More Conference in Singapore

We are well into the full swing of the early bird conference season in Singapore that makes sure we do not get off to a standing start but rather have to rush around seeing lots of companies.  Following on from the DBS extravaganza, RHB and OSK held their semi-annual conference also conveniently at the Fullerton.  Full marks to them on that selection.  

The format was similar.  Once again there was a fascinating group of companies on offer from around the region.  These companies tended to be somewhat smaller and many are off the radar screen of most brokers and institutional investors.  This gives one an opportunity to meet companies that are less well covered, certainly less followed, and often therefore have the potential to be mispriced.  The conference also usually includes companies that you do not often get to see and may not normally be so accessible to investors.  

We chalked up a further 12 company interactions over 2 days, covering a more eclectic group.  We made sure to see Ezion again.  That was interesting because we came out with a somewhat different take, but also an increased level of confidence that this company is going to be able to ride out the oil and gas storm.  Still it is always a mistake to accept management’s confidence at face value.  Things that appear to be going well can as we know fall off a cliff : viz the oil price itself.  It is also perfectly possible for people to say one thing one week and change their mind the next.  

One category of company in evidence at this conference were REITs.  We like these structures in times of turbulence because they generally deliver consistent income.  Unfortunately most of the listed ones here are now fairly fully valued.  Singapore is arguably the Asian center for REITs having been a pioneer in the space and provided the right context and regulatory support for issuers.  Other exchanges have been trying to catch up but Singapore still offers by far the most broadly based and interesting collection of REITs.  

We saw a Japanese operator of retail malls, an Indonesian company in the same sector, a Singapore centric manager of industrial buildings, and a company that focuses on Germany that owns offices and commercial properties.  These were all interesting sessions.  There were several more REIT attendees, but we felt these were the four that offered the best prospect of some increase in Net Asset Value due to active management of the portfolio plus identifiable asset enhancement activities within the portfolio, positive rent revisions, and some potential for better use of the balance sheet.  We also saw a company that specialises in dormitories for workers in Singapore and Malaysia that has recently been branching out into student accommodation in Australia and the UK : a potential REIT down the road?  

At this point in time too many REITs are relatively passive, with capital structures that are more or less optimised, and little opportunity to add value through acquisitions.  This means they end up performing like bonds.  You can track the relative difference between the dividend yield and SIBOR.  In practice they all will move together if interest rates go up or down.  While many were stunning bargains in 2009, too many now sit at premiums to their real net asset value Marked to Market and on yields that look vulnerable if interest rates were ever to rise.  Overall we have reduced our exposure to this sector across all portfolios even the Income Funds; but a management team that adds value is a different proposition and one worth spending time to consider : especially in a quasi-deflationary environment.  Such companies may still be quasi bonds but they also come with an equity kicker.  

Other companies on our schedule included Sinosoft, a Chinese company that specialises in online software systems primarily related to tax returns for exporters.  It has also developed a carbon footprint measurement system : nothing fancy but useful.  Interestingly Alibaba is a shareholder.  We saw a small Singaporean company that may have created a very interesting extension to standard photo sharing applications on mobile phones.  The potential market is frighteningly large for a tiny company.  Thus even though they have signed up some serious Japanese camera players, there is the possibility that competitors could eat their lunch : patents notwithstanding.  This has happened once before to Trek 2000.  Anyway hats off to OSK for assembling an interesting group and a very good use of our time.  

Ying Tan

My personal highlight of the week had to be a wine tasting and dinner at Ying Tan’s Taberna Wine Bar.  Jasper Morris, one of the world leading experts on Burgundy, who hangs his hat at Berry Bros & Rudd, officiated as we worked our way through fourteen wines of genuine class and distinction including a number of Grand Crus.  I was also lucky enough to be included in a dinner at Berry Bros Singapore earlier in the week.  They too did a terrific job and served a stunning selection.

Jasper Morris

The Taberna event exceeded even their efforts with an amazing line up of wines that I cannot afford to buy but enjoy sampling given the chance.  There was so much great Chambertin and Clos de la Roche that is hard to pick one from a crowd of such quality.  Still with wine one must be comfortable to insist that quality is a personal thing not a single standard arbitrated by experts - even those as knowledgeable and agreeable as Jasper and Ying.  Not a single wine was less than excellent but for me the 1999 Clos de la Roche, Domaine Louis Remy was in a class of its own.  Something to consider when you want to celebrate a very special occasion.  The wine maker here is a woman, as are more and more of the world’s great wine makers.  After such largesse it is impossible not to end the day in a really good mood.  

Ring in 2015

Back to Singapore and straight into New Year Conference season starting with the leading local bank, government backed DBS.  The first Monday of the year ushered in a three day event at the Fullerton, once upon a time the Central Post Office, now a luxury hotel perched on the edge of the Central Business District and the venue for many corporate events.  Indeed the Fullerton really is the best and arguably most convenient location for corporate conferences; and certainly for those where the primary target is the investment industry.

 DBS had gathered together a strong cross section of listed companies - over 100 all told.  Naturally Singapore was well represented with many of the better blue chips putting in an appearance, but there was also a good group of visitors from Indonesia, Malaysia and Thailand to provide regional representation. 

