Penguin International

[Porkbelly]

Thank you Karlmarx
You have articulated what I felt but could not explain..

Thank you too, Chialc88 for your sharing..

Thanking all buddies for "thinking out loud"...

We invest with the belief that we have read, analysed as much as we think we have covered..

[karlmarx]

- there is a fourth way to allocate capital, which is to set it aside for potential opportunities that comes the way of the company. Why else would Berkshire Hathaway hold onto so much cash? Both Charlie Munger and Warren Buffett love to have cash around when opportunities presents themselves.

Certainly, if we wish to be very specific, your argument is not incorrect. But apart from semantics, this does not change how Penguin deprives the shareholder in order to grow itself. And as mentioned, there is nothing wrong in doing so. Penguin's move to acquire 8% of MPM could prove to be a very smart move if at some later time they flip it at a large profit. Or it could prove to be a dud, in which case it would have been better if it was distributed to shareholders. Which is going to happen? As mentioned, I do not know. What is important here is for (prospective) shareholders to know what Penguin is doing with its money, so that they can set realistic expectations of the company.

- you compare individual waste spending on cars and gourmet coffee to be the same as corporate distributing dividends. In my humble opinion, these are just two very vastly different acts! How can they be lumped together as the same? They serve absolutely different purposes. Period..

From the perspective of the money manager -- whether it be an individual managing his own finances, or a CEO managing the finances of a company -- money that is distributed as dividends or money that is spent on unproductive personal expenses has the same effect of leaving one with less money for productive use, in the present and future. WB's thrifty spending habits and his opposition towards distributing BH's money comes from the same desire to use assets to grow more assets.

- you made another analogy of making a blind bet on Fulham against an unknown opponent. If it’s me, I won’t place it as well because it is second bottom of the league table! Remember the first rule? Don’t lose money. Remember the second rule? Don’t forget the first rule. This in itself is another bizarre analogy. Penguin’s balance sheet speaks for itself with nearly zero debt and low PB ratio. Is it akin to placing a bet on Fulham? Definitely no because you stand to lose everything on the bet but in the stock market, there is skewed returns to the upside. Especially in this case being buffered on the downside by cash, inventory etc.

Certainly, gambling is not exactly the same as investing, but the concept of assessing probability of success vis-a-vis the pay-off applies to both. And while stocks seldom go to zero, the portion of net worth an individual places in a stock can be many times larger than the same individual places on the roulette wheel. So realising a 50% loss on your stock can be even more damaging than a 100% loss on a proportionally smaller gamble. In other words, a stock pick gone wrong is just as bad (if not worse) than a lost bet.

The point I was making is that investors should always be very clear on risks of any particular company. If I told you now that Fulham will be playing Home United, and the payoff for a Fulham win is still 2 to 1, will this not make for an attractive bet? Of course, but that is only because we are able to identify and assess the risk. 

Penguin's zero debt and large cash balance, while admirable, does not completely protect it from adverse market conditions. It may prevent Penguin from going to zero, but it is unlikely that it can prevent Penguin from experiencing a large drawdown. The recent past tell us as much. And a large draw down is enough for a shareholder to lose his sensibilities. 

Hypothetically, if most of Penguin's customers walk away just as the order are about to be delivered -- and it is unable to find other buyers for them -- there will be big impairments on its receivables/inventory. Share price will then adjust accordingly. Yes, Penguin has shown to be able to move its inventory. But why is it able to do so, and will it be able to do so again, when market conditions become adverse?

A low P/B ratio is also insufficient to protect from large draw downs. Indofood Agri was trading at a P/B of about 0.35 before going down to a P/B of 0.25. And now it is being privatised at P/B of 0.35. What about the shareholders who bought Indofood Agri at P/B of 0.5, thinking it was a steal (plantation going at half price!)? Penguin is now trading at a P/B of 0.6, but it was way much lower 3 years back. 

