Month: May 2017

TTI Portfolio Review – 25th May 2017 + An Interesting VRX Story

With the strong performance of STI ETF so far this year, I wanted to do a quick review to see where I stand vs the index this year.

Since the last update in March 2017, SG TTI has narrowed the gap from STI ETF, but as yet, is still underperforming STI ETF. The passive index is proving to be a real winner so far this year.

545) SG TTI May 2017.jpg

Based on XIRR, STI ETF has thus far, including dividends, returned a massive annualized return of 38.98%

544) STI ETF may 2017.jpg

I can’t help but think that if someone had at the end of 2016, decide to go passive and liquidated everything and threw it into STI ETF…….

Anyway, SG TTI didn’t do too shabbily either:

Portfolio Performance

SG TTI generated an XIRR annualized return of 22.71% since the start of 2017.

Total AUM grew from $943,815.80 at the start of 2017, to $1,049,753.47 at the end of Q1, and grew further to $1,120,243.40 as of 25/05/2017.

This means that the AUM gained $70,489.93 thus far in Q2 alone, of which, $22,065.83 came from a capital infusion. 

Total dividends collected thus far is $10,800, all of which came from BBR Holdings.

Dividends declared, but uncollected as yet, include $4,000 from Geo Energy, $300+ or so from Wells Fargo, $6,300 from Dutech Holdings and $600 from Boustead Singapore.

As it stands, it’d be a real feat to beat the index this year. Tough, but not impossible.

The problem with XIRR is that it extrapolates the previous results and thus, exaggerates the difference in a comparison. I don’t think STI ETF can continue to grow at such a rate for the rest of the year.

But SG TTI can.

Hahaha. I’m an optimist.

On a separate note, I have an interesting story to tell.

Some time ago, I was debating on SeekingAlpha with another investor in Valeant Pharmaceuticals.

She’s American, and had a completely ridiculously outsized position in Valeant. She had >90% of her net worth and whatever was in her 401k vested in Valeant. (I am guessing 401k is = to our CPF)

And since she vested, Valeant tanked something like 80% or something along those lines.

Now, I’m vested as well, but I found her supposed research to be very disturbing. Her sole substantiation for investing in Valeant, was simply looking at very technical stuff like the % of shares sold short, who are the institutional investors holding and selling at each quarter, how many options are outstanding and what type of options they are etc.

She had minimal knowledge of the company’s drugs, pipeline, financials, prospects, regulatory restrictions etc.

And I debated with her saying that it’s suicidal to have 90% of what you have in a single company, much less something as uncertain as Valeant. Now, it’s logical that if you have 90% of what you own in a single idea, the idea better be a damn ironclad certain one. Like if you make a bet with someone that you’d still have 2 hands tomorrow morning.

Something like that.

Anything short of those kinda odds, it’s suicidal. Yet, the said lady persisted, with the only “research” being a bunch of data about… well, basically what everyone else is doing. Although, I’d have to admit, she was pretty much damn thorough in trying to dig out the various short positions, and how the positions have changed, and who are the ones who have flip flopped each time.

She was like a Valeant news centre.

She was the 1st to know if a negative analyst report came out, and she had a ton of opinion about what the options activity was indicating. I applaud her effort, yet they were meaningless to me. She would’ve made more of a contribution if she went to the pharmacy and bought a Bausch&Lomb product.

The most shocking thing to me isn’t even that 90% position sizing of hers.

The most shocking thing is, other vested shareholders who were on the VRX board,  were genuinely very interested in her “research”, and what she had to say. They were basically taking comfort, in the midst of a tanking share price, in what she had to say about who’s selling, how it’s going to look better cos the big funds are going to come in etc.

And through all that, I kept saying that I’m really disappointed that a fellow long, had no further insight other than what the options activity are indicating. I mean, if you’re going to the battlefield, you wanna look left and look right and see capable soldiers fighting alongside you isn’t it?

To put things in context, the backdrop for this is a very scary environment. The share price was literally in free fall, and at 1 point, it fell >20% for 4 consecutive days! Imagine that.

I can understand many shareholders were scared. I’d admit to being concerned too. Of course I was. I’m human too. It didn’t make sense to me, and I kept going back to my FA. These things can really test your resolve.

So the other scared shareholders, were all looking for comfort. Looking for affirmation. And interestingly, they found it in this lady who’s only research is…. I won’t even call it TA. It’s not TA. It’s just hmmm, I’m finding it hard to describe it. It’s just looking at what everyone else is doing? If I can put it that way.

