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Sunday, September 30, 2018

Tong's Value Investing Portfolio as of September 27, 2018

Tong Kooi Ong

No more PPP (Piratisation of Public funds for Private interests) please

Last week, we discussed some of the major issues with regards to the current state of housing in Malaysia. To very briefly recap, rising number of unsold houses across the nation indicates that there is ample supply in the market. However, many are still unable to own a home. This is due, primarily, the gap between house prices and income levels.

We showed an estimated cost breakdown for an average-priced home. It underscores the limits to which costs can be lowered – for quality housing of decent size, at reasonable location with connectivity and facilities that will create equity for owners in the long run. The poor performance of the Perumahan Rakyat 1Malaysia (PR1MA) housing scheme would testify to this.

We also highlighted the risks of default and foreclosure if banks were forced to loosen lending requirements, which could have serious ramifications on the banking sector and the economy as a whole. Keep in mind that the average Malaysian household is already heavily indebted and has little ability to take on more loans.

This week, I am sharing some thoughts on two concepts that have been implemented or proposed to improve homeownership – and why I believe neither sufficiently addresses the underlying issue of affordability.

First, rent to own (RTO) schemes such as that introduced by PR1MA and Maybank (HouzKEY).

Under these plans, you get to stay in the home and hold an option to purchase it at a pre-determined price in the future, when you have saved up enough. The beauty of such schemes is that you get to lock-in the price for the home and do not need to fork out the 10-15% upfront (down payment and transactional costs) as you would in a traditional mortgage financing.

However, you still have to pay a monthly rental. And this is the crux of the matter. This monthly rental is benchmarked against a traditional mortgage instalment plus a price for the option.

In other words, the monthly instalment is higher than either paying off a traditional mortgage or simply renting the property. Call it rental, enforced savings or whatever you wish, you are effectively taking on more debt and paying for the cost of financing 100% of the property value.

Therefore, whilst such schemes would appeal to some, it is not a game changer. Notably, if you cannot afford to service a traditional mortgage, then you definitely cannot afford to pay the monthly RTO instalments.

The second concept is to set up a residential real estate investment trust (REIT) – that would focus on increasing the supply of affordable houses, with the low income (B40) households as it main target market.

Such a scheme calls for the private sector to design, build and maintain affordable housing projects on government-owned land. The project will be fully funded by the REIT. In return, it will be given rights to rental incomes but with a minimum rental guarantee from the government for 30 years.

The guarantee allows the REIT to secure financing for the construction at a reasonable interest cost, but which is highly unlikely to ever be cheaper than the rate at which the government can borrow on its own.

I don’t know about you, but the plan sounds uncannily similar to public private partnerships (PPPs) that are common practice in Malaysia in recent years. The private company shoulders the construction and maintenance costs, and ostensibly the associated risks, but the ultimate obligations (in the form of deferred payments) fall to the government.

Malaysia already has over RM200 billion of such off balance sheet liabilities – where the private sector makes all the upside returns while the government underwrites the downside risks. We do not need more.

The private sector (under a REIT or any other structure) is free to take up the mandate for affordable housing – but on its own. The challenge is, of course, low yields for residential as compared to that for commercial and industrial properties.

Otherwise, if public-social housing is needed then let the government undertake and own the entire project.

PPPs are what I would call piratisation of public funds for private interests.

In any case, renting – even if at fixed or subsidised rates – does not build equity. Neither does it help improve the prospect of homeownership in the long run.

This long running and unresolved issue of affordability is one that is close to my heart, as I believe that homeownership is a basic human right. I intend to design a more holistic solution that will make homes affordable to almost everyone, one that will not over-tax your balance sheet and monthly obligations. And I hope to share it with you in the coming weeks.

Most of the stocks in the Global Portfolio ticked higher in the past one-week, recouping some lost ground. Total portfolio value rose 0.3%, paring losses since inception to just -0.2%. Nevertheless, this portfolio is still under-performing the MSCI World Return index, which is up 5.7% over the same period.

Stocks in the Malaysian Portfolio also fared better, gaining 1.6% in the past one-week. Willow was the biggest gainer, rising 19.8%.

The gain lifted total portfolio returns to 62.8% since inception. This portfolio continues to outperform the benchmark index, FBM KLCI, which is down 1.7%, by a long way.

http://www.theedgemarkets.com/aa/tong/portfolio



Performance Comparison Since Inception (%)
%-1.762.8-10010203040506070
  • Tong's Value Investing Portfolio
  • FBM KLCI
SHARES HELDQUANTITYAVERAGE COSTCOST OF
INVESTMENT
CURRENT
PRICE
CURRENT
VALUE
GAIN /
(LOSS)
GAIN /
(LOSS)
SCGM BHD11,0661.74219,273.71.36015,049.8(4,223.9)(21.9%)
AJINOMOTO (M) BHD1,50011.81317,720.021.52032,280.014,560.082.2%
PANASONIC MANUFACTURING MSIA60026.30717,182.038.30022,980.05,798.033.7%
Y.S.P.SOUTHEAST ASIA HOLDING10,5002.41325,340.03.18033,390.08,050.031.8%
FORMOSA PROSONIC INDUSTRIES18,0001.54027,720.01.53027,540.0(180.0)(0.6%)
HONG LEONG INDUSTRIES BHD2,0009.27618,551.010.88021,760.03,209.017.3%
WILLOWGLEN MSC BHD19,9000.5009,950.00.57511,442.51,492.515.0%
MALAYAN BANKING BHD3,00010.50031,500.09.79029,370.0(2,130.0)(6.8%)
MAH SING GROUP BHD19,0001.01019,190.01.05019,950.0760.04.0%
ECO WORLD DEVELOPMENT GROUP BERHAD15,2001.23518,772.01.20018,240.0(532.0)(2.8%)
DIALOG GROUP BHD5,7003.47019,779.03.50019,950.0171.00.9%
GENTING MALAYSIA BERHAD3,8005.07019,266.05.01019,038.0(228.0)(1.2%)
TOP GLOVE CORPORATION BHD1,80011.00019,800.010.64019,152.0(648.0)(3.3%)
Total  264,043.7 290,142.326,098.69.9%
        
Shares bought       
No transaction.       
        