The line-up included a number of companies we own in client accounts.  Thus this forum was an easy opportunity to catch up with them.  The most fascinating part of this conference related to various oil and gas service and support companies that are based here in Singapore.  This sector has quite a substantial weighting in the Singapore indices, a relatively little known fact.  It is a vibrant and important part of the economy.  Singapore constructors moved strongly into oil and gas over the last few years, and established a good reputation for high end and complicated structures as well as certain classes of specialised vessels such as OSVs.  In addition they also provide related financial services and operate as well as build.  So you can find a number of different ways to slice this particular investment option if you are so inclined; and all were on display at the conference. 

Perhaps the most convincing rebuttal of an assumed catastrophic impact of lower oil prices on their business came from Ezion.  That company still anticipates a massive ramp up in vessels under contract this year assuming all their customers accept delivery of pre-signed contracts and fulfill their obligations.  Since the customer roster includes Petronas, there must be a question mark over whether all these new vessels will enter into service satisfactorily at pre-agreed rates.  This is an industry where re-negotiation is not unknown.  That said management appeared to have carved out an attractive and relatively defensive niche.  So we were tempted to put our toe in the water on this name.  

There were other interesting stories but also a couple of clunkers where companies appear to have lost their way and have assumed too much leverage, gearing up when times were good.  Anyone with excess debt is going to struggle on the way down.  It would not surprise me to see one or two require help at the equity level.  Speculative building of any kind of vessel is also going to turn out to have been somewhat more reckless in 2015 than it appeared to be in 2013 when construction commenced.  My guess is that bad news will emerge but many share prices have already cratered, in more than one case by over 50%.  There are apparent bargains on offer, though whether we are yet in bargain basement territory is doubtful.  More of a nibble and watch and see than dive in.  

One other thing that came through strongly and consistently was how relaxed most Thai management teams appeared.  They also appeared to be working on the assumption that there will not be an election any time soon in that country.  I will have more to say on this subject after my trip to Bangkok in a couple of weeks.  Still I was surprised how relaxed they all appeared with the health of the king being a big question mark affecting future stability.  One area we did not find appealing was real estate.  While current levels of construction are still below where they were pre the 1998 crisis, the reality is that there is no shortage in Bangkok.  There is a shortage of good sites so there is a danger that companies could eat away margin by paying too much for land; and that might explain why more and more of them are looking to other parts of the country to increase their portfolio of projects.  They will find it hard to make the same sort of margin in Pattaya, Chiang Mai or Phuket.                                 

One observation from someone just back after enjoying the holiday season in Europe is that in the 1990s when DBS was a pure bank and Vickers da Costa was the premier name in the brokerage business, similar conferences were organised to accommodate visitors primarily from the UK.  Thus dates were selected to ensure the convenience of those coming from another continent.  The first week of January is about as inconvenient as it could be if you have been celebrating Christmas and New Year in a time zone seven or eight hours behind, and a thirteen hour flight away.  All of which goes to show that Asian equities is now an asian industry; and that is of course as it should be.  If you are more concerned with Chinese New Year it is sensible to get the new accounting period off to a productive start as early as possible.  To underline this point, as far as I could tell none of the registered investors came from Europe, though some European institutions were represented through their Asian based subsidiaries.

I have made the point before that conferences are not always the best place to get the information you want out of companies as the forum can be uneven, especially in group meetings.  Yet it is an efficient format.  You can see 8 companies back to back.  It is rare you get the chance in one day to accomplish as much.  It is best to choose a mix of companies you know well where meetings can be very focused and companies you have never met before or at least not for a long time, where the conversation tends to be more general.  Also a lot of the value can come from the read across to other companies in the same sector or country.  Meeting businesses is to my mind one of the two most fruitful uses of time for an investment manager.  We clocked up some 17 company encounters over the first 3 days, so not forcing the pace as much as we might have.  

One good thing about the first week back was breaking a bottle of Chambertin Clos de Beze 1995 with my friend Steve Diggle : made even better by the fact that it was his bottle.  This wine is impossible to find nowadays and if you do, you should be concerned about provenance because it is a wine worth faking.  Sadly there are far too many fakes around.  While the most high profile revelations have come out of the US, I would question a lot of the stuff that sloshes around Hong Kong and even more so Macau.  I am afraid to say I was poured at least one supposedly old Margaux at a dinner in Hong Kong not so long ago that had not been anywhere near Bordeaux.  This Chambertin was amazingly fresh for a near 20 year old pinot.  Indeed arguably it is still a bit early to drink though I enjoyed every sip.  Nice note of damson plums and loganberries, balanced all the way to the back of the mouth, though with a surprising touch of toughness : a wine that does not need food to enjoy.  But Steve says no rush to open another, and lucky chap that he is he has more.  I could carry on with all the usual wine gobbly gook so let me just say it was a real treat.  I hope the other bottles give him as much pleasure as this one gave me.

We also cracked a Dawson & James pinot from 2011.  This is the very best of breed from Tasmania, a place that is coming up in the world as far as wine goes.  Of course it was a completely different experience and quite a contrast.  The only thing in common was the grape.  The wine was fresh and vibrant and the fruit was forward.  Clearly not a wine in the same league but Quaffable was the word that sprang to mind; and again a wine that can be enjoyed with or without food.  It does not need anything else except perhaps a few nuts.  I prefer almonds.  This too is a wine that is hard to find but worth the search, and of course is 20% of the price of the Chambertin or less.