But she sure sounded damn confident.

I was amazed at how someone can be confident in predicting the future based on the activities of the masses, and AT THE SAME TIME, the masses are getting comfort from the confidence of this lady who’s predicting the future based on their own activities.

LOL! Amazing huh.

It’s mind boggling but just think about it. It’s come full circle.

Here comes the twist… wait for it…..

She cracked on the 14th March 2017.

That’s the day Bill Ackman sold out all his positions in Valeant. The said individual really panicked. The appearance of strength and resoluteness, and resolve in her “research”, totally vaporized in a single day.

Nothing much changed for the company on the 14th March 2017. All that happened, was that a substantial shareholder left. Joe Papa (the CEO) went to work, went home at night, it was probably an uneventful day for him.

Yet, the said investor’s entire basis for her 90% net worth position crumbled.

I know that cos I received this in my inbox:

546) Wen and VRX.jpg

My 1st thoughts?


If ANY of your investment is affecting the big things like “work”, “relationship” and “become a mother”, GET THE HELL OUT.


And I knew she wasn’t joking cos she had earlier gave more details about the relationship and work part.

Anyway, again, I’d remind that to put things in context, the environment was a very very very tough one for VRX shareholders. And since she had 90%….

And even though I was REALLY REALLY REALLY tempted to go along the “I told you so” route in my reply, I eventually decided that I shan’t be an arsehole cos karma bites.

So I bit my tongue, and came up with as gentlemanly and as comforting a reply as I could:

547) TTI reply to wen.jpg

It’s really interesting to me how in the toughest and darkest periods, people can take comfort from a total stranger, literally halfway around the globe, and share intimate details.

548) Wen VRX.jpg

Bear in mind that I am a VRX shareholder, so admittedly, I was feeling kinda shitty too as well.

Obviously, not quite as much as her though.

Fortunately for both of us, I’m proven right and FY17Q1 proved to be a hint of a turnaround for VRX. The share price has risen 53% since the release of FY17Q1, although it has dipped slightly of late.

So… what’s the take home message in all this? For myself at least, there’s only 1 experience I’ve gained from this exchange:

Don’t invest based on what anyone else says. Most people, don’t know better than me, cos most people, haven’t done more work than I have.

Confidence, that’s not backed by hard work and comprehensive data, is just like the summer Aussie fly: It disappears when it rains.


Geo Energy Resources – Dropped 23% In The Past Week. What’s In Store?

I typically do not reveal the location of my travel pics, unless the travelling took place some time ago. No prizes for guessing this time around though. LOL!

534) Taj Mahal.jpg

All I can say is, don’t go during summer!

It’s shit ass crazy hot, and no amount of air conditioning can save you. Amazingly enough, the locals can wear long sleeved shirts and look perfectly comfortable. I’m doing all I can to stop myself from stripping bare naked.

Still, I figured that the Taj Mahal is classic, and it’s something I wanna check off my to do list. Perfectly beautiful, I’m told it’d be even nicer in the quaint moonlight (there are night tours) but our schedule just didn’t allow for it.

This, together with watching a funeral procession in the famed Ganges River, are cultural events that I wanted to see before I’m dead. I’d include photos, but this link, has photos that are by far superior to mine:

When it comes to travelling, I’m not looking for leisure, not looking for comfort, not looking for the run of the mill stuff. I realized early on that what I really want, is to experience stuff.

Cos it is experiences that will lead to memories.

And it is the memories that are truly priceless.

I’ve been getting some email enquiries/requests for meet ups. I’m sorry to say that from now on, I’d have to decline politely. The last time I’ve done so is a couple of weeks ago, and it’s only cos the guy (you know who you are!) is a long time reader and would be a future colleague after he grads.

It’s just taking up too much of my time, and it’s not a productive endeavor.

TBH, I’m not that keen to share my thoughts or discuss about my options strategy right now anyway. It’s working out swimmingly for me thus far, I’ll post results here when I’ve longer term data.  I’ll reply any email questions about it too.

But to teach it… well, I’m not that keen. Sorry. It’s actually harder to put into words a specific thought process. I guess that’s what they call experience. You gotta try it, fail, rethink about it, experiment, implement changes, review, and ultimately, try again.