- lastly if you think this is purely a shipbuilding business which you have analyzed above do think twice. Take a good look at their latest AR and see where profits are coming from

Yes, I do not 'take a good look' at every company; only the ones I am ready to put some money into. There are way too many details, and there are so many companies. As I have mentioned on other occasions, prospecting companies is not too different from prospecting a spouse, or a company looking to make a hire (if relationships are not your thing); you only need as much information to decide on whether you are interested, or not. Shortlist those that meet your basic criteria, then go on to scrutinise the details on those you have shortlisted.

I suppose you are referring to Penguin's ship chartering segment. While this is separate from the shipbuilding segment, they are primarily driven by the same market forces; demand for, and supply of, vessels. Chartering, while often perceived as a more stable source of income, is also exposed to market forces when the lease expires. There are a number of shipping trusts which failed/performed poorly, partly as result of recontracting at much lower charter rates. Much of the risk also depends on the contract duration and price that Penguin's ships are chartered. Are they short term at high rates? Or long term at high rates? Or long term at low rates? I have no idea.

I have seen better analysis from you prior and am thankful for it. Honestly, in recent posts you seem to log in and proceed to simultaneously bash multiple stocks on the way out. Is it because you think that valuations in general are fat at the moment? What stocks would you think are value buys now? Just curious what stocks currently satisfy your criteria of understanding all material risks involved and thus would not be akin to blind betting and speculation. I believe that would greatly benefit fellow valuebuddies. You must have done something right to get 50 recommendations on your posts. So would be great to hear more.

If it is the desire of an investor to pick stocks, then the assumption is that all stocks are not the same, and that some must possess qualities and characteristics that are better than others. Many people actually do not do this, although they think that they are. What these people do is pick stocks mainly based on valuation metrics (P/E, P/B, EV/EBITDA, etc), or 'pay-off,' with some knowledge of the business, but without seriously considering where the risk are. Hence, my Fulham (or whichever your favourite team is) analogy.

In the course of performing my research, I pay particular attention towards identifying and assessing the risks. The product of which may at times come off as 'bashing.' But really, this 'bashing' is simply looking at the same thing, but from angles that few people care to look. Yet, if one is serious about making (or not losing) money from picking stocks, this is what one must do. If one only wishes to look at their stocks through rose tinted lenses, it is impossible to make money over the long-term. The alternative is to wait for bad things to happen and then some horse-behind-canon bystanders will say, 'Oh yeah, you can totally see this coming. See, here, here and here...' What good does that do? I prefer to know when bad things are going to happen, not after.

The people in VB are generally open-minded, generous, tolerant, and even encouraging. They give me little star stickers for my vigorous yet unprofessional attempts to provide any analysis or insight, as if to say, 'good try!' the same way one would eat the cookies baked by kids and go 'yum!' For that, I feel grateful. I understand that you feeling aggrieved after seeing what must look very unpleasant to you. You are not the first to be offended by what I have written, and if my past behaviour is any indication of my future actions, there will certainly be others. I hope you understand that none of what I post in VB is intended to be personal or offensive, and see it as what it is intended to be; angles that few people care to look at. And if the risks that I have identified is proven to be wrong, or that my conclusion is errorneous, wouldn't you be glad then that Penguin is therefore a superior investment candidate?

As for your other questions, I have written about them in my previous posts. I have spent way too much time on this and I'm not being paid like those course sellers that provide life-time support/coaching.

[Squirrel]

- there is a fourth way to allocate capital, which is to set it aside for potential opportunities that comes the way of the company. Why else would Berkshire Hathaway hold onto so much cash? Both Charlie Munger and Warren Buffett love to have cash around when opportunities presents themselves.

Certainly, if we wish to be very specific, your argument is not incorrect. But apart from semantics, this does not change how Penguin deprives the shareholder in order to grow itself. And as mentioned, there is nothing wrong in doing so. Penguin's move to acquire 8% of MPM could prove to be a very smart move if at some later time they flip it at a large profit. Or it could prove to be a dud, in which case it would have been better if it was distributed to shareholders. Which is going to happen? As mentioned, I do not know. What is important here is for (prospective) shareholders to know what Penguin is doing with its money, so that they can set realistic expectations of the company.

