LTC Corporation

SGX Bull Charge 2017! + Other Recent Developments

Nope, this post is not about the bull market. It’s mostly about SGX’s annual charity run.

596) SGX Bull Charge Run.jpg

But in the true spirit of SG TTI’s typical posts, let me 1st talk about some frivolous stuff, updates etc.

In a recent post, I talked about 2 recent additions to TTI’s portfolio:

TTI Bought >$100K Worth Of Equities In July… Howard Marks’ Memo Better Don’t Come True Right Now!

This was broken down into 2 parts and republished on NextInsight:

https://www.nextinsight.net/story-archive-mainmenu-60/939-2017/11644-dutech-why-i-bought-another-100-000-shares-on-price-fall

https://www.nextinsight.net/story-archive-mainmenu-60/939-2017/11646-geo-energy-resources-why-i-bought-another-100-000-shares-on-price-fall

Well, at least for now, it does seem that I’ve managed to buy very close to the bottom (something that doesn’t happen very often!), as both have rallied/recovered substantially, literally the day after I posted.

Geo is up 16.7% and Dutech is up 5.6% since the post was published barely a week ago.

Some have asked me if I have since divested. The answer is no. I’m looking for much larger gains, triggered by what I identify as specific catalysts. As long as the thesis is still intact, I’d stay on course.

For Geo Energy, I believe my superior, in depth analysis and understanding of the industry gives me a competitive advantage over the markets. Thus far, everything is playing out as how I’ve described it in earlier posts: a much tighter coal  market in China following summer demands, recovering and rapidly rising Indo coal prices, Geo’s completion of TBR acquisition. Upcoming catalysts would be superior Q2 results that beat market expectations, higher coal volume and ASPs compared to market expectations and an offtake agreement for TBR.

oh oh! and I almost forgot. For those who are shorting Geo Energy going into Q2 ERs (Most have been returned but I still have 50,000 shares loaned out to shortists), I only have 2 words for you:

Clyde Russell”

If you don’t know what I’m talking about, add a “coal” to that and google it.

I know my stuff.

For Dutech Holdings, the fear is still palpable. I’m watching for a catalyst in Q2 results, with profitability impacted, but yet higher than market expectations. I believe the market was pricing in losses, and if Q2 is still profitable, we’d see further recovery. Everybody knows Dutech Holdings is a superior business, with an excellent management. Over time, I see their hardware side gradually going downhill, but their software side coming on as a big part of the business in future. Margins for the software side has always been high, so overall the business margins will be maintained. This will probably take time to play out though, as the decline in High Security is industry wide and likely to continue for several quarters, while on the Business Solutions side, it takes time to integrate acquired businesses and turn them around.

LTC Corporation has also risen rather strongly of late, probably spurred by news of their 40% acquisition in Regata ( a Malaysian property developer):

http://infopub.sgx.com/FileOpen/LTC_SGX_JV_GCSBFinal.ashx?App=Announcement&FileID=450266

I had a short discussion about this on valuebuddies.com for those who are interested. There’s not much info released on the deal, so you’d have to do some digging if you’re interested to do DD on this.

I previously added 20,200 shares of LTC Corporation sometime in April at $0.6, and with the rising share price, I’d be taking a look at this again when results are released as it is now a much larger proportion of my overall portfolio.

593) IN post on LTC.jpg

The share price is now $0.665, and that works out to be a 10.8% gain in 4 months (since April 2017), not too shabby.

InvestingNote is a great place for some leisurely entertainment if you’re casually investing. Tons of casual chit chatting there. But honestly, it’s kinda unproductive, and there is rarely any actionable info, so I’d be spending less time there and focus on using my time more productively.

For serious investing ideas and analyses, I’d much prefer to stick to reading NextInsight and/or discussing on Valuebuddies.com.

Both sites don’t get as much updates as I’d like, but the content on both are more serious, much more well researched, with what I believe are stronger, more knowledgeable and more serious investors participating.

