$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?

Opportunist

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.


Recommended & Related Posts

Greetings friends, I haven’t really write much since I join this community. I’ve done research on some industries and many businesses but lack a stock that I really like to add into my portfolio and that might be the reason why I’m not here so often. But I promised myself that I’d write a post once a week to share my thoughts and performance, It is also to refresh what I’ve learnt and thus they could stuck longer in my mind. On the other hand I have to admit that my writing sucks because I don’t write much since I graduated from school not to mention that I was a below average student back then.(I’m a Chef now) So I hope I could improve along the way.. and sorry if it still sucks.

$China Sunsine(CH8.SI)
One business that I’m considering buying is Sunsine China.
Many people already familiar with what the company does so lets start with the management.
It was a SOE before the state government wanted to end the business. However, the employees decided to buyout the company and Xu Cheng Qiu who owned like 60% of the company become their leader. With his team, since then the small company has managed to turnaround and eventually become the largest rubber accelerator maker in the world. Let me share few numbers regarding the performance:

Average Return on Equity for past 5 years: 18.80%
If the business is not giving out all of its profit for dividend, what does it do with our rightful money? It is to reinvest into the business so it could generate greater long term benefit than just giving dividend. RoE shows the earning power of every dollar that the company retain. One of the best indicator of the efficiency of a business. A company deserve higher valuation if they could consistently get a high RoE. And Sunsine has a great record for maximising shareholder’s benefit.

Average Return on Assets for past 5 years - 13.56%
Every company need assets to profit whether it is tangible or intangible. Asset = equity + liability, so If a company have low RoA but high RoE it shows that the company tends to rely on leverage to earn money (like bank). 13.56% is a very high number across every industry. It shows that Sunsine does not need debt to expend their business. If you think about their EPS growth rate with this ROA, it is truly a remarkable achievement.

Dividend 5 Year Growth Rate - 23.42%
While the Business keep growing after retaining and make good use of most of the profit. It is increasing its dividend of more than one fifth every year. The cash that actually goes into our pocket is at the same time compounding.

The Long term

To get a good business result, it is crucial to have big and expanding market. It determine the upside limit of your company. Walmart would have a different market cap now if it were a Singapore company. So it is equally important not only to look at competitive advantage AKA moat, but how big of a pie the company can take from current market demand or future market demand. I spend most of my time doing research on the whole industry rather than a single company that I’m interested. How you could fully understand a moat of a business without even looking at its competitor? How could I determine the upside without knowing the potential growth capability of a business? (Of course the upside could also be made larger by another factor- Price of its share) In order to have Margin of Safety, you would want your upside a lot bigger than your downside.
The reason the management had a good numbers for the past few years was because there are more cars every year in Asia. But is the market mature? Can more money dump into tyre manufacturer market in the future so the demand for chemical needed expand? That is the question that I have to answer.

From the future outlooks of the biggest tyre maker they are still very optimistic about the growth of tyre demand.

Goodyear indicated that market in China is far from mature compare to US and Europe and they are still continue adding capacity like every other tyre companies in their 1H2018 earning call.
“the tightening credit environment the near-term deceleration in the market does not alter our intermediate view of the opportunity.”
“China offers a tremendous long-term growth opportunity despite the recent slowdown and we continue to prudently invest to meet that projected demand.”
Bridgestone share similar optimism with forecast y/y growth on passenger car radial tyre +6%~+10% while truck and bus radial tyre +16%~20% in china/asia pacific.

And we are now at the start of interesting time of automobile revolution with EV, self-driving, ride-sharing all come together at a same time.
These are some of the things that might impact tyre industry:

Electric vehicles weigh more (about 20-30% more than an ICE counterpart) and that with instant torque, tyres will wear out much quicker.

Smart tyres - Equipping tyres with sensors that capture information to optimise performance and safety and build a big data to raise drivers’ awareness of the condition of their tires. Incentive for people to change their tyre more often.

Cloud-based solutions for fleet cost optimisation. Benefit from growing demand for sharing economy and e-commerce

Development of EV’s tyres which is more demanding and compromising.
Such as ultra-low resistance tyres for better battery life or silent tyres that reduce road noise. Bespoke tyre could command a higher price which also might allow bigger room for cost transfer from upstream to downstream.

Competition

Competitive advantage comes when the entry barrier is high. When you see people are making money and lots of people could get in easily, people is going to keep going in until no one is earning any profit. The chemical industry is facing the same situation as steel company. China government is doing all they can in order to reduce pollution. Shutting off many sub-par factory and trying to consolidate them in order for better control. If accelerator or sulphur does not have glut which I believe is likely for foreseeable future under current policy, the price will not fluctuate much from normal area.

Big 3 losing market share
Bridgestone, Michelin, Goodyear had 46% global sales in 2008 but the share reduced to 38% in 2016
More downstream customers and less upstream factory will have a positive effect on ASP and more diversity in income source.

The Short Term

Now lets talk about short term that everyone loves. Their 1H18 result is already significantly higher than whole FY2017. If conservatively adding half of the profit of FY17 into 1H18 to make it imaginary FY18. under minimum dividend policy of 20% it means 6.19% dividend which is higher than some REIT. Plus the remaining 80% retained earning.

