Non Income Portfofolio Building: One year On.

One year since looking for great companies, moving away from Reits and SG blue chips, things are not looking good thanks to the trade war. On the this journey, my preference for stock picking is evolving and adapting to what I have learnt, read and experienced. What I thought on day 1 might have changed due to the Marco environment or the change in preference.

As the trade war escalate, I decide to hold onto more cash and relook at my portfolio.

My concern with IGG is that with the trade war, if Apple lost it market share, the services that apps provide on IOS will lose its revenue. Services such as gaming will be affected more as the game saves may not be able to port to android. Even within android, the game saves has to be in the cloud. Losing the game saves, the gamer will lost the motivation to carry on the game, hence losing revenue. China market segment of IGG is about 28%, Apple Iphone Market share is about 15%. Another concern is 90% of revenue come from just one game. New games have been released. Let's see how the new games fare.

There is growth for live streaming and YY Inc is undervalued. Market share eroded as well as margin due to intense competition. Just like Grab/Uber. Broadcaster will move to whatever platform that  benefit them. YY Inc still has the largest market share and profitable growing net income. 75% owned by founder, he has much skin in the game.

Companies that I had look into and divested.

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Wai Kee Holding - a quick update for FY2018

Revenue of Build King jumped 50% for FY2018, hence the 55% gain in market cap (or share price). However more than 90% of revenue from Road king form the revenue of Wai Kee, hence this has little effect on Wai Kee. The sum of the parts valuation of Wai Kee has jumped 32% but the share price has since increase only 25%. There is still much upside to catch up. 

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Wai Kee Holdings

Founded in 1970, the Hong Kong based Wai Kee Holdings (WKH) Limited has a well-established presence in the construction and infrastructure industries.Wai Kee Group has operations in the following areas: 
- Toll Road
- Property development 
- Construction
- Construction Materials 
- Quarrying

90% of WKH revenue comes from Road King and 90+% of Road King revenue comes from property development. Hence WKH is actually a property counter. WKH current share price is $4.40, trading at about 0.5x NAV. Does that consider undervalue? We know that most Singapore property developer or construction counters are trading below book too.

Undervalue
From the latest interim Report, WKH owns 41.94% of Road King and 56.33% of Build King.
Looking at sum of parts, WKH is worth at least $6.96. That is a further 52% gain with a current yield of 6.8%

 

In terms of PE ratio, it is range between 3.7x to 4.7x, the median is 4.3x. At the current 3.1x, there is potential for 50% upside.

Performance

Business is doing well, revenue increasing every year at 11% CAGR, although 90% of the revenue came from Road King. Quick ratio is above 1, WKH will be relatively safe and tie through any down turn.

Dividend payout is at 23% - 24% for the last few years. TTM EPS is $1.43, at 23% payout, dividend per share is 32.89 cents which give a forward yield of 7.48% at a share price of $4.40.

Free Cash Flow (FCF) = Net Profit - CAPEX 
Adjusted FCF = Net Profit + Non-Cash items + Borrowings - CAPEX

Conclusion

With the stock price worth lesser than the entities WKH is holding in its books, I just have to buy hold and wait for the price to correct to its intrinsic value. While waiting, I will be enjoying the nice dividend and the further growth of the business.

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