Now, on to Geo Energy. For some context, I’ve written extensively about the company previously:

Geo Energy Resources Investing Thesis – Part I

Geo Energy Resources Investing Thesis Part II

BBR Holdings FY17Q1, Geo Energy Resources FY17Q1, Results From Options Strategy (1 month)

Since the company released what looks like stellar results on paper, the share price has tanked 23% in a single week.

535) Geo Energy share price.jpg

Results were at the very least, expected, and in fact, the numbers look impressive. So what happened?

I’d attribute it to 2 main reasons.

China’s National Development and Reform Commission (NDRC) released new info about their plan to ban the import of low quality coal. This isn’t anything new; NDRC had previously gave indication that a reduction in the import of low calorific value coal is in the works.

Low calorific coal is unproductive, as lesser energy is derived per unit coal, as compared to higher calorific coal. Typically, Indonesia’s coal is associated with the low calorific, higher sulphur and higher ash content type of coal.

The 2nd reason relates to the drop in the chinese coal spot prices. For the past month, the coal prices for GAR 4,200 coal has been dropping.

As recent as the 21st April 2017 (1 month ago), prices for GAR 4,800 coal at the chinese end, was 610 yuan/tonne. Today, it’s at 530 yuan/tonne.

536) Chinese coal price may 2017.jpg

Associated with the drop in prices, at a most recent coal conference in Indonesia, experts and keynote speakers all warned that if all coal companies continue with their breakneck production expansion, inevitably the industry will swing to a situation of oversupply.

Now, let me address the 1st point above regarding China’s NDRC. It’s crucial that we understand a bit of background info, to try to ascertain what NDRC is trying to achieve and what their objective is when they’re crafting policies like these.

Pop quiz: Which are the 2 most indebted industries in China?

Answer: Coal and Steel Industries

Many highly indebted coal companies in China are kept on life support, simply to avoid the contagion that comes with massive defaults that snowballs. Many chinese banks are on the hook for big writedowns if these coal companies fail.

The chinese government cannot allow that. In fact, it’s no secret that they have been trying to tame this tiger for several years now. It’s just not an easy issue to solve. Every policy action has unintended consequences. It’s kinda like you have an infection, and the dr gives you an antibiotic, but most commonly given antibiotics have side effects such as nausea.

A perfect example is what happened in 2016. NDRC tried to avoid an over capacity issue and closed down inefficient coal companies, cut the number of working days (from 333 days to i think, 276 days) that miners can operate and directly and indirectly, limited the total coal production. Total coal production was cut by 150 million tonnes in 2016.

Yet, this had the effect of causing a massive spike in coal prices in the summer of 2016. With the sudden drop in production, coupled with the spike in energy requirements for summer (air conditioning takes up a lot of energy!), the utility companies had to scramble for coal as coal stocks dropped to multi year lows, and all this lead to a rapid spike in coal prices. Eventually, NDRC did a rapid about turn, and reinstated the number of working days coal companies could operate.

NDRC’s stated plan, to deal with local over capacity, inefficiency and potential defaults, is to force the smaller miners to close, while forcing the moderately sized miners to consolidate and merge with other miners.

They’re also forcing the banks/lenders to do debt for equity swap deals, in order to remove debt from the balance sheets of these miners.

537) coal companies debt for equity swap.jpg

NDRC has an unenviable task. It is important to note that there are a few parties involved here: the coal mining companies, the utility companies, the banks that have lent money to the coal mining companies, and of course, the foreign miners that supply coal to the chinese utilities, usually through middlemen (like ECTP, in Geo Energy’s case)

If NDRC allows coal prices to drop too much, many of these mining companies would not survive. They’d cut down on operations, default, go bankrupt etc. All that leads to massive job layoffs, banks having to face big writeoffs, and certainly unrest and discontentment.

If coal prices rise too much, sure the miners would be delighted, but the utility companies wouldn’t. Layer on to all these is concern about excessive smog and air pollution.

With the massive rise in chinese coal prices at the end of 2016, many utility companies have complained to NDRC about their decimating profits, and NDRC has finally taken note.

Check out Huaneng Power’s financials. Huaneng is one of the 5 top power producers in China:

538) Huaneng power generation.jpg

The company generated almost 25% more power compared to 2016Q1.

Yet, profitability dropped almost 90%!

539) Huaneng profits.jpg

Emphasis on the last statement:

“The decrease is mainly attributable to the increase of fuel price”

What I’m trying to illustrate here, is the multiple concerns of NDRC. And once we understand what NDRC is trying to achieve, in the context of the macro picture, we will then be able to intelligently postulate where the coal market would go from here.

