BBR Holdings FY16 Results – The Good & The Bad

This is a continuation of my earlier posts on BBR Holdings, so I shan’t go into the basic stuff. This post should be a quick update.

The company released it’s FY16Q4 results, and I’ve torn into it. Again, nothing too surprising in there, everything is within my projections. I have lightened my stake in the company a little this month, but that’s not because of the financials, but simply because of portfolio allocation reasons. It’s simply too large a proportion. And more importantly, I’ve been working on a new idea (brought to my attention by a reader some time ago), and would like to have more capital ready if I decide to enter.

123) modern-analyst-1316900__180

Let’s start with the good stuff first.

EMERGENCE OF A NEW SUBSTANTIAL SHAREHOLDER

The share price has increased rapidly of late, mainly due to the emergence of a new substantial shareholder buying up shares in the market. Dr Chiu Hong Keong, who is the Chairman of Pintaras, a fellow construction company in Malaysia, and his wife Mdm Khoo Yok Kee have bought a chunk of shares at around $0.190+, and have continued their buying spree up to $0.2. As a result, the share price has done this:

455) BBR share price 23022017.jpg

Since the start of the year, the share price has gained something like 17%. I took the chance to sell a bit into the rally, again, simply because of portfolio allocation reasons. I sold at a price that’s still below my ave. price, but this batch of shares were bought just recently in June 2016 at around $0.17+, so I’m happy to take some money off the table first and lower my average price.

Obviously, I’m not privy to the thoughts of Dr Chiu, but as the Chairman of a peer in the same industry in Malaysia, I’m glad to see him appearing in the substantial shareholder list. Note that he’s using his personal cash to buy, not Pintaras’ $$$. I don’t see any scenario whereby this can be a bad thing.


RECOGNITION OF PROFITS FROM LAKELIFE JV

As expected, Lakelife JV finally started contributing to profits, upon TOP. They only recognized partial profits, so there’s still some meat left for FY17, and it’ll most likely be recognized in Q1.

456) BBR FY16Q4 press release.jpg

The $9.4mil recognition has been a real lifesaver for BBR, single handedly dragging BBR’s FY results to become profitable.

I’ve previously tried predicting the profitability of this project:

BBR Holdings Investing Thesis Addendum

Based on the $9.4mil recognized for 296 units, there’s still approximately $7.94mil left to be recognized for FY17. (This is very approximate. I’m assuming a straight extrapolation is enough, but in reality the profitability for the remaining units may be different from the ones that’s recognized thus far)

That gives total earnings (based on their 35% stake) of $17.34mil, which is about 5.63 cents EPS.

I’ve previously estimated about 6.5 cents EPS:

“This means upon TOP, BBR’s income statement will show a nice boost to earnings of approximately 6.5 cents, and the balance sheet will have a mega boost to cash and cash equivalents of ($19.9 mil due to it’s 35% stake + $19.3mil due to loans extended to the JV) = $39mil approximately.”

This means that earnings came in a bit below my projections, but not too far off either. The reasons for that, I’ve since discovered, is that some of the units were not handed over to their owners at TOP as they were not eligible (it is an EC project), these units have since been resold, but at lower prices. Don’t ask me how I found this out. I have my sources :)


MASSIVE BOOST TO CASHFLOW COMING UP…

457-bbr-bs-fy16

Upon completion of the Lakelife project, BBR should be collecting the loans to the developer. We can expect $20.1mil coming in when the loans get repaid, which will mean that FY17 would likely be CF +ve.

Of course, it may be premature for me to say this as it depends on where BBR will end up sending this cash to.

But it’s nice to start FY17, before a single financial is released, knowing that there’s like 2.6 cents to be recognized, and about $20mil + to be collected.

Earnings boost + CF stability. I like.


WISTERIA JV DOING FINE THUS FAR

As of January 2017, 180 units out of 216 units have been sold. Which is like 83% sold. Not too bad huh?