Risk
Outside China rubber processing chemicals market in India alone is projected to grow at a CAGR of 7.5% by 2023. That could potentially create pressure in Asia’s accelerator’s ASP.

There is not useful record of management integrity. Mr Koh, its independent director recently had SGX RegCo against him because of the oriental group case. In addition the board chose to support the formal CFO. Apparently they have a very close relationship which I don’t know if it is good for healthy cooperate governance. On the other hand, the audit firm is not one of the big four. It is beneficial for shareholder if some of them could convince the management to switch to a more reputable audit firm. It turn me bit off.

Portfolio
Nothing much to comment about both of my businesses. AEM suffered come setback last earning due to the uncertainty next year while traders were happy to take their profit. However, I think that the upside is significantly larger than downside thus I’m not willing to sell a single share of the company(anyway 17%still a big performer :D)

YTD Performance(Sept15)
+60.81%

Portfolio (Value not Cost)
Delong 82.53% (96.20%gain)
AEM 7.74% (17.16%gain)
Cash 9.65% (Most of them from Delong’s dividend that just ex)

Watchlist
$HYPEBEAST(8359.HK)
$Delong(BQO.SI)
$Cityneon(5HJ)
$ASIARAY(1993)
$TENCENT(700)
$MU
$AEM(AWX.SI)

special thanks to @Waterflow for helping me discover hypebeast and asiaray :) You guys reading gonna visit his awesome blog!

I'm not holding any share of Sunsine China now and this whole article is just for entertainment purpose only. do not trust me. do your own due diligence.

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Performance Report on 1H2018 and Total Compounded Return

March 2016-2017          = 223.23% 

1H2018                           = 53.41%


Total compounded return = 426.89%

STI return same period = 20.98%


Portfolio(value not cost)

$Delong(BQO.SI) 81.38%

$AEM(AWX.SI) 15.60%


Watchlist

$LY Corp(1H8.SI) $TENCENT(700.HK) $Memtech Intl(BOL.SI) $DISCA 

$hypebeast


Opinions

Above stated performance is not exactly accurate because when I put in money into my portfolio or taking money out, the percentage dilute. Actual performance certainly is better than that but I'm too lazy to calculate it myself.

For those who are not familiar with me, let me explain that I'm a Charlie Munger follower and therefore in investing I'm all into his thinking models. This means that my portfolio is extremely focus compare to what your finance lecturer would recommend you to do. Normally I'm much aggressive in sizing the bet at the same time I think patience is a good virtue in investing. I do not "take profit" or "stop lose", but only relocating my capital to a better place if there's any. There are only 2 stocks that I own at the moments. On the other hand, let me give you a brief tour of my concepts of Investing.


Shares as a Fractional Ownership in the Company

Shares or stock is essentially a portion of a business. If you put the money in a stock you are a partial owner of that business. As logical as it sounds many people are having hard time understand it. Stocks are not just a bullet that bounds around a chart but instead an assets that produce cash flows. We get rewarded when we identify a good company and get to grow our capital along with them. Essentially, what I really do is not trading bullets that go up and down but rather buying and selling business and doing Business Analysis without the execution part.


Margin of Safety

The nature of investing is to predict the future. However, prediction is inherently not 100% accurate. These are not a risk whose probability is known but rather uncertainty whose probability is unknown. Therefore we must leave a large margin for error in our judgment, referred to as the margin of safety. You should always allow for such a margin no matter how certain you are and make sure that your purchase price is much lower than the intrinsic value of the company. For example, as an engineer you need to build a bridge that able to withstand 1000tons of weight even if the trucks that crossover will most likely weight just over 100tons.

Since stock is fractional ownership in the company, as the company is valuable and has intrinsic value, so does its stock. And the market is there to serve you, therefore you can wait until the market price is much lower than its intrinsic value to buy the stock and sell it when the market price is much higher. In this way, even if you are wrong in your prediction, you won’t lose too much money. If you are right in your predictions most of the time, and have 80% to 90% confidence, but are not quite 100% certain, you will suffer when the outcome with 10% or 20% probability comes to fruition. However, with a sufficient margin of safety your losses will be limited. If you are right, on the other hand, you will be rewarded much more handsomely than others. The trick is to take action only when the odd is favourable to you. 


Mr. Market

On one hand a stock is a fractional ownership in a company and, on the other, a tradable security that can be sold freely. Where there is a market, there will be bidding. How should we understand this phenomenon? For value investors, the market exists to serve them and offers an opportunity to acquire ownership. Many years later they can cash in the ownership in times of need. Therefore, the market is but a service provider. It can never tell you what the true value of a stock is. It can only tell what the price is. You can’t treat the market as your teacher, but only as a tool at your disposal. This is the important concept. However, almost 95% of market participants have a diametrically opposed understanding.  


