Present From Hock Lian Seng – An Unintended Trade

“Trade”.

That’s a word that you don’t commonly see on SG TTI. Since when am I in the business of trading?! But 2017 has started well for me. Mr Market is unusually generous.

This is a company that I’m very familiar with, and I’ve previously wrote several posts about HLS, from accumulation, my thoughts, till my divestment and even post divestment.

I’ve previously said I’ll continue monitoring the company and my view of HLS is still immensely favorable in the long run.

Well, in early Jan, literally on the 1st trading day of the year, I took up a moderate position in HLS, buying 4 blocks of 50,000 on 4 separate (almost consecutive days) at $0.38, $0,375, $0.385 and $0.38 respectively, for a total of 200,000 shares at an average of approximately $0.384.

Barely a week+ later, I sold out 100,000 yesterday at $0.425, and the remaining 100,000 today at $0.44.

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So what happened? Afterall, SG TTI is not known for grandiose claims of fancy TA. Nor is SG TTI known for having conducted power trades to earn eye popping figures in short time periods. (If you haven’t caught the drift, I’m being sarcastic. I don’t think anyone can do this CONSISTENTLY over a long period of time)

The short answer is, I got lucky. Plus, I like to think that I understand HLS almost as well as I know my 2 kids at home.

RATIONALE

My initial rationale is actually mind bogglingly simple. HLS is due to report FY16 earnings sometime in end Feb.

My current expectation is that they’ll declare a dividend of either 2 or 2.5 cents (2.5 cent dividend was declared in FY15)

Even based on a reduced 2 cent dividend, that’ll work out to be a yield of 5.5% or so, which is pretty good since I’ll only have committed capital for probably a few months. And if it’s 2.5 cents, the yield becomes 6.6%. And if you annualize it, the actual yield is much much higher (prob above 10%)

The thing is, I don’t even intend to collect the dividend. 

I noticed that because of the fat juicy dividend payouts in FY14 and FY15, HLS tends to attract a lot of funds just before FY results announcement. These guys are probably thinking of collecting a nice yield in a relatively short period of time, like myself.

So my simple game plan is to enter before the crowd does, and exit before they do as well, which is probably a sweet spot between release of FY results and just before the div ex-date.

For me to be early, I figured that I can’t just wait till results are released. I can’t even wait till results are going to be released. I’ve to be a month or more early.

All that is my simple thought process, and perhaps, a little influence from my previous years of experience holding HLS.

Well, this week has turned out to be profitable, much much MUCH sooner than I expected.

I have no idea why the share price went ballistic this week. Many people are speculating a ton of reasons, personally, any thoughts regarding the reasons, that I write here, would be just that as well: speculation.

Unlike the general opinion though, I actually DON’T think it’s a new contract win. Knowing the company as well as I do, I just don’t think that’s the reason.

Best guess? Well, it’s the reason I’ve mentioned above. People/Funds are expecting a bumper dividend and hope to get a nice yield in a short period of time.

1 thing I’ve noticed though, it used to be that people buy in expectation of collecting a nice dividend yield. The problem is, as more and more people do that, the drop in share price right after ex-div, is pretty much = to your dividend yield.

So more participants try to run ahead of the curve and buy earlier and sell just before ex-div. This cycle keeps getting earlier.

I’m honestly caught by surprise. I’m not expecting the sharp rise so early. Obviously I’m not complaining.

Anyway, I’ve sold out everything yesterday and today for a total gain of around $9.5k. Which isn’t a lot but for a holding period of 2-3 weeks…….

I actually think it has run too far ahead of itself. I mean, if I bought my shares at $0.38 for example, and if I expect a dividend of say $0.025, and of course I’ll add in a bit more leeway because there’d be some accumulation, some excitement, so I’d think the share price, inclusive of the effect of dividends, should reach say $0.415 or $0.42? At $0.44, it does seem like something else is brewing aside from my simple hypothesis of yield. Or maybe I’ve underestimated the excitement of the markets.

Maybe it’d continue to rise next week.

Maybe HLS will really announce some ground breaking deal that makes me kick my own balls for selling out.

Maybe some major fund will buy even more next week and the share price shoots through the roof.

I don’t care. It’s not my game. It turned out well enough, I got lucky enough. That’s it.

I’ll continue to be an interested, albeit not currently vested, party to HLS’s happenings.