But it gets better. They stepped up their game further in Feb 2017:

458) The Wisteria URA figures Feb 2017.jpg

OK. Resolution is not great.

But basically an additional 14 units had their caveats lodged with URA. The selling price PSF was maintained and in fact, even rose a bit. Currently, The Wisteria is approximately 90% sold.

Now, a bit of background info on mixed developments. Ever wonder why there’s thus far, no news on the commercial units yet? Aside from the fact that they got an anchor tenant already. Can’t rem off hand now but I think it’s either Koufu or NTUC.

The reason is simple. The developer can market and ask for higher rent when the residential part is fully sold and likely to be well occupied. This translates to more footfall, more traffic, more visibility for your brand blah blah blah.

In my (daytime) work, I’ve had some experience liasing with mall landlords. Kinda know how it works.


ALIKA PROPERTIES 

BBR incorporated a fully owned subsidiary, Alika properties. Alika has been active, bidding on a land parcel site at Perumal Road. They failed to win though, and in fact, came in 2ND LAST amongst all the bidders:

459) Alika properties.jpg

Wait… TTI!

They failed to win the tender, came in 2nd last, and you’re including this as a “good thing”?

HELL YES, I AM!

BBR’s main problem is getting their fingers into too many things, but failing to be a master at any one of them. I have a compiled list of their recent projects, and just look at how many projects they have to handle:

463) BBR project list.jpg

464) BBR project.jpg

465) BBR project list.jpg

466) BBR project.jpg

467) BBR project.jpg

Compare that to some of the builders that I’ve previously analyzed, and BBR is over stretching themselves.

It’s like when Michael Jordan decided to play golf competitively at 1 point. He didn’t do very well then huh?

In my previous (nasty) correspondence with the management:

460) BBR sharing.jpg

They indicated that they’ll complete the loss making projects, and going forward, exercise caution in their bids:

461) Profitability BBR.jpg

Imagine they won the bid by a large margin. I’ll panic.

On a side note, and there’s no official announcement on this so don’t bother looking up SGX announcements, but one of the “2 new senior personnel”, is Dr Jeremy Wu, who joined the company as Executive Director and director of corporate development in May 2016.


INCREASED DIVIDEND

BBR declared a special dividend, so the total dividend for FY16 would be 0.6 cents.

While it’s an increase from previously, the yield is still miserably low at around 3%. I guess a growth in dividends can be classified as a good thing.

I wasn’t expecting a dividend raise so can’t complain here.


Now the BAD STUFF:

NO SUCCESS IN REDUCING OPERATING COSTS

Let me quote from the reply above:

“………… implemented appropriate cost cutting measures on a consistent basis”

Now, look at the most recent income statement:

462) BBR FY16 income statement.jpg

Operating, admin and finance costs for 2015: $23mil

Operating, admin and finance costs for 2016: $23.92mil

Wait. Let me get this straight. And these are facts I’m sprouting here:

The company spent $23mil, to achieve $425mil in revenue in 2015. The management says, OK this isn’t good enough. We’re going to (and I’m quoting here) “implement appropriate cost cutting measures on a consistent basis”, and after that, they spent $23.92mil (even more!) to achieve $277mil in 2016 (reduced revenue)

As I always say, don’t bother with what the management says. Watch what they do.

But here, I’ll add a caveat. It’s probably too superficial to look at these figures and conclude that they didn’t or failed to do any cost cutting. They’re lagging figures anyway. The revenue is locked in periodically, so some of these costs could be incurred now, and the revenue will come later.

Plus a lot of their activity is via the JV and associates, and that does NOT show up in revenues. So, while I utilize figures to substantiate a point, I’m just adding a caveat to say that, well, they’re not 100% reflective either.


GENERAL CONSTRUCTION STILL BLEEDING $$$

This is the biggest disappointment for me. Will this EVER stop? They are still bleeding money fixing up past issues. Management has, for obvious reasons, declined to reveal which projects are loss making.

And I quote from the press release:

“Gross profit for FY2016 was lower at $13.4 million during the year compared to $25.2 million for FY2015 and this was mainly due to decrease in revenue and cost overruns incurred for certain general construction projects.”