- you compare individual waste spending on cars and gourmet coffee to be the same as corporate distributing dividends. In my humble opinion, these are just two very vastly different acts! How can they be lumped together as the same? They serve absolutely different purposes. Period..

From the perspective of the money manager -- whether it be an individual managing his own finances, or a CEO managing the finances of a company -- money that is distributed as dividends or money that is spent on unproductive personal expenses has the same effect of leaving one with less money for productive use, in the present and future. WB's thrifty spending habits and his opposition towards distributing BH's money comes from the same desire to use assets to grow more assets.

- you made another analogy of making a blind bet on Fulham against an unknown opponent. If it’s me, I won’t place it as well because it is second bottom of the league table! Remember the first rule? Don’t lose money. Remember the second rule? Don’t forget the first rule. This in itself is another bizarre analogy. Penguin’s balance sheet speaks for itself with nearly zero debt and low PB ratio. Is it akin to placing a bet on Fulham? Definitely no because you stand to lose everything on the bet but in the stock market, there is skewed returns to the upside. Especially in this case being buffered on the downside by cash, inventory etc.

Certainly, gambling is not exactly the same as investing, but the concept of assessing probability of success vis-a-vis the pay-off applies to both. And while stocks seldom go to zero, the portion of net worth an individual places in a stock can be many times larger than the same individual places on the roulette wheel. So realising a 50% loss on your stock can be even more damaging than a 100% loss on a proportionally smaller gamble. In other words, a stock pick gone wrong is just as bad (if not worse) than a lost bet.

The point I was making is that investors should always be very clear on risks of any particular company. If I told you now that Fulham will be playing Home United, and the payoff for a Fulham win is still 2 to 1, will this not make for an attractive bet? Of course, but that is only because we are able to identify and assess the risk. 

Penguin's zero debt and large cash balance, while admirable, does not completely protect it from adverse market conditions. It may prevent Penguin from going to zero, but it is unlikely that it can prevent Penguin from experiencing a large drawdown. The recent past tell us as much. And a large draw down is enough for a shareholder to lose his sensibilities. 

Hypothetically, if most of Penguin's customers walk away just as the order are about to be delivered -- and it is unable to find other buyers for them -- there will be big impairments on its receivables/inventory. Share price will then adjust accordingly. Yes, Penguin has shown to be able to move its inventory. But why is it able to do so, and will it be able to do so again, when market conditions become adverse?

A low P/B ratio is also insufficient to protect from large draw downs. Indofood Agri was trading at a P/B of about 0.35 before going down to a P/B of 0.25. And now it is being privatised at P/B of 0.35. What about the shareholders who bought Indofood Agri at P/B of 0.5, thinking it was a steal (plantation going at half price!)? Penguin is now trading at a P/B of 0.6, but it was way much lower 3 years back. 

- lastly if you think this is purely a shipbuilding business which you have analyzed above do think twice. Take a good look at their latest AR and see where profits are coming from

Yes, I do not 'take a good look' at every company; only the ones I am ready to put some money into. There are way too many details, and there are so many companies. As I have mentioned on other occasions, prospecting companies is not too different from prospecting a spouse, or a company looking to make a hire (if relationships are not your thing); you only need as much information to decide on whether you are interested, or not. Shortlist those that meet your basic criteria, then go on to scrutinise the details on those you have shortlisted.

I suppose you are referring to Penguin's ship chartering segment. While this is separate from the shipbuilding segment, they are primarily driven by the same market forces; demand for, and supply of, vessels. Chartering, while often perceived as a more stable source of income, is also exposed to market forces when the lease expires. There are a number of shipping trusts which failed/performed poorly, partly as result of recontracting at much lower charter rates. Much of the risk also depends on the contract duration and price that Penguin's ships are chartered. Are they short term at high rates? Or long term at high rates? Or long term at low rates? I have no idea.

