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Sunday, June 16, 2019

Tong's Value Investing Portfolio as of June 13, 2019

Tong Kooi Ong

Why I bought more of Alibaba now

Stocks around the world have bounced back with a vengeance from the selloff in May. Whilst the jury is still out as to whether a trade deal between the US and China can be had, equity markets have been given a lease of life – by the US Federal Reserve.

The US central bank hinted that it would cut interest rates should there be signs that the domestic economy is weakening on the back of ongoing trade conflicts and global economic slowdown. If the Fed does in fact reduce rates, it could trigger a fresh round of monetary easing worldwide.

Several countries have cut rates this year, including Bank Negara Malaysia. Lowering the price of money will buoy asset valuations, including stocks and property. Already we are seeing bonds and stocks, once again, rallying in lockstep. The S&P 500 index is only 2.5% off its all-time high.

One stock that has borne the brunt of selling related to recent trade war fears is Alibaba, which lost about one-quarter of its value from the beginning to end of May. Its share price fell from a high of US$195 to as low as US$149 during the month.

The stock is highly visible and an easy target for investors selling the trade war theme, which unfortunately, also coincided with the emergence of an indiscriminate seller, its second largest shareholder, Altaba.

Altaba was created as a spin out from the remains of Yahoo!, after the latter’s operating business was acquired by Verizon Communications. Its only assets are shares in Alibaba – some 283 million (about 11% stake) at end-March 2019 – and cash.

In early April, Altaba’s board of directors approved a plan to dispose all of its Alibaba shares (through the open market and/or private placements) and shut down by end-2019. Up to half of the 283 million shares are to be sold before its special shareholder meeting, to approve the liquidation and dissolution plan, scheduled for June 27. Between May 20 and June 7, its holdings in Alibaba were pared down to 223 million shares.

Alibaba’s share price has recovered some lost ground over the past few days. It is possible the stock overhang could exert more downward pressure in the near-term. That said, the issue is by now a known risk factor in the market, therefore quite likely priced into its share price.

Current valuations are attractive relative to the company’s long-term growth prospects. The stock is trading at forward PE of roughly 24 times. By comparison, Amazon shares are priced at nearly 60 times estimated earnings. Alibaba’s valuations also compare well against traditional retailers like Walmart (22 times), Costco Wholesale (30 times) and Target (15 times) – and the company has much stronger growth outlook.

Alibaba reported topline sales growth of 51% for the financial year ended March 2019, to RMB376.8 billion or equivalent to roughly US$54.5 billion. Excluding new acquisitions, organic growth was still a robust 39%.

Management guided for revenue to hit RMB500 billion in FY2020, which translates into an estimated growth of 33%. By comparison, Amazon’s revenue grew 31% in 2018 to US$232.9 billion while Walmart reported 2.8% revenue growth for its financial year ended January 2019.

Unlike Amazon, whose profits come primarily from its cloud business, Alibaba’s core commerce operations are highly profitable with Ebitda margin of 42.1%. Core commerce accounted for 86% of total revenue, of which 90% is derived from the domestic Chinese market (primarily through its Tmall and Taobao platforms). The company’s international wholesale and retail platforms include AliExpress and Lazada.

Alibaba intends to expand its e-commerce footprint to lower tiered cities in China, leveraging its Alipay customer base, and targets to add 150-200 million new users in the near future. Although the average spend per user is lower, the potential for growth remains as disposable incomes rise.

The company plans to digitise the entire retail value chain under its ‘new retail’ strategy, and to provide seamless online-offline services as well as promoting stronger alignment between vendors and customers.

The rest of its businesses, such as cloud computing, digital media and entertainment and food delivery platform,, are still in the investment stages and loss making. But strategically, these ventures together with its 33% stake in Ant Financial, serve to strengthen Alibaba’s ecosystem (and user database) across a broad swath of the economy.

Alibaba Cloud is amongst the four largest cloud providers in the world, that includes Amazon, Microsoft and Google. Revenue for the segment grew 84% in FY2019. The business is not yet profitable as Alibaba focuses on gaining market share. But the business is widely seen to have strong prospects – on the strength of its one-stop suite of products and features, from basic infrastructure (IaaS) to big data analytics, machine learning and artificial intelligence applications. The company is rolling out more data centers around the world and especially in fast-growing Asia Pacific region, where it currently holds a dominant market share.

Alibaba’s free cashflow generation remains strong, totalling some RMB104.5 billion in FY2019. Coupled with net cash totalling RMB68.9 billion, the company can support further investments in and grow its other ventures.

The e-commerce giant is reported to be finalising a submission for secondary listing in Hong Kong, likely to happen within the next few weeks. The exercise is estimated to raise up to US$20 billion, which will further boost its war chest.

Perhaps more importantly, trading closer to home and in the region where the company has a strong business presence could result in better valuations and provide some buffer to the trade war discount. Shares for Tencent Holdings are currently trading at forward PE of around 30 times.

My Global Portfolio continued to fare well in the week ended Thursday, gaining 1.0%. This raised total portfolio returns to 5.3% since inception. The portfolio is outperforming the MSCI World Net Return Index, which is up 4.6% over the same period. Following the latest acquisition of 150 additional shares in Alibaba, cash holdings were pared to around 16.7% of total portfolio.

