Companies

TTI Portfolio Updates – April 2017

If there’s 1 thing I’d like to have right this instant, this is it:

494) Holiday pic.jpg

HUGE grass patch just beside the driveway for the kids to run around and for me to do a little kick around too. (There’s a goal post at the side, not seen in the photo)

Ah. Simply next to impossible in Singapore.

495) Mandurah House.JPG

Now, I could really really get used to staying here. This massive complex is 1 house btw.

496) Apple Orchard.JPG

Apple Orchard. Rows and rows of apples.

Growing up, whilst all the other little kids say they want to be policemen, teachers, doctors, lawyers blah blah blah, what I really wanted to be, is to be a farmer.

Kinda ironic.

It sounded like the most fun job then. It still sounds fun now.


Anyway, back to investing.

Yesterday, I divested my puny position in S i2i at $2.67.

My initial investing thesis is here:

TTI’s New, Puny Position – S i2i

Which is barely 3 weeks+ ago.

The gist of it is quite simple actually. The company has to have an average share price of $2.92 over 6 months before March 2018 so that it can exit the SGX watchlist. The management is currently embroiled in a little unhappy tussle with ex business partners, and the son of one of such related parties was involved in a group that sent a letter to Si2i management recently, demanding certain changes.

So my simple postulation is that Dr Modi, a billionaire, ain’t going to let Si2i fail to exit the watchlist. It’d be almost fatally embarrassing, isn’t it?

I mean, if I’m a billionaire, Si2i has low liquidity, and I could easily buy up shares to support the share price and ensure it exits the watchlist, why wouldn’t I do so?

Particularly since an opposing party has tried to embarrass me.

You can’t put a price tag on pride.

So it’s a very simple investing thesis, with a logical and current catalyst. And since I vested, it’s worked like a charm.

Plus I noticed this in the recent issue of TheEdge:

497)Dr Modi purchases.JPG

Pretty much concurs with my thoughts, isn’t it?

Anyway, my purchase price is $2.45 barely about 3 weeks ago, so my ROI from this little side show is a very good 9% within 3 weeks. That’s…. gotta be quite crazy on an annualized basis.

Still, it’s already starting to look like a dumb move to divest cos even as I type this right now, the share price has shot up today to $3! Uh-huh. The day AFTER I exited. No shit.

But I’m on holiday, mood is good, fantastic place, with family. So, nothing gets me down today. (OK, plus it’s a 2,000 shares position. So who cares…)

So why did I divest and leave some gains on the table? I mean, I’ve already indicated my reasons for vesting in the 1st place, and $2.67 is still some distance away from my targeted $2.92 as written in my investing thesis.

The simple reason is that I’m intending to deploy more capital in my options strategies as indicated in my previous post.

Which leads me nicely to the next part.


In my last post, I mentioned that I’d be making some changes. I’ve given a lot of thought to refine what I’m doing, and have since implemented it.

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

It’s only been just under 2 weeks, so obviously any result is not reflective of longer term. I’ll have to continue to dry run it a bit, and preferably under different market environments. But the initial results have been nothing short of amazing.

In a much earlier post, I described my results:

TTI’s Options Strategy – Results Thus Far In 2017

Well, in the past 2 weeks, I have effectively doubled my cashflows from options. I’m not celebrating prematurely, because it may be just a case of a confounding factor. But I am very pleased to say the least.

At this rate, by just maintaining the same amount of capital for my options strategy, I’d effectively double my CFs every month, and that’d work out to be somewhere between $10k – $16k USD every month.

If so, I don’t see why I shouldn’t increase my exposure and shift some assets away from SG. STI has run up a lot anyway. A bit too much IMO.

It’s quite amazing how some simple, small changes can result in major changes, results wise.

I haven’t really made too big a change in my actions, but my thoughts have changed dramatically. And it’s really not ground breaking.

For example, I used to find companies with high IV, because high IV leads to high premiums right? Yet, I stuck to selling far OTM options because the likelihood of exercising is small. These options though, have low premiums. So this train of thought is really contradictory and counter productive.

I also failed previously, to relate a particular option strategy to the underlying company of the derivative. Yes, it sounds like common sense now, but I’m not sure why I didn’t think of it earlier.

There isn’t 1 silver bullet option strategy for all companies, obviously.

And all I needed is someone to point that out.

As to how to relate the strategy to the underlying company… well, I’m not obliged to talk about that here.


In this same vein, I now own 600 shares of Wells Fargo (WFC). This is a company that I’m familiar with, having analyzed and bought into it in the depths of the GFC back in 2009.