I have seen better analysis from you prior and am thankful for it. Honestly, in recent posts you seem to log in and proceed to simultaneously bash multiple stocks on the way out. Is it because you think that valuations in general are fat at the moment? What stocks would you think are value buys now? Just curious what stocks currently satisfy your criteria of understanding all material risks involved and thus would not be akin to blind betting and speculation. I believe that would greatly benefit fellow valuebuddies. You must have done something right to get 50 recommendations on your posts. So would be great to hear more.

If it is the desire of an investor to pick stocks, then the assumption is that all stocks are not the same, and that some must possess qualities and characteristics that are better than others. Many people actually do not do this, although they think that they are. What these people do is pick stocks mainly based on valuation metrics (P/E, P/B, EV/EBITDA, etc), or 'pay-off,' with some knowledge of the business, but without seriously considering where the risk are. Hence, my Fulham (or whichever your favourite team is) analogy.

In the course of performing my research, I pay particular attention towards identifying and assessing the risks. The product of which may at times come off as 'bashing.' But really, this 'bashing' is simply looking at the same thing, but from angles that few people care to look. Yet, if one is serious about making (or not losing) money from picking stocks, this is what one must do. If one only wishes to look at their stocks through rose tinted lenses, it is impossible to make money over the long-term. The alternative is to wait for bad things to happen and then some horse-behind-canon bystanders will say, 'Oh yeah, you can totally see this coming. See, here, here and here...' What good does that do? I prefer to know when bad things are going to happen, not after.

The people in VB are generally open-minded, generous, tolerant, and even encouraging. They give me little star stickers for my vigorous yet unprofessional attempts to provide any analysis or insight, as if to say, 'good try!' the same way one would eat the cookies baked by kids and go 'yum!' For that, I feel grateful. I understand that you feeling aggrieved after seeing what must look very unpleasant to you. You are not the first to be offended by what I have written, and if my past behaviour is any indication of my future actions, there will certainly be others. I hope you understand that none of what I post in VB is intended to be personal or offensive, and see it as what it is intended to be; angles that few people care to look at. And if the risks that I have identified is proven to be wrong, or that my conclusion is errorneous, wouldn't you be glad then that Penguin is therefore a superior investment candidate?

As for your other questions, I have written about them in my previous posts. I have spent way too much time on this and I'm not being paid like those course sellers that provide life-time support/coaching.

Thanks for your lengthy response.

Honestly, I am not aggrieved or feeling offended by your post. To me, investing has the most straightforward indicator of success or failure. It’s your profits and loss. You can argue your pants off but the numbers speak for themselves.

I am really just curious about what you feel is a good company to invest in at the moment, or do you generally feel that valuations just ain’t cheap at the moment. I, for one, am scouring this forum in search of gems that I can buy and sleep on. Given your nature of analyzing every single bit of data and the need to understand fully a business before you commit, it would be great to know what you are vested in. Apologies if I haven’t gone through your historical posts thoroughly enough but I have yet to see you put your full weight behind one.

I have digressed. There are no lack of readers that are not contributing at all. You for one is contributing much. Apologies if you were offended by my post. I am just very curious. And of course no obligations to reveal if you don’t want to. Some people feel more comfortable not showing their cards and I respect that.

[Elty]

I recall karlmarx did a writeup favourable of AP Oil.

[luckystar]

In a stock market that is badly neglected by the people in charge, even very good stocks get hammered.

There is a major shortage of buyers in the SGX. Critical assessment of any stocks can lead to significant losses and exodus of even long time faithful shareholders.

So as I observe, most critical and negative talks of stocks, whether rightly or wrongly, can often lead to further erosion of investors interest and fall in stock price. Most negative reports end up looking really smart and prescient.

