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Sunday, 25 April 2010

I bought Mermaid Maritime, United Envirotech and Aspial

No longer had the luxury of time to blog on each and every transaction within days, I might as well consolidate them into a single article and post them when I had the time. Anyway, it will still serve my intended purpose to track what I do over the years and still garner some feedback, though not as timely as I hope to. But life is all about compromise, isn't it?

New addition to my portfolio since the MacArthurCook Industrial REIT error

  1. Mermaid Maritime on 19 January 2010
  2. United Envirotech Ltd on 22 March 2010
  3. Aspial 22 April 20
Qualitative Reasons behind Actions

1. Mermaid Maritime

Despite seemingly increased effort to cut dependence on oil by going into other forms of energy or greater 'green' efforts on energy conservation, I doubt the demand for oil will be drop in the next 10 years, enough for me to double my returns on all my oil related businesses. After SPC, CH Offshore and KS Energy, Mermaid Maritime is my latest acquisition in this business. Other than SPC, all of them are involved in support related services in the Oil & Gas industry. For Mermaid Maritime, they are primarily involved in tender rig drilling and sub-sea engineering. What attracted me was their seeminly good financial health (cash and equivalent slightly exceeds outstanding debt) and actually traded below net tangible assets.

2. United EnviroTech

If I'm crazy about oil & gas, I think I as crazy over water too, the other critical resource. I actually got into Dayen Environmental Ltd and got out immediately after I discovered a can of worms. The problem with me was that until I'm am vested into something, I could not find the energy to drill deep enough beyond the business nature, prospects and reported financial. When I knew Dayen actually had disclosure issues (one of them relates to reporting profits and projects clinched but not losses incurred), I got out as soon as I can and fortunately market irrationality allow me even to exit with some profit!

Anyway, back to United Envirotech Ltd (UEL), though registered in Singapore, they derived their revenue predominantly from their business in China. The Chairman and CEO, Dr Lin Yucheng was recruited by the Singapore Economic Development Board in 1990 to conduct research and development work in SISIR (Singapore Institute of Standards and Industrial Research), Singapore. He subsequently set up a subsidiary under the Singapore Productivity and Standards Board (PSB)- formed from the merger of National Productivity Board (NPB) and SISIR. The company was involved in environmental, health and safety standards consultancy and environmental engineering. This will later become a subsidiary of UEL.

Now, UEL is involved primarily in turnkey projects or building and running of waste water treatment plants in China. The latter provides increasing amount of recurring income and stablises their profitability. One interesting thing about UEL is that it is in almost net cash, not really because they are that great in utilising internal resources for building projects but always raising equity when they need the cash, as the recent two placements show. If I am a major shareholder, I won't be happy with the dilution. But as a small shareholder, I am pretty fine so long as I still get my returns.

3. Aspial

Aspial had 3 business, jewellery via Lee Hwa, Gold Heart and Citigems; Pawn brokerage services via Maxi-Cash and property developement. It is the 3rd business that attracted me to this company. By now, the property bubble in Singapore is already too obvious to ignore. If so, why do I still choose to buy Aspial? The reason being that Aspial seems to buy only freehold land for development and was 'fortunate' enough to buy most land at relatively low price before the surge in 2H FY09, though it could be much cheaper even earlier after the global financial crisis erupted in FY08. Anyway, the way I read it was that if the bubble continues, they can develope properties to sell at a handsome profit, else, they'll just have to sit on their land, anyway, freehold land don't depreciates.


Wow, that's 4 transactions squeezed into one article. Hopefully as my baby girl grows up, I can still find the time to blog, though my primary 'duty' is still to spend as much time as I can with my beloved baby girl. Once I can get her a little sister or brother, hopefully I can outsourced the attention to themselves, mutual perpetual attention supply via playing, quarreling or fighting ;)



Blogger donmihaihai said...

Unless oil become like the Whaling industry in the early 1800s(whale oil was the oil industry prior the "discovery" of crude oil) then it is possible that everything related to the industry of oil will earn extraordinary profit. Other than that I think supporting industry like engineering and OSV can experience over supply even if oil price remind high.

How is it possible? Everything start with the vessel and rig. The current situation in shipyard is most won't be having many vessel to build in the near future due to oversupply of vessel ranging to bulk to container.... Since OSV and rig is the only place where there are demand and reasonable profit, it will be like bees to flower. That say, the margin for the last few years can be throw out of the window.

What is true about UEL is also true about Mermaid Martime. Despite it generating good cashflow, the current cash pile arise from issuing shares 2 times in the last 3 years.

25 April 2010 at 21:22  
Blogger Market Uncle said...

Hi donmihaihai,
You are fast!

As far as O&G demand/supply, we had gone into this before and need not discuss that. As for engineering and offshore support, I do agree with you on the current oversupply and quite a number of halted orders. But one other factor to consider is the number of cancelled orders that arose from the previous credit crunch? So long as R&D and supply of alternative energy sources cannot keep up with the future demand for energy, there will be another energy spike in not so distant future, prompting more aggressive search for oil resouces.

UEL and Mermaid are interesting to me. They both have sound businesses, but their way of raising cash seems like strange to me. Since it seems to work so far, I'm pretty curious to see how they will manage ahead!

25 April 2010 at 22:41  
Blogger donmihaihai said...

Just happen that I am around.. :)

Despite the credit crunch, this industry is full of healthy players. There is only one player that keep putting out news saying they are buying destressed assets. Other are having problem buying cheap assets. Just look at Jaya who having problem with banker. It is selling assets fast, but at whatever "firesale" it might be... Jaya is still earning huge profit from these sales.

This is a healthy industry with lot of resources as earnings was good and capital tap is flowing like crazy --- start counting those that raised capital. The shipbuilder has lot of space to build more. This combination does not look good.

Actually I do not wish to see an energy spike. I do not consider the last one as one. If one actually happened, oil will become the most important but cure asset.

As for company in the capital intensive industry, I have an easy explaination for continu8es capital raiser. ---- It is always much better to be running a listed high profile multi- billion business with a much smaller ownership than one that with bigger ownership but without all the spotlight.

25 April 2010 at 23:31  
Blogger donmihaihai said...

Sorry... "most important and curse asset"

25 April 2010 at 23:35  
Blogger Market Uncle said...

Hi donmihaihai,
Noted your inputs, I too don't hope to see a spike nor resource crisis... and only thought of getting these as a 'insurance' against what i see as an inevitable rise in prices as perceivable supply always fall short of actual demand. If not, why does the US stockpile be such a crazily watched indicator to swing oil prices? Similar to food, its not a problem of supply, but distribution.

1 May 2010 at 11:35  
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