It is nearing the end of the year and I am doing a review of all my 4 stocks in a simple way, namely Mobile Telesystems (NYSE:MBT), Keryx Biopharmaceuticals (NASDAQ:KERX), Keppel DC REIT (SGX:AJBU) and Keppel Corporation (SGX:BN4).
When I do my stock review, it has to be a simple, logical and systematic process.
At the start, the mindset has to be similar to the concept that Warren Buffett often quoted:
“Do not think of yourself as merely owning a piece of paper whose price wiggles around daily and that is a candidate for sale when some economic or political event makes you nervous. … Instead visualize yourself as a part owner of a business that you expect to stay with indefinitely, much as you might if you owned a farm or apartment house in partnership with members of your family.”- Warren Buffett
“We continue to make more money when snoring than when active. … you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.”- Warren Buffett
Taking the above concept in mind, this stock review will focus on whether there has been any change in the underlying business that is behind the stock that I am vested in.
The percentage of my portfolio holdings for that particular stock would also have a very little impact on whether or not I will sell the stock– as long as the business is still sound and it is not overvalued.
1. Mobile Telesystems (NYSE:MBT)
The main reason why I bought MBT in the first place is because it is a more profitable and well-managed telecommunications company in Russia in comparison to its competitors. Their economic moat is still present with over 100 million subscribers and they are still focusing on providing quality coverage– recently with the wi-fi calling initiatives— that helps to cover areas in Russia with low coverage but have a wi-fi connection.
The main catalyst that will drive the stock up is the recovery of the Russian economy– especially now, right after Donald Trump got elected as the next United States president.
For now, Russian is seen as the one country that will benefit from the politics in Washington.
Putin and Trump seemed to be agreeable on a number of issues and there is a possibility that the US will lift Russian sanction next year.
The recent Q4 result for MBT is also quite in line with analyst expectations and they are managing well despite the macroeconomic concerns.
Recently, they also won the Telecommunications award in the country category at the 2016-2017 World Branding Awards.
It has also maintained a good dividend payout in recent times.
The dividend policy seemed reasonable as it sets a target payout our RUB50.0- RUB52.0 per ADR per calendar year. It guarantees a minimum payout of RUB40.0 per ADR and the policy will last till 2018. Payments will continue to be made on a semi-annual basis.
They are also undergoing share repurchase program and have set out RUB30 Billion to do so.
This is a great news to enhance the value of shareholders.
I am quite excited for it.
The above chart that you see is a two years RUB to USD chart and as you can see, it has been appreciating steadily since the start of 2016.
Moving forward, the appreciation of RUB to USD with the improvement in the Russian economy will also increase the dividend payable in USD for my ADR’s dividend.
Taking into account the current RUB to USD exchange rate of 0.015, my minimum dividend payable in 2016 based on my cost would be around 5.6% after tax– up to 7%– and more, if RUB appreciates even further.
There are still some uncertainties here but I have taken into account the fact that yes, I might be too optimistic about this stock.
Therefore I will continue to monitor facts and evidence not just to back up my thesis but more importantly, one that is contrary to it.
My average buying price is at 9 USD and market price as of 27.11.2016 is 7.66 USD. (15.11% paper loss excluding dividends, including dividends I have received over the past two years, I am down 5.72%).
2. Keryx Biopharmaceuticals (NASDAQ:KERX)
The reason why I hold KERX was because my put option was exercised back in January 2016– and that resulted in me owning the stock at 4 USD.
I found it to be a growth stock with a good story behind it. It is backed by one of the greatest investor of all time, Seth Klarman– his Baupost group owning 42.5% of the company. Seth has been proven to be a very successful biotechnology value investor over the course of his life.
The success of the company is focused on one product, Auryxia,
In reviewing this stock, key question is, have the growth story ends? The answer to that is no. That is because Auryxia is in line to be FDA approved (bull case scenario) to treat patients in pre-dialysis stage 3-5 of chronic kidney disease (CKD)- on top of the current controlling of serum phosphorus levels in CKD patients on dialysis.
Currently, KERX is still the first and only FDA-approved oral iron in the marketplace.
I will monitor this story closely and sell upon major optimism in the stock.
My average buying price is at 3.65 USD and market price as of 27.11.2016 is 6.23 USD. (70.68% paper gain including premium that I have received).
Right now due to the capital appreciation of KERX, it consists of about 23.33% of my portfolio.
If this company continues to grow in terms of the increase in net profit due to the increasing adoption of Auryxia, the share price will appreciate.
If that happens, I will analyse if there are other opportunities to increase the price to value substantially by investing in other stocks.