In fact, to fast track some of my DD sometimes, I’d make enquiries on valuebuddies. More often than not, someone with more in depth knowledge than myself on that subject matter would quickly clear my doubt. You’d be surprised: there are a lot of Crouching Tigers and Hidden Dragons there.

So in my mind:

NextInsight = Straits Times

Valuebuddies = Channelnewsasia

InvestingNote = Wanbao

SeekingAlpha = Financial Times

(I use SeekingAlpha to get ideas/opinions for international stocks, but take it with a pinch of salt. Some are just poorly researched opinions with controversial titles trying to attract clicks. Authors get rewarded for clicks, not for their actual investing acumen)


On a different note, of late, I’ve been receiving a lot of emails asking to do “collaborations” and “sponsored guest posts” etc. The thing is, these enquiries are mostly from foreign readers/outfits, and I’m really not sure what to make of it. I don’t know what they have in mind.

Maybe someone who knows can let me know what’s going on, and why I’m getting a barrage of these in the past week or so, when I previously have had none. (Bear in mind I’m an IT idiot)

594) emails to TTI.jpg

595) emails to TTI.jpg

Well, I know how advertising works, but SG TTI is a focused, investing blog. Not sure what these non-investing entities have in mind. I also don’t do any SEO, neither am I interested to start.

Please enlighten me if any of you know.

Long time readers of SG TTI would also notice a nice little medal at the right side, just added recently.

Actually, I received an email from Feedspot  (http://blog.feedspot.com/) about that some time ago, congratulating SG TTI on having being awarded some medal for being prolific enough. They came up with this list by compiling Facebook fans, Twitter followers and other metrics like google search ranking, mentions, quality and consistency of posts and their own editorial team’s assessment.

And since SG TTI has absolutely zero presence on Facebook and Twitter (like I said, I’m not a great user of tech!), it’s a real accolade to be on this list.

Still, tbh, I ignored the mail initially.

TTI is focused on identifying and capitalizing great investment ideas, not coming up with a great investment site. There’s obviously a big difference. I wanna be a great investor, not a great writer of investing ideas.

After a week, I did get a follow up email on this though, and since they asked again nicely, why not add it to SG TTI?

604) Feedspot.jpg

It does add colour to an otherwise drab site appearance, doesn’t it?


OK, now, THIS is the main purpose for this post.

SGX’s Annual Charity Bull Charge Run 2017

598) Bull charge photo.jpg

I’ve been approached by SGX to help write a post to advertise/market/promote SGX’s charity run 2017:

https://bullcharge.sgx.com/

Now, let me be clear about this right off the bat: this is NOT a paid advertorial. This post is entirely for the sake of promoting a charitable event that I personally feel is for a great cause.

SGX is also NOT getting any proceeds from running their charity events.

In fact, if I understood it correctly, SGX is footing the bill for running and organising all their charity events, yet any proceeds received goes 100% into supporting their charities. They don’t use any of the proceeds received to offset the costs of running the activities.

(Lilin from SGX, please correct me if I’m wrong in saying this)

599) Event Details.jpg

The event is taking place on the 17th November 2017 (it’s a Friday!) from 4pm – 930pm.

There are 3 categories to participate in:

600) Event categories.jpg

The obstacle team challenge is something new for this year. Apparently it’s a run with inflatable obstacles, making it different and a lot more interesting compared to your typical run.

As you can see, the runs are pretty casual: this isn’t a competitive event, the vibe I get is that this is more of a relaxed, charity event, and a huge opportunity for networking and socializing.

If running isn’t your cup of tea, there’s the festival village:

601) SGX festival village.jpg

Free popcorn, food, drinks, live performances etc.

In previous years, there are also lots of games and activities to participate in, not sure if there’ll be those this year. But it sure looks fun.

To be honest, it seems to me that this run is targeted towards corporate entities (SG registered only), so members of the public who want to sign up on their own will probably find it difficult.

