016 = 223.23%(excluding dividend)
Compounded return of s&p since March 2016 = 40.88% (excluding dividend)

I have luckily done well and I regard this as extraordinary and certainly do not expect it to perform at the same rate. the way i structure my portfolio might make me underperform during bull market and hugely underperform during bear market against SP500. However, I believe that in longer term(probably 3 years). I will perform better than average.

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$Delong(BQO.SI) $AusGroup(5GJ.SI) $AEM(AWX.SI) (60%,16%24% of my portfolio respectively)
although I am still owing the same companies as yesterday but today their price is kinda different...
buying a red wine from fair price to cerebrate and pat my own shoulder.....

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$Delong(BQO.SI) Disclaimer: Since I'm not your financial advisor, don't believe everything I write. do your own research and take your own risk.

HISTORY

Warren Buffett once said that he knew what company he could potentially buy at the first 5 mins of reading the 10-K.
Looking at the balance sheet back then. I actually got the same feeling. And now the balance sheet is even stronger.
here are some valuation metrics:

Cash per share = SGD8
*cash and cash equivalents+
Bank balances pledged+
Held for Trading investment(cash placed with financial institutions for 3%interest rate per annum)

Net Assets per share = SGD8.2

It kinda looked like 2 years ago when I bought $Best World(CGN.SI) at SGD0.30 before share split, it was a debt-free company growing at 300% earnings with cash per share of SGD0.15. However, Delong has debt and it is a S-chip(worse that it is a steel company).
Since It is so undervalued I decided to look at its history and management which are fantastic. A young entrepreneur started with nothing, buy and turned a near bankrupt steel producer into biggest tax payer in its province in less than a year before he built it a China 500 company. Efficiency in operation is excellent. is more environmental friendly than all of its competitors.(so good that government actually rated the steel factory an AAA tourist attraction's certification.)
It invested heavily on technology enhancement during the past decade and now couple with historical high steel price it is at pivotal point of the company. It is deleveraging its balance sheet very rapidly and Delong is reaping the award for the years of hard work on green initiatives while his competitors are trying to catch up.

Result show China is very serious about steel capacity cut. there are trillions of debts in the industry. and government know they have to implement a strict supply side reform in order to
1)slowly deleverage
2)cut pollution
3)ease international pressure(from steel dumping accusations)

Risk comes from not knowing what you are doing.
Therefore I decided to study more about steel industry. I chose to read Big Steel: Technology, Trade, and Survival in a Global Market.
read a dozens of World Steel Association and Mckinsey &co's articles to get a better understanding of the metal world. I think the price of steel will be much stable than past. so I actually bought it.

PRESENT

Financial metrics are good!
Gross margin = 23.97% prior = 15%
supported by steel price and operation improvement

one thing to note that this quarter earning is actually boosted by one off gain of government compensation for shutting down Aoyu.
it is good but in order to make it a earning guidance in the future. I decided to "remove" it. so

Pretax Earning before one off gain = 624909000cny
(pretax)Operating margin = 20.88% prior = 10%

meaningless to take 4Q2016 to calculate trailing PE. Because there's Impairment charge of 600000000cny by closing down Aoyu. for those familiar with accounting, we can safely omit it since it no longer has any impact on balance sheet. and quarter 4Q2016 earning without the impairment charges = 198137000cny

FUTURE

They are demanded to cut production by half in winter season. So

Assuming sales is cut by half(624909000/2)

and steel and price drop to near historical low with hot rolled coil around 2800 and cold rolled coil around 3300 like 3Q2016. Assuming operating efficiency drop somehow plus finance cost increase for some reason. (pretax operating margin of 3Q2016- 10%)

183351450cny will be my extreme conservative estimate earning for 4Q2017.

Extreme conservative estimate for full year 2017:

profit before tax = CNY1840362450
Earning per share = SGD3.5
PE ratio= 1.13

one of Delong substantial shareholders is in the process of carrying out a strategic review of its shares in the Company, which may or may not lead to a transaction which might be similar to Evraz's move in 2008 (SGD19.7 per share)

the company is reducing its debt rapidly. when it reached a certain low leverage point. It will likely to give dividend if not acquire more capacity, or diversify its business for long term benefit of shareholders.

the result today is great but I won't know how the price is doing on on Monday. it really might drop. However,
Price is what you paid, value is what you get.
I know my share of value is surging and that is what matters the most in long run.

The stock market is a device for transferring money from the impatient to the patient.
Warren Buffett

Happy Investing

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