Valeant Pharmaceuticals

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.

BBR Holdings – TTI’s Analysis Of The Latest Happenings

1stly, something unrelated to BBR Holdings.

An article in this week’s TheEdge caught my attention:

The physical copy of the article has the said activist minority shareholder, Joshua Huang’s photo.

It caught my attention as Joshua is my school mate back in NJC, almost 2 decades ago. We used to run and train together in the track team during college days.

I’ll have you guys know that Joshua is a fierce competitor and a very determined chap, so I think USP’s chairman and ED would have a hard time with him. He just doesn’t give up easily.

Having said that, based on what the article wrote though, it does seem like he’s fighting an uphill battle. His fellow ally, Teng Choon Fong, has suddenly become uncontactable to him. And at least from the content of the article, it seems like his only gripe is that the management has made a poor investment decision with regard to Huan Hsin, and that this decision is not in the best interests of USP’s shareholders.

I have not done any relevant DD on any of the mentioned companies, but just based on the information from the article, it doesn’t look like there’s much for Joshua to act on. There is some hint of the directors acting with other interests in mind, other than the company’s……. but it’s usually hard to prove that. How do you prove that a director has neglected his fiduciary duties as a director? And even if you could, it’s always a grey area. Is it neglect? Or is it just incompetence? Or is it just market conditions?

Look at the recent happenings with Kingboard Copper Foil and with Sabana REIT. The odds are stacked heavily against the minority shareholders, regardless of how convincing you are or how much the actual facts actually back your position up. The rules are just tailored towards those with a large enough stake.

So my personal opinion is that Joshua is fighting a losing battle, but I wish him all the best. And if there’s any character that will bring such a battle to a head, it’d be someone like him. That much I know.

Alright. On to BBR Holdings now. It’s been sometime since I updated on BBR Holdings, and my investing thesis was based on the fact that the company should stop recognizing losses on the general construction sector, starting in FY17 and the markets were not pricing in this fact.

Thus far, my thesis has been playing out as planned.

Since the start of 2017, BBR Holdings has done pretty well, share price wise:

502) BBR Holdings YTD 2017.jpg

The share price has since risen a very respectable 19.44% in 2017 thus far. On a TA basis, the share price has now crossed both 50 and 150 dma, and there is an established uptrend.

BBR continues to attract the attention of Dr Chiu Hong Keong, the founder and Managing Director of Pintaras Jaya Berhad. So much so that he has quickly accumulated a stake in a very short period of time, that’s now more than that of the CEO Andrew Tan himself:

503) Dr Chiu stake in BBR.jpg

TTI’s own 1.8mil shares are parked inside Hong Leong Finance Nominees.

Anyway, it’s nice to know that someone with obvious experience and insider information, and a fellow potential competitor to boot, has been accumulating a substantial stake in the company. Let’s just say that I don’t think Dr Chiu is a fool.

Aside from that, the other news for the company is their recent acquisition of the remaining 20% in their Malaysian subsidiary that they don’t own:

504) BBR acquisition of BBRM.jpg

Since I’ve returned from my holiday, I’ve had time to now sit down and look in depth into this latest development.

So here are the details of the acquisition:

BBR Holdings is buying the 20% stake, to make BBR Construction Systems (M) fully owned.

They are paying S$5,115,000 for the stake. The book value of this 20% stake is given as S$3,856,000, and the net profit attributable to this 20% is S$1,152,000 for FY16.

BBR is paying for the stake in the form of new shares issued though, and not by cash. The new shares will be issued at a price of $0.31, which works out to be 16,500,000 new shares.

Seeing that the current share price is around $0.21 or so, this exercise price is favorable to existing shareholders. The “true” price that BBR is really paying is thus actually (16,500,000 shares x $0.21) = $3,465,000

So on paper the deal price is $5,115,000, which is a premium to the book value, and works out to a PE ratio of about 4.44

In reality, the real price that the company’s shareholders are paying (based on current market share price) is much lower.

