Health Checkup For TTI’s Portfolio, IPO Madness, S i2i Updates

Last week, I sat down with a super investor one evening, who took the time to look at TTI’s strategy and results thus far, and shared his thoughts on how to “improve my productivity” (As he so gently and succinctly put it)

Long time readers would know who I’m talking about. Apparantly, his friends are readers of SG TTI too.

I can tell the said super investor spent some time understanding what I’ve done, as well as thought about what’s appropriate for me going forward. (Not every good strategy is appropriate!)

That’s something I appreciate greatly.

Subsequently, I’ve had the entire weekend to ponder about the discussion, and trying to figure out some stuff. I drew up a list of follow up questions initially, but curiously, the more I thought about it, I found myself answering these same questions.

It does require some “major surgery” with regard to my thoughts though.

The suggested strategies for me going forward, isn’t difficult to understand. No high science here (I suspect the said super investor purposely made it so). In fact, the large bulk of it, is what I’ve already been doing.

But I did overlook 1 important caveat.

And that relates to my options strategies. Instead of choosing something stable and relatively predictable, I did the exact opposite, thinking the high implied volatility would mean higher premiums. To make things worse, I compounded the mistake by opting for options that are far out of the money ONLY.

On hindsight, that’s literally like taking 2 steps forward and 3 steps back, isn’t it?

OK, I’m not supposed to talk about what’s been discussed here, or share it freely, so I shall stop here. All I can say is that going forward, I’ll be adapting these new thoughts, and it seems like my activities in the US markets will be taking an increasingly important role.

It’s all been very enlightening, and very good fun, to be honest.

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This week saw the 1st trading day of a hotly anticipated IPO: UnUsUaL

MM2 Asia hived off this division in an IPO on catalist. And the share price simply went ballistic on the 1st trading day:

http://www.businesstimes.com.sg/stocks/hot-stock-unusual-more-than-doubles-from-ipo-price-in-trading-debut

I don’t really bother with IPOs usually.

But I was reading this week’s TheEdge and a paragraph in an article about UnUsUaL jumped out at me:

“For the nine months to December last year, UnUsUaL’s revenue fell 28% to $16 million. Earnings, however, grew 38% to $3.8 million. Revenue was lower as the group had organised more one-off events in 2015 during the SG50 celebration period. But earnings rose as gross profit margins improved owing to less outsourcing for projects. It also recorded a $1.6 million gain, mainly from equipment sales.”

I pulled out my calculator and did some quick calculations.

Earnings grew 38%, this means it was $2.75 million before.

This current $3.8 million in earnings though, includes a $1.6 million gain from equipment sales.

Since UnUsUaL isn’t in the business of buying and selling equipments, I’m assuming this is a one off gain. So normalized earnings (backing out one off gains) would thus be $2.2 million.

This means that true earnings actually DROPPED y-o-y from $2.75 million to $2.2 million.

Revenue dropped y-o-y as well, as they’ve acknowledged.

But dropping revenue and earnings do not make for a good IPO story. So it’s time to cue for some “equipment sales”, which changed the earnings picture from a drop y-o-y to a very respectable “Earnings, however, grew 38% to $3.8 million.“

Wonder if anyone bothered to ask why the equipment sales has to occur JUST BEFORE IPO? 

Yet, despite all that, the share price jumped more than 100% in a single day. PE now is something like 50 times! That’s a fact. It happened. Period.

So perhaps even if one KNOWS this fact about the earnings, it’d have been smart to still get into this IPO madness.

Just don’t be the last one holding onto the bomb when the music stops. Ah, the craziness of the markets.

Of course, my thoughts above are just from reading a single article. No DD. So perhaps there’s something that I don’t know about, something that’d justify paying PE 50 times earnings, and if so, please feel free to correct  me.

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As stated here, I took up a position in S i2i about 2 weeks ago:

TTI’s New, Puny Position – S i2i

It’s not a game changing idea because of the small quantum, but as I wrote previously, I’m looking at the ROI, % wise. Not the quantum. And I’m hoping this would turn out to be the 3rd big winner for me in a row, following the successes of Dutech Holdings and Geo Energy.

Thus far, things are going as expected as the share price has appreciated 6%+ since just 2 weeks ago, and looks set to continue to race towards the target price I’ve mentioned, in order to exit the watchlist.

Interestingly, the company released an announcement:

Now, I’d admit, I was initially negative about the proposed acquisition of the E-commerce business. But as more details are revealed, increasingly, it seems like the management managed to pull off a coup.

The acquisition is an “asset transfer” as the prior announcement put it. No cash involved, just equity dilution.

But this announcement is what got me puzzled.

Even after the asset transfer is completed, the vendor SB ISAT Fund, which is transferring the E-commerce business to Affinity, a subsidiary of S i2i, is responsible for taking care of the financial requirements of the Affinity Group.

Huh? That sounds like a very good deal for S i2i.

The financing (to be taken care by SB ISAT Fund), cannot dilute S i2i’s stake, and in fact, is totally excluded from the liabilities of the Affinity Group. This basically means that the E-commerce’s business funding, will probably come in the form of some loan from the SB ISAT Fund to the Affinity Group.

SB ISAT Fund takes on the risks and liabilities of the loan effectively, since the loans cannot dilute S i2i’s stake so there shouldn’t be any convertibility attached to them.

All this is very interesting; S i2i’s management continues to come up with weird, innovative deals. Ultimately though, the execution and subsequent results would be the key.

I’m still holding on to my puny stake while I grab some popcorn and watch the show. Dr Modi himself has continued with his share purchases, so he’s definitely putting his money where his mouth is.

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TTI is off travelling for the Easter weekend coming up (again!) and I’m really looking forward to it.

Time with family is always precious.

Overheard : “Someone wise told me that 90% of stock investors lose money, while 95% of forex investors lose money. So I choose stocks.”

LOL. That gave me a good chuckle.