Now, my opinion here, is that the bloodletting is now finally over. Management didn’t guide for it, but I derive this conclusion by tracking their projects and comparing it to the quarterly statements.

My belief is that losses from general construction segment ends in FY16. We shouldn’t see more project losses in FY17.

From the projects that are completed in FY16, I surmise that the losses came from the HDB projects, and possibly the government tenders such as the Keppel viaduct project.

I’ve tracked this for some time now, and it seems their problems first started in FY14Q3 (or at least, it was first mentioned in that earnings release).

2 years+ should be enough for these projects to run it’s course.


CONCLUSION

I’ll stick my head out for BBR here, and state that I personally think the worst is over for the company.

FY17 should show improved financial metrics across the board compared to FY16.

Their current ongoing projects would be profitable, and the fact that they’re looking for more work has not been lost on me.

I hope the management stick to what they say they will do, and adopt a more disciplined approach to project management. If you’re not going to earn a margin on the project, forget it. Downsize if you have to, but don’t commit to stuff that will come back to haunt you later.

I am optimistic that the company will do better going forward compared to the previous 2 years.

“I Sell Fried Chicken”

My previous post about my investor friend was super well received. So much so that I’m reluctant to even link it here anymore. I just dunno if he’d appreciate the sudden publicity.

Anyway, I said I’d share about another highly successful individual that I know personally.

Incidentally, I recently saw a Bloomberg report about him:

https://www.bloomberg.com/news/articles/2017-02-01/barbecue-chicken-seller-turns-tycoon-with-a-2-500-stock-surge

And now I’m kicking myself in the butt because I know this guy way way WAY before he started DoubleDragons Properties, and he even shared with me his vision for doing so.

Yup, I missed a 2,500% return, despite having good information from the founder himself.

Dunno why, never considered to investigate deeper.

I first met Edgar Sia several years ago. His good friend happened to be a major investor in the healthcare company that I worked in, and he came over for holidays with him and we had dinners together.

Edgar is as humble a billionaire as you can imagine. Yes, it’s official. He’s the youngest billionaire in Philippines, coming in at number 17 in the Forbes list.

http://josiahgo.com/edgar-sia-ii-is-youngest-filipino-billionaire-by-josiah-go/

When I first met him, I didn’t know what he did, and DoubleDragons didn’t exist yet. But he was already extremely wealthy from selling his Mang Inasal chicken chain. (I later saw his name in a Forbes Top 50 richest list for Philippines)

Yet at that time, when I asked him: “So Edgar, what do you do for a living?”

His reply?

“I sell fried chicken”

And then he went on to explain the SCIENCE behind selling fried chicken.

“Chicken is the cheapest meat per unit kg”

“Best time to kill the chicken for maximum profits in terms of meat vs feed spent, is when they’re about 2 months old”

And a whole load of other stuff such as the maximum time from killing the chicken to processing the meat so that freshness is maintained, how a day old chick looks like etc.

It was only much later, then I realized that when he said he sells fried chicken, he meant that he sells it through a chain of 460 restaurants that employs 15,000 people.

Right.

The last time I saw Edgar was a couple of years ago, just before he started DoubleDragons Properties. At that time, he mentioned to me that he saw an opening in the mid-tier cities in Philippines. He said that the major cities were over crowded with malls, and the land is very expensive.

The mid-tier cities though, have an opening as many developers have not caught on yet. On top of that, there’s massive rising spending power in these cities. The populace there is getting richer, and he foresaw that their spending needs were not met adequately. To top it all off, transportation links were not that great between the mid tier cities, and the country is dispersed through many land masses. People in the mid tier cities would likely keep their spending power within the locality.

Since then, he hasn’t been to SG anymore, probably busy with DoubleDragons. He’s been highly successful obviously, and I’m really kicking myself for not at least investigating this. Hell, I’ve the news before any other retail investor did, and I know the founder personally and we talked about this, albeit casually.