3. Keppel DC REIT (SGX:AJBU)
Owning a data centre REIT has been a good decision in terms of riding the economic trend with the strong growth in data creation and storage needs which are expected to continue with increasing digitisation of the global economy.
In the long run, there will be more companies that would require the renting of a data centre to fulfil their technology requirements.
Most will not build a data centre on their own because they are very expensive and therefore would rent it from players such as Keppel DC REIT.
Singapore remains one of the key data centre hubs in Asia with their status being a financial hub and strong government support for data centre sector.
Simply put, this is an investment in a rising tide.
Recently, they are growing further via acquisition using a rights issue for funding of KDP SGP 3, a new data centre. This is a distribution per unit (DPU) accretive acquisition of 5.7% – 10.4% and I participated in it.
In Singapore, the largest data centre provider is Singtel and the second being Equinix and third, is Keppel DC REIT.
Fortunately, there are high barriers to entry for the data centre industry due to substantial upfront costs and the trust that has to be built over the years with providers such as DC REIT which has a proven track record.
For now, the story is still good because they still have a high occupancy rate and reasonable weighted average lease expiry (WALE) and a good asset under management of $1.13 Billion coupled with good quality occupants.
My average buying price is at 1 SGD and market price as of 27.11.2016 is 1.23 USD. (23% paper gain excluding dividend received).
4. Keppel Corporation (SGX:BN4)
It is known that Keppel Corporation used to generate most of its revenue and profit from the offshore and marine sector before the oil crash happened.
Right now, their property business is keeping the company afloat.
The reason why I bought Keppel in the first place is to take advantage of the turnaround of the oil price in the long run and its resiliency in its multi-business model.
I have always believed that oil recovery is a when and not an if– the current oil price of about 45 USD per barrel is not very viable in the long term.
” The long-term fundamental of oil business has not changed despite the fall in the oil price. The world’s growing population will demand more energy while major producing oil fields are declining rapidly. As conventional reserves are exchausted, oil companies will need to push the limits of technology to gain access to resources in deeper water and harsher frontiers, which today’s low oil prices do not effectively support. The oil and gas sector will inevitably move towards a new equilibrium, driven by demand and supply dynamics, as experienced in previous cycles.”- Keppel Corporation CEO, Mr. Loh Chin Hua
The image above shows that their net order book at $4.1 Billion.
That is at the lowest in 10 years and do take note that it is excluding the contracts of six semisubmersibles for Sete Brazil.
It is a horrible chart to see but it is the truth.
Naturally, in 3Q 2016, its net profit is down 38% to S$225 M as compared to S$363 M in 3Q 2015.
Earnings per share were 35.3 cents, down 43% from 61.7 cents for 9M 2015.
Everything that we do requires energy– to turn on the television, air conditioner etc. It is not easy to think of anything to do in our life that does not require energy.
While oil is crucial, it is going to be a long winter ahead– because the landscape for O&M remains very challenging– but the O&M sector is still currently profitable.
The reason why their O&M is still profitable is because of measures that have been put in places. For example, senior management across all the Keppel business units has voluntarily taken a reduction in their monthly salary and the directors will also be proposing a lower directors’ fees for 2016 at next year’s AGM.
Also, they are looking at using the technology they have developed for their offshore industry for other uses such as floating power plants and floating desalination plants.
Therefore, O&M business will be increasingly diversified beyond just oil and gas.
Before it recovers and hopefully emerges from this setback stronger, it will be the survival of the fittest– cash flows management is crucial.
Historically, I am comforted by the fact that the management that has been put in place at Keppel is one that has endured many oil crash before– hence, able to manoeuvre well through a crisis with their multi-business strategy– the main competitive advantage of the company which resulted me in buying the stock in the first place.
My average buying price is at 8.67 SGD and market price as of 27.11.2016 is 5.35 SGD. (39.37% paper loss excluding dividend , including dividends I have received over the past two years, I am down 30.33%).
Disclaimer: The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.
Important: Please read my full disclaimer.
CHRIS LEE SUSANTO
Hi, my name is Chris and I am the founder of Re-ThinkWealth. A blog that focuses on personal finance self-improvement, investments, and investor psychology.
Since early 2015, I manage money for my family and invests it in Singapore and United States equities and options achieving above market return.
I use Value Investing and Options Selling strategies used by Warren Buffett (World’s richest investor) coupled with the core theory of inversion. Inversion meaning that in every investing idea, we have to scrutinise on why it would fail.
This will result in us being more conservative, and being conservative is the key to protecting and growing wealth in the long run.
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