At least from my understanding, sign ups are via the companies, who then send their employees to participate.

EDIT: I’m just told that members of the public can also form a team of 4 to participate in the Obstacle Challenge, with a donation of $1,000.

The sponsorship rates for 2017 are:

602) Sponsorship packages.jpg

These are the sponsors for last year’s edition:

597) Sponsors.jpg

Wow. Noble was a gold bull sponsor.

Not sure if they’d be doing the same this year with their funding problems.

And why is DBS the only local bank on the list last year? Where’s UOB and OCBC?

So who are the beneficiaries of this charity fund raising?

603) Beneficiaries.jpg

All proceeds will go to 5 beneficiaries:

Autism Association (Singapore)

AWWA Ltd

Community Chest

Fei Yue Community Services

Shared Services for Charities.

Right now, SG TTI has 10 complimentary race entries for the 5km Mass Run event to give away. Anyone who’s interested in attending this event, simply email me at thumbtackinvestor@gmail.com to indicate your interest.

Team Thumbtack will also likely send representatives.

So see you guys there!

LTC Corporation – FY17Q2 Results. Let’s Analyze…

LTC Corporation just released it’s FY17Q2 results today.

Yes, yes, I know I’ve finished analyzing and am writing an update report on LTC… on Valentine’s Day. But I’m married with 2 kids so V-Day is just another day to me, without the fancy dinners and flowers. Just a quick dinner at home, exchange presents (I only paid for the present, didn’t even have to actually buy it…), and it’s back to work for me. I hate the crowds anyway.

So LTC becomes my Valentine for tonight.

In any case, I am really excited to analyze the earnings release. I’m excited to share some of my thoughts too, cos I know there are some readers here who have done quite a bit of homework on LTC too. (From the emails I received previously)

4) ltc-logo 13052016

Take a look, and please let me know anything that I may have missed out.


This is a continuation of my previous analysis of Q1 results:

My Current Thoughts On LTC Corporation – FY17Q1 Results

Just to give more background, the post before that comparing LTC vs Asia Enterprises Holdings is also rather relevant:

LTC Corporation & Asia Enterprises Holdings – What Are Investors Missing?

And if that’s not enough, these are older but all related:

Info That I Have Gleaned From LTC Corporation’s AR 2016

LTC Corporation (Part I)

LTC Corporation (Part II)


Gross Profit increased by… … 1,634%?!

Yup. That’s not a typo. Check this out:

447) LTC Corp earnings FY17Q2.jpg

GP, OP and PBT all increased by thousands of % points!

Now, that’s not a sight you see everyday. That really made me sit up.

Now, steel prices have gone ballistic in calendar Q4 of 2016. I was expecting this to be a positive for LTC, since the price they can sell their rebar steel at, is fixed by BCA, and the BCA figures reflect a massive hike up too:

453) BCA rebar steel in Jan 2017.jpg

Also, the net effect of a rising steel price means the inventory they are holding suddenly becomes more valuable, with 0 costs involved to achieve this gain.

Yet this massive jump in the form of thousands of % increase, is a surprise to me. It basically reflects what I’ve mentioned in the earlier posts.

Because LTC records the steel inventory via a weighted average price,

What this means is that in an environment of falling steel prices, losses get magnified.

The converse is true: in an environment of rising steel prices, gains get magnified.”

On a different note, this kinda shows how much the steel prices have gained in Q4 2016. That’s obviously a good thing for LTC Corporation, but NOT good for Dutech Holdings, one of my other key holdings.

Ah, they are all linked one way or another. I’d like to think there’s a natural hedge inbuilt.


FCF Generation Thesis Is Still Intact

The whole investing thesis is centered around the fact that LTC’s business is actually generating a ton of FCF every quarter, but previously it used the FCF to pay down debt. Going forward, the FCF should accrue. I’ve described that in the later part of this earlier post: LTC Corporation & Asia Enterprises Holdings – What Are Investors Missing?