In my conversations with Edgar, I can tell he thinks very deeply about many things. Things that people may find trivial. Yet, he goes down to the minute detail. I mean, would you think there’re so many things to think about when talking about selling fried chicken?!

Anyway, congrats to Edgar. Knowing his personality (humble and easy going), plus his deep intelligence, he’ll probably be one of those folks that would be successful at anything.

Now I’m hoping he’s done with DoubleDragons so that he’d move on to the next venture. And for gods’ sake, TTI, please do the DD if he lets you know this time.

BTW, if you’re wondering why “DoubleDragons”, it’s cos he and his co-founder were both born in the year of the dragon, 12 years apart. (or maybe 24. I can’t rem exactly)


WARNING: GORY PICTURE BELOW. DON’T READ THIS POST IF THAT TURNS YOUR STOMACH.

On a very different note, I was recently chatting with a reader via email about his work and financial situation. (Yes, I’ve permission to talk about it, but not revealing private details, of course)

It’s been illuminating to me because now I can fully appreciate why many retail investors look to investing their portfolio as a means to attain “financial freedom” and quit their jobs. It’s refreshing to get a different perspective once in a while.

Steve Jobs’ famous speech is the one that’s often quoted to tell us to just do whatever we like, and if we keep at it, we’ll become very good at it and be successful blah blah blah.

It’s a great speech and all that, probably gonna last through the ages as an inspiration to many many many people.

Yet, it’s probably too simplistic to think of it just like that.

The truth is, many people will get stuck in jobs they don’t like, are not exceptionally good at, and they’d be stuck in it…….. pretty much for the bulk of their adult life.

Even Steve Jobs himself bumped around for a long while, and it was perhaps fortuitous that he started Apple. He himself didn’t know what to do with his life, and spent some time in India pursing Yoga to “find himself”

Hard truths. It takes a lot of luck to do something you like, are really good at, and yet get paid handsomely for it. Most people, I suspect, just settle into a zone where they’re OK with their jobs, don’t particularly love it or hate it, but it pays the bills. It’s a necessity.

So that’s where the bulk of my conversation with the reader went. And I’m sorry that I can’t provide better advice. But these sorta stuff are not really my forte. There are many other blogs that will dissect and talk about how you can use dividends to get financial freedom etc.

I have never even went for a job interview before. Or wrote up a CV before.

But I can empathize with a difficult working environment. Yes, I do get a lot of that. It sucks. I dunno what I’d do if I’m in his situation. I won’t try to act like a saintly hero and say just quit and do something you like as per the video above.

That’s not realistic. For eg. I like to play soccer with some mates. But what, can I go be a professional and play in the EPL anytime soon? It just doesn’t work out most of the time. (I’d have you know I’m not too bad either ok… LOL)

Having considered the financial restrictions of the above said reader, and the tough working environment, I think the only viable option, is to……. take an action that ironically makes his situation even harder temporarily.

Go upgrade and learn something that’s useful and valued by society. Investing in yourself is usually the best route to take in such circumstances. It can be something different, but preferably related to what you already know. It just makes the learning curve less steep.

I’m glad to say that the said reader is probably going to take that advice.


In the above conversation, I’ve also been asked about my personal financial situation.

Well, honestly, I don’t have any massive expensive wants. My only large expenditure, is travelling. I love to travel with family (not alone). I see that as a transaction where I’m swapping money and time for experiences and memories. Well worth it IMO.

And I value experiences and memories A LOT. Like this:

I Did Something Fun As A Kid… And Now It’s Worth 6 Digits!!!

Afterall, what’s the point of a big fat bank account on your death bed? Nobody ever talks about what their net worth is when they’re dying. And I do know many very wealthy folks.

Neither do I want to leave a fortune for my kids. I mean, my parents didn’t give me anything other than an education, so why should my kids have it better? I’d train them to be the best they can be, and that’s all that’s needed. (Plus I have a personal hypothesis that the richer you are, the worse off your kids tend to be in terms of achieving their maximum potential)

Hey, don’t just take all this from me, I never died before.