That works out to a P/B of 0.9 and a P/E of 3

That seems reasonable, and in fact, rather cheap. Also, 50% of the shares will be locked up for 6 months, so the seller cannot sell out quickly. All this indicates to me that the seller believes there is still significant upside to BBR’s share price.

1 little snag though.

I did a little digging, and the figures given in the acquisition announcement, does not match what’s given in the AR 16.

Taken from AR16 page 75:

505) BBR AR16 page 75.jpg

506) BBR AR16 page 75.jpg

It clearly says that the profit attributable to the NCI (20%) is $790,000

The 20% NCI share of the book value is 20% of $18,793,000, which works out to be $3,758,600.

But in the announcement, the net profit is S$1,152,000, while the book value is S$3,856,000.

Now, I cannot figure out why there’s a discrepancy, since the AR16 figures should be audited figures, and the announcement clearly says it’s based on FY16 figures. I tried crowdsourcing this query on but it seems like nobody knows either. I was hoping there’d be more intelligent value folks who can help me with this.

Anyhow, it’s not too big a game changer. Even based on the lower profit of $790,000, the PE ratio of the acquisition would be 4.39, which is a tad higher than 3, but still dirt low.

It’s just that it irritates the hell out of me when I can’t reconcile numbers. They’re supposed to add up! It plays on my mind and I hate it, but I have to waste precious time trying to figure it out, even if it’s relatively irrelevant. I’m still waiting for a genius to enlighten me, so if you’re the one, pls email me or put it in the comments below.

Alright, so we’ve thus far ascertained that the deal seems sufficiently cheap, and that BBR is not overpaying. (BBR has had a previous history of over budgetting and getting into cost overruns so it’s not an exaggeration to monitor their acquisitions, particularly the PRICE)

How about the prospects of their Malaysian operations? With regard to this, after doing the necessary sniffing out, I’m pretty optimistic about where it’s heading. No wonder Dr Chiu is getting into the action.

In the AR16, in a little paragraph:

507) BBR announcement on MRT2.jpg

It seems like BBR is making good headway in the malaysian markets. On top of that, their malaysian subsidiary has had a good track record, making profits the past few years, even whilst BBR’s general construction arm has been bleeding money from cost overruns.

Now, Malaysia is currently undergoing a massive infrastructure boom. The government is spending huge sums on infrastructure, particularly on transportation, in a bid to boost the economy just before the elections.

Many local Malaysian builders have already profited tremendously, and it seems like BBR would be set to benefit as well.

Now, it says that BBR has “secured 2 out of the 10 MRT2 projects” in the AR16 paragraph above, but that’s a bit of an exaggeration.

I did a little digging to verify, and it seems that, at best, BBR is merely going to be a sub-con for these projects. Not the main con. This is the list of awarded contracts for SSP (MTR2):

508) SSP awarded contracts.jpg

509) SSP awarded contracts.jpg

510) SSP awarded contracts.jpg

511) SSP awarded contracts.jpg

None of the contractor names on the right hand column are related to BBR (Malaysia). BBR(M) has a fully owned subsidiary, SP Piling Sdn. Bhd., so I was looking out for that too but it doesn’t show up in any  of the awarded contracts.

Which leads me to believe they are just sub-cons and did not really “secured 2 out of the 10 MRT2 projects” as stated in the AR.

Anyhow, it’s not a bad thing. But thought to temper expectations a bit. There’s been no news release on the size of the contract, or the type of work to be done, much less the time line and the expected date of completion.

In fact, there’s been no single announcement on this aside from that puny paragraph in the AR giving a hint of what’s happening.

If we take this development, and put it in the context of Dr Chiu taking up a sizable stake, plus the latest move to fully acquire their Malaysian subsidiary…… well, you can form your own conclusions.

Now, a bit of background. What exactly is MRT2? It’s a new drive to improve on the train connectivity, and is defined by the building of 2 massive new MRT lines.

One of these lines, is the one that BBR has reportedly won 2 contracts from. It links Sungai Buloh to Serdang to Putrajaya. Which is why it’s called the SSP line. This is the timeline for the project:

512) SSP timeline.jpg

So it all looks rather promising for BBR.

