$$$ KPO and CZM $$$: Bye Sheng Siong! Hi SATS!

Tuesday, July 14, 2020

Bye Sheng Siong! Hi SATS!

We decided to sell all our Sheng Siong shares (18,000 units) at $1.64 today and it has been our top/best investment after all these years.

After holding for about 1358 days (~3.7 years) with an average price of $0.907, we have almost doubled our capital with an absolute return of 94.54% and an annualized return of 19.58%.

We felt that Sheng Siong is currently trading at a pretty high valuation and the market seems to be overly optimistic. Sheng Siong Q1 financial report has been very impressive, almost doubling its profit/EPS when compared against the same period last year.

However, when we looked at the breakdown, the increase in revenue is mostly due to the "hoarding" effect whenever PM Lee gave his speeches. lol.

Anyway, if we were to look at the last few years, Sheng Siong has been trading at an average/median PE of 20-21. Based on the current price and its average/median PE, the market is expecting its EPS for 2020 to increase by 55% to 7.86 cents as compared to 5.04 cents last year. It just didn't look realistic when we forecast it, hence it felt overvalued when we were looking at it.

Will it goes higher? Maybe, just look at Tesla!

We have also decided to redeploy a bit of the cash from the sale of Sheng Siong to buy SATS (4,000 units) at $2.84. SATS came tumbling down from its high of $5+ due to COVID-19 where it even reported losses for the last quarter (ending 31 March 2020). The management was also being very prudent by cutting dividends by ~68%! We decided to buy it as we see this as an excellent opportunity to accumulate a good business (it is essentially a monopoly in Singapore) and it is a recovery play. I can see it returning to $5 once a vaccine is found but can't say the same for SIA especially after its right issues.

Similarly, I computed its average/median PE which is around 19-20. Based on the current price and its average/median PE, the market is expecting its EPS to decrease to 13.9 cents. In my opinion, this is still quite optimistic as its Q1 losses should be a lot more when travel restriction is placed around the world compared to the last quarter when it was just beginning.

In addition, there were multiple share buy back around ~$2.90 which could be a sign that the company is undervalued. You can read more about share buy back here - Why Would a Company Buy Back Its Own Shares?

Unfortunately, SATS has dropped quarterly reporting so we can only wait till around October for its half year financial statement to get a better overview of its business.

What's the worst that can happen? Getting kick out of STI lor like SPH. lol.

You can take a look at the above spreadsheet here.

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