Take it from this guy, a fellow medical colleague, Dr Richard Teo, who has since passed away. This speech is given to a bunch of young dental students, and it’s as heartfelt as it can be.

I mean, he knows it’s stage 4 cancer when he gave this speech. He could’ve been lying in bed moaning. Or trying frantically to spend his wealth in his last days. But here he is, talking and sharing with younger colleagues-to-be in the fraternity:

https://www.youtube.com/watch?v=umLkfADe17s

It’s as heartfelt as it can be right?

On a personal note, I realized very few of my colleagues actually really retire. I’m sure they’ve reached “financial independence” long long long ago.

I think even I myself can be considered “financially independent”. It might be a stretch, and I might have to downgrade my housing a bit, forgo the beamer and take public transport instead etc, but my passive income would likely cover the entire household expenses if I wish to. (But I have 2 young kids so maybe I just haven’t realized how much it’d hit me when they get older… Experienced parents may correct me here)

The only colleagues I know who are really retired, are retired because of health reasons. Even the old foggy guy that works downstairs from me is still around. He must be what, in his 70s? OK, he comes in only 3 weekday mornings a week, but that’s not considered truly retired right.

But of course. Why would I retire when I can do this?

453-bone-pic

Yes. That’s bone. Don’t ask me where that is, it’s deliberately cropped out to not reveal where exactly. But there are hints :)

It’s really quite fun actually. It takes a certain character to take a knife to someone, and inflict a wound (even if it’s for the better, it’s still a wound), and yet at the end of it, stand back, look at it and feel proud at what you’ve done.

Weird, now that I put it this way, isn’t it?

Plus I get a lot of presents. Like this one that just came in today:

454) presents.jpg

Like a hell lot of them. Mostly food. Toys for my kids. Books even. I never ever had to buy any CNY goodies myself. The weirdest one I’ve received thus far, is a set of underwear.

Plus I get to spend most nights looking at various company financials in my other capacity as TTI. It’s like I’m Peter Parker in the day and Spiderman at night.

It’s as fun as it gets. Frustrating and tiring at times too, for sure. But as they say, you can’t have the rainbow without the rain.

And even if you can, you’d get bored of rainbows all the time anyway.

I try to remember all this whenever I have a shitty day. Most people will have shitty days, no matter what you do.


As the earnings reporting season is underway, I’m really excited about next week. That’s when I’m expecting some major results that’d make a significant difference to my portfolio.

Thus far, I’ve looked at the results of Asia Enterprises Holdings, LTC Corporation, Boustead Singapore and Boustead Projects, King Wan Corporation and am in the midst of digesting Metro Holdings’.

There hasn’t been much fireworks thus far. King Wan wrote off $2mil from its Dalian shithole again, but I was kinda expecting some write off there. If they maintain dividends though, by virtue of the low share price currently, the yield suddenly looks rather impressive. If they maintain dividends.

I’ve already written about LTC. Nothing unusual. Cash building up, they’ll probably burn some by expanding the USP operations. A reader sent me a link to an article that says LTC intends to invest 200mil MYR in USP. So I guess that’s where the FCF will be utilized.

AEH results, also nothing out of the blue. Still suffering. I’m not vested but I’ll continue to follow up. Surprisingly, they didn’t get as much of a boost from rising steel prices in Q4 as LTC did.

Boustead delivered a steady set of results. Better than I expected in fact. I think it’d be best to leave it to FF Wong to do his job. The depressed O&G markets have been quoted as the main reason for Boustead’s lagging share price. But it contributed like $5mil revenue (I think. Writing this off the top of my head) so I’m not so sure how much of a lag would this division be going forward. Even if it goes to 0, it’s still a small proportion of total revenues.

I’ll have to spend some time on Boustead Projects soon. The industry is still in a tough spot, but I can see real competitive advantages for BP.

Alright, that’s it for this post.

As always, happy hunting!