I dont think there is a perfect stock per se in any stock market. By definition, if a stock is so damn perfect, it will lead to investors flocking in, and causing it to be not so perfect from valuation point of view.

It is relatively easy to bring down even very good stocks in the SGX. Unless there are more investors coming in than going out, investors will surely continue to suffer here. SGX is like a black hole, money gone in gets sucked in, for a long long time.

[Dosser]

In a stock market that is badly neglected by the people in charge, even very good stocks get hammered.

There is a major shortage of buyers in the SGX. Critical assessment of any stocks can lead to significant losses and exodus of even long time faithful shareholders.

So as I observe, most critical and negative talks of stocks, whether rightly or wrongly, can often lead to further erosion of investors interest and fall in stock price. Most negative reports end up looking really smart and prescient.

I dont think there is a perfect stock per se in any stock market. By definition, if a stock is so damn perfect, it will lead to investors flocking in, and causing it to be not so perfect from valuation point of view.

It is relatively easy to bring down even very good stocks in the SGX. Unless there are more investors coming in than going out, investors will surely continue to suffer here. SGX is like a black hole, money gone in gets sucked in, for a long long time.

A surprisingly negative view. This year to date has been good, largely, Hyflux investors excluded, of course. A number of stocks that have been flagged on this site (e.g. PCI, Chuan Hup, Sinwa, Penguin) have done very well, and many REITs have also been strong, as a result of the change in the direction of expected USD interest rates.

Trading in many small cap stocks is thin with big spreads, but this provides the opportunity to pounce on occasional attractive prices. 

My question is what better opportunities are there for holders of SGD? I find that I can push my relationship manager to give me better rates than advertised on CAD, USD, even GBP, but when it comes to the pathetic return on SGD, he basically said the bank just had too many of them sitting around anyway, so weren't interested in giving anything better than a pathetic return. In that context, the dividend return on selected stocks on SGX still looks attractive to me - not as attractive as at the beginning of the year, but still not bad. Personally, I am moving from a strong buying phase since late last year to a phase of hold, accumulate cash from dividends/take-overs and look for special opportunities.

[weijian]

I am really just curious about what you feel is a good company to invest in at the moment, or do you generally feel that valuations just ain’t cheap at the moment. I, for one, am scouring this forum in search of gems that I can buy and sleep on. Given your nature of analyzing every single bit of data and the need to understand fully a business before you commit, it would be great to know what you are vested in. Apologies if I haven’t gone through your historical posts thoroughly enough but I have yet to see you put your full weight behind one.

I have digressed. There are no lack of readers that are not contributing at all. You for one is contributing much. Apologies if you were offended by my post. I am just very curious. And of course no obligations to reveal if you don’t want to. Some people feel more comfortable not showing their cards and I respect that.

hi Squirrel,
In value investing, there can't be only good things OR in the words, we expect to see bad things. For something to be selling at cents for a dollar, there has to be some sort of defect in either its asset, business or structure - as luckystar mentioned. So, I see karlmarx's value as helping to flag out the defect/s that is causing it to be selling cheaply. It is really up to the individual to assess the risk (defects) and reward (valuation) accordingly. I am not a fan of falling in love or seeking (public) confirmation for the stock that one is vested in - so I don't see that there would be any dichotomy if one is still critical in a stock that they are vested in (eg. RBM on Kingsmen recently).

[karlmarx]

Thanks for your lengthy response.

Honestly, I am not aggrieved or feeling offended by your post. To me, investing has the most straightforward indicator of success or failure. It’s your profits and loss. You can argue your pants off but the numbers speak for themselves.

I am really just curious about what you feel is a good company to invest in at the moment, or do you generally feel that valuations just ain’t cheap at the moment. I, for one, am scouring this forum in search of gems that I can buy and sleep on. Given your nature of analyzing every single bit of data and the need to understand fully a business before you commit, it would be great to know what you are vested in. Apologies if I haven’t gone through your historical posts thoroughly enough but I have yet to see you put your full weight behind one.