At that time, during the depths of the crisis, I bought at $9, sold half when it reached $12, and the other half when it reached $18. I then gave myself a pat on the back and thought that was the smartest thing anyone did.

Well. It’s $54 right now. LOL.

Anyway, with my new thoughts, it’s logical to go back to WFC. I understand the company better than most people, and the amount of DD needed is lesser since I’ve already done the groundwork some time ago. (At that time, John Stumpf just became CEO and now he’s kicked out)

WFC is undergoing a mini crisis of sorts currently. Their new management is still dealing with the fallout of the multiple accounts opening scandal, and the share price reflects that.

My current position of just 600 shares was accumulated at a nett price of $52.9, but this is the result of my options activity, not a direct purchase.

This means that this position is likely to keep changing in a matter of weeks. It could increase, it could decrease and in fact, it likely WOULD change.


Also, I’d miss out on Dutech’s AGM this coming Wednesday. I know there are some serious investors reading SG TTI, so please kindly drop me a mail to update me after you have attended.

I’d really love to know what Johnny Liu has to say, and what are the questions being asked.

Also, a BIG shout out to Xin Long who has kindly agreed to help me ask some questions at the AGM.

TTI’s New, Puny Position – S i2i

March has been an absolutely crazy month for me thus far, work-wise. Probably cos it’s sandwiched between 2 holidays, and I’m paying for my travel sins. It’s almost the end of the month, and I have not had a weekday lunch in the whole of March. That’s really not very healthy.

It’s screwing up my GI system, and I’ll probably see the consequences 2 decades from now. But it’s just 1 of those things. That’s life. I hope that by then, someone has figured out a way to grow a whole new GI tract with genetic engineering.

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On the investing front, I’ve recently opened up a new, absolutely puny position in S i2i.

I’ve previously posted a well written analysis by a reader Alain T, and written about my thoughts on the company, so this would be a continuation of that:

S i2i Investing Thesis

TTI’s Follow Up On S i2i

My new investing thought process necessitates a certain level of predictability before I take up a sizable position. I think that has served me well thus far, and I’m hoping S i2i is a continuation of the most recent 2 successes in Dutech Holdings and Geo Energy Resources.

In short, I’m willing to forgo a potentially good investment opportunity, if my analysis deems it to be good, but yet I don’t have relative visibility on it’s immediate to mid term prospects.

At the time of writing this, I’ve only an absolutely puny position of 2,000 shares of Si2i, bought at $2.45 last week. I’ve deliberately kept my position very very small, and it’s unlikely I’ll cross 5,000 shares. This is mainly because of the extreme illiquidity and the wide spreads. It’s just going to be very difficult to build up a large position, or liquidate one without getting affected by the spread in this instance.

As per my previous posts, Alain T has done really well with his investment in S i2i. I’ve also mentioned in my previous post, my personal opinion. And thus far, it seems that it’s played out as I described:

The company did fail to exit the watchlist by meeting the requirement of having an average market cap of $40mil over 6 months, by March 2017.

I got that right.

But they managed to get a time extension from SGX, and will now have until March 2018 to meet this requirement:

485) Si2i time extension.jpg

The share price as it stands now is about $2.45. For a market cap of $40mil, the share price has to be maintained at an average of $2.92 for 6 months.

So this means that from now till March 2018, either the share price rises another 19% to meet this requirement, or it doesn’t.


Along the way, a saga broke out.

S i2i received a letter from Blue Ocean Capital, claiming to represent some clients, and collectively they own 1.73% of the company, which is really too small a stake to do anything actually.

These guys are demanding that Dr Modi either buys out the company and privatizes it, or liquidates the company to recognize (close to) the NAV for the company.

Both outcomes, would be good for minority shareholders. Privatizing the company, or liquidating the company, would mean that shareholders would get to exit at a minimum of the NAV value. That’s $3.86 currently, which is a 58% premium to the current share price!

What makes this letter a “saga” though, is that one of the guys at Blue Ocean Capital, has a “related interest” in that his father is a director at Globalroam, which is the same company that Si2i is currently suing.

Globalroam converted a loan of $3.88 million (The loan is actually $5.5mil, back in 2014, but Globalroam has paid back partially, and this $3.88mil is what remains of the loan + interests) from S i2i into equity in Globalroam, instead of repaying the loan. It is S i2i’s position that this conversion is illegal. So this issue is now in the courtrooms.

I’m curious about this, because isn’t a convertibility issue clearly spelt out in a loan agreement? Either it is convertible, or it is not convertible. Wouldn’t the lawyers draft out something that’s iron clad and NOT up for interpretation? This is really curious to me.