448) LTC CF FY17Q2.jpg

For FY17 Q1 & Q2, the company generated operating CF of $16.8mil, with pretty much negligible capex of around $100k.

FCF generated in 6 months = $16.7mil.

And all this FCF is starting to show up in LTC’s balance sheet:

449) LTC Q1 results.jpg

FY16Q4 – Fixed Deposits $16.85mil, Cash $17.52mil. Total: $34.37mil

FY17Q1 – Fixed Deposits $26.96mil, Cash $25.11mil. Total: $52.07mil

FY17Q2 – Fixed Deposits $31.43mil, Cash $18.45mil (see BS below) Total: $49.88mil

450) LTC Q2 results.jpg

Yes, I’m aware that the cash and cash equivalents actually dropped a little bit comparing FY17Q1 vs FY17Q2, but we have to take into account the massive increase in “trade debtors” from $16.4mil in FY16Q4 to $26.67mil in FY17Q2.

This means that LTC has been doing brisk business of late, we see the value of the inventories dropping while the debtors increasing. LTC doesn’t have a track record of writing off bad debts, so we can safely assume all this trade debts will eventually be collected and converted to $$$. Credit terms given is usu 6 months (I think. It’s in the AR)


Writing Off Of Goodwill Incurred From USP Acquisition?

452) LTC JV company.jpg

This JV company is the 50% stake in USP. The value carried in the BS has been dropping every quarter.

The JV is recorded at $24.07mil as of FY16Q4.

Since the net assets of USP at the point of acquisition is given as $27.16mil, the 50% stake is worth $13.58mil on a net basis. The rest of this $24.07mil is made up of a goodwill amount of $10.49mil.

It is this $10.49mil that is being amortized each quarter. As of FY17Q2, the value has dropped by $1.55mil, so I am expecting the remaining goodwill portion to be $8.94mil.

Actually, all this is my assumption/postulation. LTC didn’t provide a breakdown or an explanation for the decrease in the value of the JV carried in the balance sheets.

Logically, it should be due to the write down of the goodwill portion. If it is, I’m happy. I like to be conservative. Keep writing down all the useless “goodwill” please.

There is a small chance though, that part of the drop is from the writedown of the net assets of the company itself, if the economic conditions are such that there is a material and permanent change in the assets of the company. (Better not be!!!)

I guess I wouldn’t know for sure until the AR17 is out in 6 months.


USP 50% Acquisition Still Sucks

Now for the bad news part. I’ve previously railed about how lousy the acquisition of USP is. Thus far, the results unfortunately, proved me right.

Oh, how I wish I’m wrong on this. How I wish USP can suddenly show tremendous profits and make me eat my words.

451) LTC USP sucks.jpg

Yup. The 50% stake contributed… $6k of profits in the past 3 months. So the entire SOGO business earned $12k profits in the past 3 months. Right.

For the past 6 months, the 50% stake LOST $636k.

Zzzzzzzzzzzzzzzzzzz. Come on!

And this is basically the conundrum I mentioned previously. The business generates a ton of FCF each quarter. Debt is pretty much gone. Yet, how the management utilizes this FCF is the key. Thus far, it’s not been very inspiring.


CONCLUSION

Alright. That’s my dissection of the LTC FY17Q2 financials. Nothing earth shattering really. The massive jump in gross profits is nice, it remains to be seen if it can be maintained.

What I’m more interested in though, is how the management utilizes the cash hoard that’s fast building up in the coming quarters.

For those who think that the cash will be distributed, don’t count on it. I’ve been watching these guys for some time and somehow, I know that’s going to be really unlikely.

Let me know if I missed out anything.

As always, happy hunting. And happy Valentine’s.


Best Quote I’ve Read This Week:

Poonified: A reminder every time I speculate on stocks:

“Even if you survived after running through a burning building, you’re still an idiot”