So now we know that NDRC can’t let coal prices drop too much, they can’t let coal prices runaway and jump too much either. To achieve stability in energy prices, it is also in the interest of NDRC to ensure that utilities have some predictability in the fuel costs.

Aside from the potential ban on the import of low calorific coal, (which is mainly for productivity and for environmental concerns), NDRC has also moved to encourage (read: enforce! That’s what communist countries can do. They have control but are compromised by inefficiency. Anyone played SimCity before? What happens when you switch governments to “Communist”?) coal miners to offer long term coal futures to the utilities, so that utilities can have more stable fuel costs and predictability.

For the miners, this is both good and bad. Good in the sense that they too, would have predictability in terms of their volume. Bad in the sense that they would not be able to capitalize if the coal prices shoots up rapidly.

Now, at this point, readers would probably find it confusing. So how does all this affect Geo Energy? It is a complicated issue. There are multiple parties, and NDRC has to do a delicate balancing act. Many variables, and each can drastically affect the accuracy of our analysis.

Fortunately, NDRC made it a lot simpler for TTI.

They’ve stated that they’d be comfortable with coal prices in the range of 500 – 570 yuan a ton, for calorific value 5,500 coal, at the port of QinHuangDao.

Well, that range is where QinHuangDao spot coal prices are at right now.

540) Qinhuangdao coal price.jpg

The black line indicates the benchmark QinHuangDao prices. It reached a high of 610 yuan, and has now fallen to 560 yuan.

The most logical conclusion here, must therefore be that chinese spot coal prices would stabilize at current levels, or if they dip substantially below this range (500 – 570 yuan), we’d see NDRC intervening in some way or form.

That’s a good start to understanding the complicated dynamics in this industry.

How about volume?

All reports currently point to a dearth of deals completed at the ports. Utilities are loathe to commit to sizable quantities, as NDRC is sending out all sorts of unclear signals about their intention to ban low calorific coal.

Nobody knows for sure what’s NDRC’s requirements  at this stage, but Geo Energy’s 4200 GAR coal is not exactly low calorific. It’s not high calorific either. But their coal has <1% sulphur content, and moderately low ash content, so that’s the good news.

All this uncertainty is showing up in the lack of buyer interest, as the end clients await more clarity from NDRC:

541) Utilities demand remain tepid.jpg

Coal stockpiles at the utilities have been rising, and as of last week, the data indicates that the 6 major coastal utilities together have 12.07mil tonnes of coal, an increase of 2.6% from a week earlier. This would account for 19.6 days of consumption, 2.2 days less than a week ago.

Alright, let us recap here a bit.

We know that NDRC wants to cap coal prices into a range. Prices were spiking above this range the past several months due to NDRC’s previous policy of limiting coal production, and this has since come crashing down.

We also know that the current price is within the range that NDRC would be comfortable with, but we don’t know whether prices would stay within this range, or would it drop below. If it does though, it is safe to conclude that NDRC would intervene to support prices.

Volume at the end client side has been thin too, and utilities are all reluctant to commit to large volume purchases.

With all this info in mind, I’m currently seeing an opportunity to add to my positions in Geo Energy, and in fact, has recently added 100,000 shares at $0.26.

Why so?

For starters, I’d be more worried if prices continue trending higher, because logic dictates that NDRC won’t allow that. At this current price, there’s some support if it falls below the range.

Volume has been thin, but I believe reprieve is coming soon. Specifically, in 2 weeks.

Now, summer and winter are traditionally the periods whereby China energy requirements spike up. It’s true year in, year out. Nothing changes.

For substantiation, I found a very nice paper, I’ll have to give credits to these guys:

“A study on the electric power load of Beijing and its relationships with meteorological factors during summer and winter”

(Zi Y. Zhang,a,b* Dao Y. Gonga and Jing J. Mab et al)

 Now, I won’t waste space and upload the paper here, because I’m pretty sure nobody wants to read it. It’s as dry as summer. LOL!

Instead, I’ll just cut out this 1 self explanatory table from the paper:

542) China's electricity power requirements.jpg

We can see Beijing’s power requirement is trending up over the years. More importantly, the 2 peaks within a year, coincide with the June-August (summer) and the November-January (winter) months.

The volatility is also greater during the summer months (you see massive spikes up and down and up and down), probably because air conditioning doesn’t have to be kept on 24hrs a day during the summer, and cooling requirements drop in the night.

