Present From Hock Lian Seng – An Unintended Trade

hocklianseng

“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.


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.

32) Portfolio 25052016

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.

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16 comments

  1. Hi TTI,
    Wow!! Excellent trade with nice profit in such short period of time!! Yah !! I don’t really use TA much as well,,, do recognize that ” luck ” played bigger part of role in such transactions!!
    Cheers !! :-) happy trading n hunting!!

    Like

    1. Hi STE
      Yup, I got lucky here. Was planning to hold till at least April before ex div date for it to play out but it suddenly rose within a week.
      No TA here in fact, just pure speculation I guess.
      We all need some help from Lady Luck once in a while…

      Like

    1. Hi Heartland Boy
      I am not aware that they won any site at Farrer Park recently
      Can’t find any announcement on that either
      Mind sharing your info n the source?
      And even if they really did… typically winning sites don’t produce such a strong reaction, unless they got it at a very gd price

      Like

  2. cheers TTI.

    sold out my stake too at +15% gain.

    Tbh, I only noticed HLS from your write-up and coverage of the stock, and bought in after some DD.

    didn’t expect a rise to 0.44 cents on Fri though, after the initial dip down on 0.405

    Like

  3. Hi TTI,

    Guess investors tend to “trade” as well. In fact, I deem it as short term investment – because we know the companies prior to investing.

    I got lucky as well with Sabana REIT (30% gain and 1 month of holding and divested) and Singhaiyi (3 days and sitting on 20% gain, thinking of what to do next).

    The market has generally be rising. Maybe it is just early CNY who stay vested.

    Regards,
    TUB

    Like

    1. Hi TUB
      I try to enter every investment with a view of what will change or will happen for the value-price gap to close. It usually needs some time to materialize because if it’s something near sighted, the markets would’ve already realized it and there’s no gap to take advantage of.
      Occasionally, the markets close this gap rapidly without any obvious reason. In such instances, the time frame becomes much shorter than initially intended.
      We can define it as a trade, or an investment that got lucky, or whatever, it means the same thing.
      Good to hear on your recent gains, well done!
      Cheers
      TTI

      Like

    1. Hi Victor,
      play on …?
      In recent years, I noticed that around this period of time, HLS share price shoots up, without any apparant news. Perhaps this time it’s different, but up to now there’s no news release.
      Or perhaps the Q4 earnings are going to be way above market expectations.
      My best guess is simply that some funds are searching for short term yield. I say this because that’s what Dektos did last year. They entered, the price shot up, they took dividends, it went down a bit after XD but still higher than their average entry, and they exited.
      Yes, ex date is supposed to be further out (>3mths in fact, its usually in early May), which is why I’m surprised about this sudden jump.

      Like

  4. Looking back, do you think you can hold it longer, if no urgent needs for the funds? Anyway no negative expectation at that time.

    Like

    1. As they say… hindsight is always 20/20!
      I never had any urgent needs for the funds, I could survive without liquidating any of my positions indefinitely.
      The decision to liquidate or not, is thus not based on any needs.

      There IS a negative expectation. I already explained in an earlier post, why I expected the earnings to drop, mainly because of the absence of 1 off recognitions that’s present in prior years. And the EPS did drop.

      There’s no way I could’ve predicted that the company decides to do a capital reduction and return excess funds to shareholders. On hindsight, of course it seems like, “oh, you shouldn’t have liquidated”, but this would truly be a great example of hindsight bias.

      Without the bumper dividends, the share price would’ve continued dropping (it really did drop substantially, until news of the bumper dividend came out)
      So in this regard, I’d say that sure, I wished I hadn’t liquidated, but at the same time, I recognize that this is not something anybody could’ve predicted, and there’s no regret in this aspect.

      Like

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