Plus based on the initial loan announcement back in 2014, it does seem like there is a convertibility feature to the outstanding loan. I guess the dispute arises from WHO exactly, has the right to determine if the loan should be converted.

486) S i2i loan convertibility.jpg

So is the right to call the conversion with Si2i? Or Globalroam? We’ll let the courts decide that.

Also, try as I might, I can’t find where in the balance sheet is this loan parked under. Is it written off? Or is it parked under receivables? It’s not explained in any of the annual reports so there’s no way of telling.

In any case, like Alain T, I view this whole episode with Globalroam and Blue Ocean capital as a side show. It’s a neutral event, or a slight positive for me as a minority investor. It’s a slight positive because Blue Ocean is applying pressure on S i2i’s management, and both outcomes they’ve suggested, would suit me very well.

Plus this is getting personal. What’d you think this does to the egos and reputations of Si2i’s management and Dr Modi, if Si2i fails to meet the requirement to exit the watchlist?

If I am part of Si2i’s management, and/or Dr Modi, the 1st thing I’d want to do, is to exit the watchlist, and simultaneously, bring this dispute to the courtrooms and try to get back the $3.88mil + interests.

That scenario, would be a big win for both Si2i and Dr Modi, and a slap in the face for Globalroam (and a smaller tap on the wrist for Blue Ocean since they’d benefit directly from their equity stake)

At this stage, I don’t think it’s likely that Dr Modi would privatize the company. Again, that conclusion comes from the fact that there’s animosity between the parties, and well, it’s just human nature that you don’t let your adversary win right?

Privatization would only occur if the company truly is unable to meet the requirements to exit the watchlist.

So in my mind, there are 3 scenarios:

  1. Si2i fails to meet the requirements and eventually gets delisted by force. Alain T has worked out the dynamics of this scenario, and I think shareholders would get to exit in this scenario at a good price. (Pls go read the intial investing thesis). This is not my favorite scenario though, cos there’s a chance I might end up holding shares in an unlisted company.
  2. Si2i meets the requirements and exits the watchlist and stays listed. That’s a 19%+ gain from now to March 2018. It’ll likely be more than 19% gain, because the $2.92 is an average.
  3. Dr Modi accepts Blue Ocean’s recommendations and either buys out the company, or liquidates it. This is an unlikely scenario in my mind, but a highly profitable one for minority shareholders. The gain would be around 58%

Along the way, there’d be the smaller side show of the lawsuit. If Si2i wins the suit, that’s a positive because they’d get back the $3.88mil in cash. If Si2i loses, well, it’s currently expected by the markets. I don’t think there’ll be much impact.

So there are 3 potential scenarios, all of which seems good for the other minority shareholders. That’s what I mean by relatively high predictability.

On the business front, the company’s FY16Q4 results again turned out to be as I expected. In my earlier post, I’ve described how it seems like the company is improving, but they’ve thus far done that only by cutting costs, and not by growing their topline.

In Q4, we see that happening as the company slipped into losses, as the effect of cost cutting becomes diminished each quarter (There’s only so much fat you can cut)

487) S i2i FY16Q4.jpg

CONCLUSION

This is a unique scenario. I hesitate to call it an arbitrage situation because it’s not, but it’s not the typical deep value scenario I’m used to looking out for either.

It’s simply a calculated risk whereby I view the most likely scenarios going forward, to be favorable.

As mentioned earlier, I am not a fan of their new business directions (electric vehicles). I didn’t work it out in this post, but in Q4, that new direction contributed to the losses (not making profits yet, which is expected for a new venture)

Dr Modi has continued to buy up shares, even recently, which leads me to believe scenario 2 is currently the most likely. The fact that they’ve applied for an extension to the deadline also tells me that the management wants to exit the watchlist and keep the company listed.

I can live with a 19% gain a year from now.

In any case, this is a puny position, and even 5,000 shares would not account for 1% of my total portfolio by value, so I’ll just grab a popcorn and enjoy the ride. After Dutech and Geo Energy though, I’m hoping this would eventually grow to become the 3rd success for TTI for 2017.

Stay tuned for a good show.

Addendum!

That’s the problem when you start writing a blog post, save it halfway, and come back to finish it a few days later. Earlier, in this post, I talked about the loan convertibility saga with globalroam. Well apparantly, it’s not the most updated, cos just a couple of days ago:

488) court judgement Si2i.jpg

As described above, there is a convertibility feature attached to the loan based on the initial agreement back in 2014. I am curious why Si2i’s management thinks they had a case to begin with. No mention on the specifics, so I guess I would never know.