Shares on the Bursa Malaysia traded mostly sideways. The FBM KLCI ended the week flattish at 1,643.7 on Thursday. Stocks in my Malaysian Portfolio performed better, with total portfolio value gaining 2.8%. I added Prestariang and JHM Consolidation to my portfolio for a combined RM59,830.

JHM is a one-stop electronics manufacturing services (EMS)/original equipment manufacturer (OEM) for fabrication of tooling, design, assembly and testing of LED lighting modules, equipment and industrial machinery. Its key customers are major auto manufacturers and products are destined for NAFTA countries.

The company recently expanded operations to aerospace mechanical parts machining manufacturing, which will be a major growth driver going forward. JHM has a maximum Fundamental score of 3. For more information on the company, check out

Share price for software and services provider, Prestariang has fallen sharply since the general election last year, from around RM1.65, and after the government terminated its RM3.5 billion National Immigration Control System (SKIN) project. Now trading at less than 1.4 times book value of 32 sen per share, I am betting that the stock is ripe for a rebound.

Total portfolio returns now stand at 50.8% since inception. This portfolio continues to outperform the benchmark index, FBM KLCI, which is down 10.2% over the same period, by a long way.

Performance Comparison Since Inception (%)
  • Tong's Value Investing Portfolio
SCGM BHD11,0661.72919,190.70.92010,180.7(9,010.0)(47.0%)
AJINOMOTO (M) BHD1,50011.81317,720.017.68026,520.08,800.049.7%
Y.S.P.SOUTHEAST ASIA HOLDING10,5002.41325,340.02.59027,195.01,855.07.3%
FORMOSA PROSONIC INDUSTRIES18,0001.44025,920.01.72030,960.05,040.019.4%
POH HUAT RESOURCES HOLDINGS13,0001.47019,110.01.57020,410.01,300.06.8%
SUPERLON HOLDINGS BHD15,0001.28919,327.51.04015,600.0(3,727.5)(19.3%)
CIMB GROUP HOLDINGS BERHAD6,0005.14030,840.05.32031,920.01,080.03.5%
Total  157,448.2 162,785.75,337.53.4%
Shares bought       
JHM CONSOLIDATION BHD26,0001.15029,900.01.24032,240.02,340.07.8%
PRESTARIANG BERHAD73,0000.41029,930.00.42531,025.01,095.03.7%
Total shares held  217,278.2 226,050.78,772.54.0%
Shares sold       
No transaction.       
Cash Balance    75,623.4  
Realised Profits / (Losses)    92,901.6  
Change since last update Jun 6, 2019       
Portfolio      2.8%
FBMKLCI      (0.0%)
Portfolio Returns Since Inception  200,000.00 301,674.1101,674.150.8%
Portfolio Returns (Annualised)      10.9%
Portfolio Beta      1.051
Risk Adjusted Returns Since Inception      48.4%
Performance ComparisonAt Portfolio StartCurrentChangeRelative Portfolio Outperformance
FBM KLCI1,829.71,643.7(10.2%)61.0%
FBM Emas12,700.411,608.6(8.6%)59.4%
*Current price is as at June 13, 2019. 
*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.

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%)
KERJAYA PROSPEK GROUP BERHAD10-Jan-1706-Sep-1811,0001.02011,225.01.40015,400.04,175.037.2%
LUXCHEM CORPORATION BHD25-Aug-1706-Sep-1816,5000.71711,825.00.65510,807.5(1,017.5)(8.6%)
HOCK SENG LEE BHD19-Apr-1806-Sep-1814,5001.52022,033.01.37019,865.0(2,168.0)(9.8%)
GENTING MALAYSIA BERHAD06-Sep-1828-Nov-183,8005.07019,266.03.06011,628.0(7,638.0)(39.6%)
TOP GLOVE CORPORATION BHD06-Sep-1806-Dec-183,6005.50019,800.06.03021,708.01,908.09.6%
MAH SING GROUP BHD28-Jun-1814-Jan-1919,0001.00519,095.00.93017,670.0(1,425.0)(7.5%)
WILLOWGLEN MSC BHD14-Dec-1714-Feb-1919,9000.5009,900.00.4649,236.0(714.0)(7.2%)
SAM ENGINEERING & EQUIPMENT14-Jan-1914-Mar-193,0007.38022,140.07.90023,700.01,560.07.0%
PANASONIC MANUFACTURING MSIA16-May-1818-Apr-1960026.15717,182.037.87022,722.05,540.032.2%
HONG LEONG INDUSTRIES BHD14-Dec-1718-Apr-192,0009.12618,251.010.64021,280.03,029.016.6%
MALAYAN BANKING BHD16-May-1818-Apr-193,00010.25030,750.09.13027,390.0(3,360.0)(10.9%)
ECO WORLD DEVELOPMENT GROUP BERHAD28-Jun-1818-Apr-1915,2001.23518,772.00.92013,984.0(4,788.0)(25.5%)
DIALOG GROUP BHD06-Sep-1818-Apr-195,7003.45219,676.43.11017,727.0(1,949.4)(9.9%)
HARTALEGA HOLDINGS BHD28-Mar-1818-Apr-1911,0004.61050,710.04.75052,250.01,540.03.0%

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

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