I have digressed. There are no lack of readers that are not contributing at all. You for one is contributing much. Apologies if you were offended by my post. I am just very curious. And of course no obligations to reveal if you don’t want to. Some people feel more comfortable not showing their cards and I respect that.

Rest assured, I am not offended. And I do appreciate your effort to make the discussion pleasant.

The problem is not being unable to find good companies; there are quite a number of them on SGX. The problem is being able to buy them at discount prices. This is very difficult because the stock market prices them fairly, most of the time. Yet, price is something that I loathe to compromise. 

Some time back, I mentioned that I was willing to purchase Penguin shares at a particular price. CY09 (IIRC) remarked that my price was way too low. Indeed, the market never offered that price after my post. But it did prior to that post, albeit on low volume. Nevertheless, even if the market were to offer the price I want, I would not have made Penguin a significant part of my portfolio. The reason is that Penguin's value can only be realised from the disposal of its vessels at not-fire-sale prices. And I was not confident that Penguin could dispose its vessels. So my worse case scenario, if I had bought, was opportunity cost; I could be stuck with Penguin shares for a long time, even though I need not worry about the price falling further.

In the rare occasions where you see good stocks become cheap, there will almost certainly be some accompanying bad event. So there is seldom a clear buying signal. In the more recent past, I wrote that QAF, in spite of the problems it was facing and its imperfections, was selling at an attractive price. It was one of the rare moments where I was convinced that the market was severely mispricing a good company. That conviction came from an attempt to thoroughly understand the company, which requires looking at both the good and bad sides, to arrive at a fair assessment. A fair assessment is important. If you lie to yourself, it will cause you harm, because your assessment will be wide off the mark, which will cause you to lose money.

The alternative is to buy good companies at fair value, which most of the time, is close to the present market value. The problem of doing so is that the investor has to rely on not having any bad events occurring, which may cause the stock price to fall precipitously. What is worse is that some investors do not even know what are the possible bad events that may occur, which may lead them to think that the market price is actually an undervalued price.

Nevertheless, some believe that they are able to identify growth stocks, and hence have no qualms about paying fair prices. I do not have this ability. Since I do not possess WB-type foresight, and I cannot accept large drawdowns on my stocks, I do not buy at fair prices. Coupled with my requirement for a company to be of decent/good quality, this makes the pool of stocks available to me, very very small.

I won't list the stocks in my portfolio; it is seldom helpful. Though, if you are very interested, you can do a search and see which are the ones I am more partial to.

[karlmarx]

In a stock market that is badly neglected by the people in charge, even very good stocks get hammered.

There is a major shortage of buyers in the SGX. Critical assessment of any stocks can lead to significant losses and exodus of even long time faithful shareholders.

So as I observe, most critical and negative talks of stocks, whether rightly or wrongly, can often lead to further erosion of investors interest and fall in stock price. Most negative reports end up looking really smart and prescient.

I dont think there is a perfect stock per se in any stock market. By definition, if a stock is so damn perfect, it will lead to investors flocking in, and causing it to be not so perfect from valuation point of view.

It is relatively easy to bring down even very good stocks in the SGX. Unless there are more investors coming in than going out, investors will surely continue to suffer here. SGX is like a black hole, money gone in gets sucked in, for a long long time.

I think you may have overestimated the influence of negative reports.

Over the short term, a positive/negative report can have some effect on a stock's price.

But over the long term, such reports have little effect on the stock's price. Most stocks perform poorly because their businesses perform poorly. Have a look at stocks with increasing dividends, and compare them against those with decreasing dividends.

So if SGX as a whole is performing poorly, could it not be due to an over-representation of poor-quality companies on SGX?

[chialc88]

Thank you all valuebuddies who contributed to this discussion.

I guess I made the same mistake in Micro Mechanics thread
aka I get carried away again.

Will be more careful in (pushing) Penguin.

BTW, all my posts were based on my own opinion.

Do your own study and counter check with facts, please.