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Portfolio update 8th November 2018
You ought to know why the ASP maintain at high level. It is mainly because two directions the government are going-
Environmental control - getting rid of factory that is not up to standard.
Quality production - getting rid of outdated production, a strategic shift from quantity to quality manufacturing, important part of supply side reform plan of President Xi.
So if the environmental policy continue, means the asp wont go down much
if it loosens a bit (not possible to reverse), the production go up, from what I can tell would be a lot faster than its competitors.
Demand is still rising from my research.
The entry cost of this business is getting a lot higher. You need scale. leadership in your business helps. And most importantly nowadays rich people like to burn money in internet company instead of in industrial factory.
It is important to know how China Communist Party structure governs its own country.
the day of local governments doing opposite policies against central is over while President Xi is gathering more power within the party. it is a long story. but to do business and investing in China, You have to understand how the government works.
Portfolio after transactions
$China Sunsine(CH8.SI) 24.15%
stock is looking very expensive according to its pe ratio but i think 10 years later when I look at my buying price I would think it is cheap.
I will write a detail report after It release its first financial result.
Pinduoduo and C2M
it is not possible to value Pinduoduo at this time. its founder is one of the most intelligent persons I've seen and he could build his company into current size in just 3 years, which is previously consider impossible to many people. Beside its rudimental social/shopping concept, I'm actually more interested in its C2M plan. Brands and retail distribution is the result of information asymmetry among manufacturers, traders, and consumers. We have no direct access to factory to acquire goods that we need, and have no information of quality of the goods from factory. therefore we rely on layers of intermediary(from distributors to retailers or sellers in platforms like Taobao) to send the goods from manufacturers to our hands and rely on Brands to judge the quality of the goods(in order to have s good brand they of course will do quality control for us). Problem is after passing through all these layers the price of the goods would be greatly increased. Internet actually could break the information and distribution barriers. people could determine quality of a product through word of mouths and reviews on internet, on the other hand, it is possible to only have one intermediary which is internet platform to organise a group of people and gather large quantity of order directly from factory. this business model fits the unique situation in China(A lot of small scattered factories)
You might ask, Taobao and JD.com can do this as well. They can do but in order to do this they will have to hurt their existing business(You know why). they cant run as fast as PDD.
PDD has bad reputation, it has a lot of fakes, and it is true but they are a new company that has no data of the sellers like alibaba and JD. Once their data is up I think they will do better. another thing to note is that many negative comments and news of PDD you see on internet is actually from "water army"(the people that is hired to destroy the reputation of competitors on internet.)
PDD is still 3 year-old baby and I'm excited to see how it will develop and mature.
AEM cashflow is good and I really believe that they have high technical know how and good management to secure clients like intel and huawei. What I do not know is what is the size of slice they could get from a pie, and how big is the pie.
Portfolio Update 12th October 2018
Sold $Delong(BQO.SI) at average selling price of $6.49 after fees.
Portfolio after the transaction:
AEM Holding 8.4%
Delong is one of the best steel company and is trading at very cheap valuation. Unfortunately the owner most likely thinks that the public market in Singapore would not be a good place for the value to realise and choose to delist it. Even though Mr. Ding couldn't do it this time due to regulation, he might initiate another dividend or wait until January next year for delisting around the same price.(later is more likely to happen because it is just less than 2 months away).
After much consideration I think there is a cap limit on the share price- the company has already decided that it doesn't want to grow with shareholders in SGX. I will probably only get 7 or 8 if i'm lucky but It will require me to forgo the other more attractive alternatives for few more months. I think that the opportunity cost would be expensive given the uncertainty of the company. (I like things to be more predictable instead of depending only on Mr.Ding's whim)
For existing shareholders rest assure that next quarterly earning is going to be good since the steel price is around historical high and they are unlikely to have winter capacity cut this year due to good environmental control (unless they disclose it last last minute). That would means 50% more productivity in all-time high steel price. the number is going to be great. I would buy the stock again if it falls below certain price point.
This post is for entertainment purpose only and you should not trust everything I wrote. do your own due diligence.
Portfolio Update 11th October 2018
Acquire $HAIDILAO(6862.HK) at HKD16.98
After the transaction it will be 6.25% of my portfolio.
Rationale of the transaction will be explain in the weekend.