Whereas there are less exaggerated peaks to troughs in the winter months because heating is more constant.

Well, that’s not in the paper. Just my personal observation and postulation here.

Anyway, this means that as we move into the June period, and with the start of summer, we should be expecting a pick up in demand for utilities.

But that’s not all there is to it.

Traditionally, utilities start stockpiling a month ahead of the peak summer months. But since, as I’ve shown above, they’ve delayed buying coal recently, there’s a pretty good chance that utilities would have to play catch up, and we start seeing coal volumes transacted increase at a breakneck pace moving into summer.

Reuters seem to agree with me:

I’ll quote:

“Coal inventories at major utilities stand at 50 million tonnes, their lowest in April since at least 2014 when they were 72 million tonnes, according to a survey by consultancy Fenwei.

Utilities consumed 300 million tonnes of coal in the July to September period last year, Fenwei said.”

OK, thus far, I’ve given a birds eye view of the chinese coal markets, and it’s current situation. Notice I haven’t really brought Geo Energy into the picture much.

Here’s the kicker:

All this that I’ve just said, may not even affect Geo Energy that much!

Geo Energy has an offtake agreement with ECTP for 7mil tonnes in 2017. We don’t know the formula in the offtake agreement to determine the selling price of the coal, but we know it’s pegged to Indonesia’s HBA index.

And the HBA, albeit lower than the start of the year, hasn’t even dropped <10%.

543) Indonesia HBA index.jpg

Instead, the chinese demand and prices would more likely affect the middleman, which is ECTP.

I still monitor chinese coal news and developments closely though, cos let’s not forget that Geo is still in the midst of concluding the acquisition of TBR mine, and is also negotiating for an offtake agreement for TBR.

At this stage, I’m excitedly awaiting for more news on this front (supposed to be concluded by Q2 end).

When TBR is in production, that’s when Geo Energy’s true strengths would be utilized. TBR and SDJ are adjacent sites, and thus far, their synergy has not filtered into the financials.

It is possible though, that with tepid chinese demand, the negotiations for TBR would be tougher. ECTP would be less onerous in giving in when dictating terms for the offtake agreement, if the end client demand is not there.

At this stage though, knowing what I know, I personally feel that the markets are overhyping the supposed low calorific coal ban, the supposed potential oversupply of coal and accompanying drop in coal demand.

Prices and volume transacted can change quickly, at the drop of a dime.

I currently own 500,000 shares of Geo Energy at an average price of $0.177, and in 2 weeks, will be expecting to collect a 1 cent dividend for 400,000 of those shares. That’ll further lower my ave price to $0.17.

Now, there’s actually a lot more DD that I could share, but I feel compelled to stop here cos this post is getting too long, and well, I’m on holiday. LOL. (And it is getting tiring to go on)

So just very very briefly, I’ll throw out bullet points on the remaining thoughts/DD and you guys looking can do your own digging.

Hydropower! Part of the reason why utilities have been delaying coal stockpiling is because hydropower has been stepping up of late. As we approach the summer months, rainfall drops drastically, and hydropower correspondingly drops as well.

There is a new analyst report from KGI on Geo’s peer, GEAR. It makes a good read, so do read that. There are differences between Geo and GEAR, and I think many have tried to dissect these differences.

My own take is that GEAR is more efficient, more productive, but I don’t like their substantial minority interests. In short:

GEAR’s GPM >>> Geo’s GPM


GEAR’s NPM (attributable to shareholders) <<< Geo’s NPM

Go figure out why and you’d see what I mean.

It is important to note though, that geographically, the bulk of Geo’s coal ends up used in China’s power plants whereas 51% (if i remember correctly! writing all this off the top of my mind) of GEAR’s coal is used domestically in Indonesia.

NDRC’s environmental considerations. Many of the chinese states have banned coal burning. Yet, coal will remain as the main energy source for China in the immediate to mid term. China though, is trying to shift the energy generation far away from their cities.

Domestic mine safety and inspections. In the past 2 months, several domestic mines have been shut or their production curtailed as China conducts safety checks, upgrades their mine infrastructure, or even check on the transportation.

Shanxi province is where the bulk of these inspections are occurring, due to the poor safety track record. Go read up on that. It is significant cos Shanxi accounts for 25% of all domestic production, and their production has been curtailed with the safety inspections and what not.

OK, I’ll stop here, that should be enough information diarrhea for now.

For now, let me go do what people normally do during holidays.