Circle of Competence

“I’m no genius. I’m smart in spots—but I stay around those spots.” Tom Watson

This concept was added by Warren Buffett. He believes that, with tireless long-term effort, investors can build their circle of competence, which will give them an unparalleled insight and understanding of selected industries and companies. The circle allows investors to make more accurate predictions concerning how companies will perform in the future. One’s competitive strength lies well within this circle of competence. 

The most important idea behind circle of competence is knowing the boundaries. No real competence can be limitless. When you advance an argument, you must be able to tell me which premises will disprove this argument. If you are able to do so, your argument is sound and valid. If you simply state the conclusion without providing premise, your argument will not stand up to scrutiny.  In addition, it is nearly impossible to every industry and whole economies as they are collective of millions of variables. Fortunately you don’t have to know everything, there are thousands of assets for you to choose and you could just let go most of the things you do not know and still left with many good alternatives. The most important thing is to have a clear line of you circle instead of a blur one. That also means, if you do not know accounting, which is language of business, you are not capable of doing fundamental analysis end of story. It is not what you don’t know that get you into trouble, it is what you think you know but just ain’t so. 


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$Delong(BQO.SI)


Hi Delong's shareholders. recently I've done some study on steel and state policy in China. As a result, I have an opinion on things that could happen in FY18 of our company. Keep in mind that those opinions are nothing but guesses based on my knowledge and research and no one should take it as advice to buy or sell stock.


Acquisition - SOE Reform -Tianjin

As we know that management is looking and planning some acquisition, I'm thinking what is the next step the company will take. I think before the Indonesia's steel mill is stable and profiting, the company won't commit to any other oversea expansion(Philippine will likely to be next country). It is also highly unlikely they will build a new steel mill in China. Therefore, they will buy other steel mill. Initially I think it will be at south side of China as the steel capacity there are not that oversupply compare to north and facing less prosecution from government.


However, something interesting is happening in Tianjin. The local government is very determined on SOE reform this year and there are mainly 4 SOEs which were under a group called Bohai, a formal fortune 500 company. They were in a very serious debt problem thus after merging not long later they split. Tianjin has a very favourable geographic advantage although it is plague by mismanagement(largely due to SOE ruling most of the economy there). It will be a huge off shore marine center if the reform is successful and it will provide platform for Delong to be a globally competitive company.


In addition, Xiong'an new area development which is the biggest project China is focusing on will help to absorb the capacity well. On the other hand, it is in Hebei province which the management is familiar with. There are few scenario i think likely to happen:


1) Delong will buy equity of one of the four SOEs (should be above 51%)

Tianjin Metallurgy 

Parent company of various steel wire rope, cables, steel strand.

Flourish steel industrial co(中兴)around RMB 300millions for around 60% equity.

Tianjin steel wire cable group around RMB 200millions for 60% equity.


Tian Gang

4.5m ton hot metal, 4.5m ton steel, and 2.5m rolled steel capacity. Priced around 300-600millions for 40% equity which is not so attractive.

Strand and wires business of 400000tons priced around 123m-192millions for 40-60% equity

    

Tianjin Iron&Steel(Most Likely Purchase)

4.37m tons hot metal, 4.3m tons steel and 5.5m tons rolled steel of world class capacity.

should be price around RMB 4Billions - 6Billions for 40-60% equity.


Tianjin Pipe(Best managed)

TPCO&TISCO co ltd which produce world class petroleum pipe. 55-65% equity for RMB200m-350m.

It has other business to reform but not suited to Delong in my opinion.


2) Delong will move its headquarter to Tianjin.


3) They will set up a joint venture with most probably with funds like fosun and other local private steel mill company to get majority of equity of the SOE.


4) Delong will give little or even no dividend.

    I think the only reason they would consider this is to move the stock price up in order to get more credit from bank. 

    I'm not a big fan of dividend at this stage and prefer them to grab as much opportunity as possible in this window. 

    lastly I also hope that government will let Delong manage the SOE first and give them option to buy at later date if profitable.


 

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$Delong(BQO.SI)
a news about Mr.ding for delong's shareholders. This is the speech he gave during Yabuli China Entrepreneur's forum 2018(china's version of davos). A place that gathers the top entrepreneurs of China.(Ma Yun etc) while our chairman, Mr.Ding, is current president of the club, i didn't know he has that nickname.
I'm sorry but the article is in chinese.
https://www.thepaper.cn/newsDetail_forward...

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$NetLink NBN Tr(CJLU.SI)
$SingTel(Z74.SI)

Lately I've looked at Netlink and I find this a good defensive stock. It has many upside while little downside.

It should comfortably yield 5% .
the price is regulated, while they do not have pricing power it also mean that they don't suffer much when market are down.
It has high barrier of entry.
It still has room to grow its business. especially when we are approaching 5G. Thus more yield in the future.
Everyone uses internet and we won't stop using it even when markets crash.

Having said that, I do no invest in this yet. reason for that is there are better alternatives and they are also performing great. $AEM(AWX.SI) $Delong(BQO.SI)

I will add it in my watchlist along with others
$GME
$MU
$TENCENT(700.HK)
$DISCA
$China Sunsine(CH8.SI)
$LY Corp(1H8.SI)
$Genting HK US$(S21.SI)

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