Total shares held  264,043.7 290,142.326,098.69.9%
        
Shares sold       
No transaction.       
        
Cash Balance    35,462.6  
Realised Profits / (Losses)    99,506.3  
        
Change since last update Sep 20, 2018       
Portfolio      1.6%
FBMKLCI      (0.3%)
        
        
Portfolio Returns Since Inception  200,000.00 325,604.9125,604.962.8%
Portfolio Returns (Annualised)      15.8%
        
Portfolio Beta      0.664
Risk Adjusted Returns Since Inception      94.6%
        
        
Performance ComparisonAt Portfolio StartCurrentChangeRelative Portfolio Outperformance
FBM KLCI1,829.71,798.6(1.7%)64.5%
FBM Emas12,700.412,547.2(1.2%)64.0%
Footnote: 
*Current price is as at September 27, 2018. 
*Portfolio started on Oct 10, 2014 with MYR200,000. 
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.

STOCKS SOLD IN THE LAST 12 MONTHS (Currency: MYR)
SHARES SOLDDATE BOUGHTDATE SOLDQUANTITYAVERAGE 
COST
COST OF 
INVESTMENT
PRICE SOLDSALES 
PROCEEDS
GAIN /
(LOSS)
GAIN /
(LOSS)
CLASSIC SCENIC BHD26-Jan-1613-Jul-174,0001.4135,651.31.8157,260.01,608.828.5%
MIKRO MSC BERHAD01-Dec-1627-Jul-1742,0000.33113,920.00.54522,890.08,970.064.4%
CLASSIC SCENIC BHD01-Dec-1627-Jul-174,0001.4135,651.31.7907,160.01,508.826.7%
PANASONIC MANUFACTURING MSIA21-Jan-1627-Jul-1740026.12510,450.037.10014,840.04,390.042.0%
ELSOFT RESEARCH BHD30-Mar-1724-Aug-178,0001.84414,750.02.65021,200.06,450.043.7%
JOHORE TIN BERHAD - WA 12/1704-May-1724-Aug-1717,0000.65511,135.00.68011,560.0425.03.8%
FOCUS LUMBER BERHAD03-May-1730-Aug-176,0001.6609,960.01.5309,180.0(780.0)(7.8%)
WILLOWGLEN MSC BHD23-Nov-1630-Aug-177,0000.7685,377.01.43010,010.04,633.086.2%
WILLOWGLEN MSC BHD23-Nov-1628-Sep-177,0000.7705,377.01.1808,260.02,883.053.6%
LII HEN INDUSTRIES BHD14-Dec-1628-Sep-175,0002.82014,100.03.72018,600.04,500.031.9%
COMFORT GLOVES BERHAD28-Aug-1708-Dec-1725,0000.96024,000.00.93023,250.0(750.0)(3.1%)
JOHORE TIN BHD08-May-1708-Dec-179,0001.60014,400.01.18010,620.0(3,780.0)(26.3%)
THONG GUAN INDUSTRIES BHD12-Dec-1608-Dec-175,0004.24321,215.04.10020,500.0(715.0)(3.4%)
KERJAYA PROSPEK GROUP BERHAD12-Jan-1715-Mar-1811,0001.02511,280.01.54016,940.05,660.050.2%
KERJAYA PROSPEK GROUP BERHAD - WARRANTS B 2018/202308-Mar-1815-Mar-183,0000.0000.00.330990.0990.0-
LUXCHEM CORPORATION BHD30-Aug-1715-Mar-1816,5000.73212,072.50.72011,880.0(192.5)(1.6%)
WILLOWGLEN MSC BHD14-Dec-1722-Mar-1820,0001.01020,200.01.26025,200.05,000.024.8%
MUAR BAN LEE GROUP BERHAD26-Oct-1722-Mar-1813,5001.24016,740.01.17015,795.0(945.0)(5.6%)
CHOO BEE METAL INDUSTRIES BHD07-Sep-1716-May-188,0002.19017,520.02.44019,520.02,000.011.4%
CHOO BEE METAL INDUSTRIES BHD07-Sep-1721-May-188,0002.19017,520.02.30018,400.0880.05.0%
SUPERLON HOLDINGS BHD01-Dec-1721-May-186,0001.1757,050.01.5509,300.02,250.031.9%
OKA CORPORATION BHD14-Dec-1728-Jun-1812,0001.54118,488.01.27015,240.0(3,248.0)(17.6%)
SUPERLON HOLDINGS BHD01-Dec-1728-Jun-186,0001.1757,050.01.2107,260.0210.03.0%
WILLOWGLEN MSC BHD14-Dec-1728-Jun-181000.50050.00.54054.04.08.0%
PANTECH GROUP HOLDINGS BHD17-May-1802-Aug-1843,0000.58024,940.00.56024,080.0(860.0)(3.4%)
A Note to Readers

It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.

Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.

Tong Kooi Ong