BBR has also won contracts for the West Coast Expressway and the East Coast Rail Link, both of which are huge massive infrastructure projects. I won’t talk about it too much here yet, until more details are released.

It is difficult to say whether BBR will derive a good profit and/or margin on these projects. Afterall, no details have been released, except that from my personal digging, I can only conclude that BBR will be a sub-con and not the main con.

BBR(M) though, has had a good past track record in profitability the past few years, so I’m optimistic that these projects will be carried out with good margins. Afterall, shareholders want profits. Not activity.

On a different note, BBR’s other projects are progressing well. The Wisteria JV is doing very well actually, much better than I initially expected. The condo is now probably fully sold. The last I checked with an agent, there was like 10 units remaining. But since then, more caveats have been lodged in April 2017, so I’d assume all or most of the units have been sold.

The Wisteria condo is definitely profitable, and fully sold way ahead of time.

The linked Wisteria mall is thus, likely to do well. As explained in my earlier post, the mall and the residence have fates that are linked (as with any mixed development). By focusing on the condo project first, they can now get tenants to come in to the retail side by marketing the fully sold condo part.

Where there are residences, there is demand. Where there is demand, there will be retailers coming in the commercial part.

And since the Wisteria Mall is going to be single strata titled owned, the JV would continue to manage and lease out the project, giving rise to a nice recurring income. I am convinced their retail side (Wisteria Mall) will do very well simply because there really has been a lack of supply in Yishun.

The residents have been under served thus far, and Wisteria Mall will fulfill this need. The location and timing of the mall has been simply perfect.

BBR Holdings has an effective 25.05% in this JV.

In another related development, BBR’s other JV project, Lakelife has achieved TOP, and they’ve already recognized profits in the last earnings (FY16Q4)

There are still 250 units of Lakelife which are not recognized, and will likely be recognized in FY17. With a simple extrapolation, that works out to be approximately $7.9mil worth of profits.

Now, putting into context that the NPs of BBR in FY16 and FY15 are $1.1mil and $2.3mil respectively, you can see why I am optimistic about FY17 results.

The reason why FY16’s NP is as low as it is, despite recognizing partial gains from the Lakelife project, is mainly from the losses from the general construction segment.

So if the general construction segment stops bleeding in FY17, we can see the profits accrue and the jump should be quite magnificent.

Now I’ll change topic here and talk a bit about Valeant Pharmaceuticals (VRX)

My DD of course, goes way beyond what I’m going to share here, but it’s really too much to write it all out. So I’m just sharing this tidbit of info.

It’s no doubt, been one of my biggest losers thus far. It’s not much of a comfort, but it’s in the news constantly, and there are far bigger and more acclaimed investors like Bill Ackman, Bill Miller and the supposed professor of valuation, Prof Aswath Damodaran who have been wrong (thus far at least)  on this.

At some point, if I’ve the time, I’d share more of my DD on VRX.

One of the biggest bears of VRX has been David Marris, an analyst with Wells Fargo (WFC).

You can say he’s been right all this while, seeing how the share price of VRX has performed. Interestingly, WFC took up a new short position back in May 2016 by owning puts in VRX:

513) WFC short on VRX.jpg

At that time, and all the way till now, David Marris has been a huge vocal short on VRX.

And he’s been absolutely right.

514) VRX share price in May 2016.jpg

The share price in May 2016 was approximately US$29, and right now, even after a little rally, it’s still around US$9.50. Marris has been short on VRX way before that, so you could say he’s been right even earlier.

So congrats to Marris and WFC.

Interestingly, I noticed that for the 1st time in years, WFC’s position has changed:

514) WFC turns positive on VRX.jpg

(Green = new positions, Red = closed positions)

I’m sure these positions are taken on behalf of clients.

I just can’t wait for David Marris to suddenly change track and issue a HOLD or BUY call.

Oh boy. That’ll be fun to watch.