Sunday, October 11, 2015

Analysis of Maybank

“But then there was fire, and with fire came disparity. Heat and cold, life and death, and of course light and dark. Then, from the dark, they came and found the souls of lords within the flame." –Taken from the opening of Dark Souls. Why? Because I think the game’s fucking awesome.

Please read the disclaimer here: Enjoy the article, bitches!

Hey guys, how have you been? I won’t blame you if you thought that I offed myself by downing a bottle of sleeping pills or something, seeing how stocks are getting killed recently. I won’t lie, it wasn’t fun watching some of my stocks drop with seemingly no end in sight. But I just kept reminding myself that a crisis is the best time to set myself up for some real money in the future. So, I added some new positions to my portfolio and played some video games to take my mind off the day to day fluctuations of my portfolio. That’s the main reason why I haven’t been writing new articles lately, I didn’t want to think more about investments than I had to in this depressing period. The markets have been rebounding recently though, so hopefully we’re seeing the light at the end of the tunnel as I’m running out of cash to put to fucking work. Coconut caramel sundae is also available at McDonald’s (in Malaysia anyway), so that’s another bright spot. Now that we’ve got the small talk out of the way, let’s get down to business. I recently took a stake in Maybank. The bank is based in Malaysia and is listed on the Bursa Malaysia under the stock code 1155. While this stock might not necessarily become a ten-bagger in the near future, it’s a solid company with a reasonable valuation. According to Bloomberg, Maybank has a price/earnings ratio of 11.72 based on last Friday’s closing price of Ringgit Malaysia 8.6 per share. Based on last Friday’s closing price and dividends paid/declared in the past 12 months, Maybank would have an attractive dividend yield of 6.63%.

In the first half of 2015, Maybank generated a return on equity of 12.1% which is alright. The group’s capital ratios indicate that the group is in a healthy financial position. As at June 30, 2015, the group had a common equity tier 1 (CET 1) capital ratio of 11.48% (Maybank assumed an 80% reinvestment rate under its dividend reinvestment program when calculating this capital ratio). This gives the group a significant cushion to absorb losses. According to the capital adequacy framework issued by the Central Bank of Malaysia on 28 November 2012, banks are required to maintain a minimum CET 1 capital ratio of 4.5%.

The bank was growing at a decent pace in the past year. As at June 30, 2015, Maybank’s Malaysia and Singapore divisions experienced year-on-year deposits growth of 7.6% and 11.6% respectively (the growth in the Singapore division’s deposits was in SGD terms). Deposits with the Malaysia and Singapore divisions accounted for 63% and 24% respectively of Maybank’s total deposits. Maybank experienced annualized year-to-date (YTD) growth in its Malaysian and Singaporean deposits of 5.1% and -2.9% respectively. The group’s total deposits annualized YTD growth was at 2.5% (if exchange rates are normalized). I think that investors should monitor the group’s deposits growth in the next few quarters to see if the slower growth rate persists. After all, one or two quarters of slower deposits growth doesn’t really tell us much. It’s the long-term that matters.    

As at June 30, 2015, Maybank’s gross impaired loans stood at 1.56% of total loans. I’m not really worried about the group’s impaired loans at current levels. However, I believe that it’s a useful exercise to think of a pretty negative scenario and evaluate whether or not the group can survive in that scenario. I personally don’t think that the following scenario is likely to happen. But what I’ve learned from some of my earlier investments in the natural resource space, which lost me a fuck load of money, is that it pays to be pessimistic. Anyway, here’s the scenario:

Maybank’s gross impaired loans shoot up by another 5% over the next 12 months. Let’s also say that the group’s provisions for loan losses would come up to 70% of the value of the new impaired loans. This would mean that the group would have to absorb losses equal to 3.5% of its loan book or 2.71% of its average interest earning assets. The group had a net interest margin of 2.28% in the first half of 2015. The group’s annualized overhead expenses as a percentage of average interest earning assets was 0.89% for the first half of 2015. I calculated the overhead expense ratio by first deducting fee income and overhead expenses related to Islamic banking operations from the reported overhead expense; I then divide that figure by the average interest earning assets and annualize the results. While the group’s 1-year net interest income falls short of covering the provisions for loan losses in this negative scenario (especially after taking into account overhead expenses), Maybank’s significant capital buffer should be able to absorb the shortfall without any problems.  

Well, that does it for my analysis of Maybank. I hope you guys have a healthy amount of cash on hand and are upgrading the quality of your portfolio when you find the opportunities to do so.  Take care and stay rational.

Tuesday, July 14, 2015

Update on the Greedy Dragon portfolio

Hey guys, I hope your portfolios haven’t got fucked up as badly as mine was recently. My coal and O&G stocks were absolutely brutalized in the past few weeks. Could it be time for the Greedy Dragon to liquidate his holdings and invest in a mutual fund? While I made a couple of mistakes, overall I have confidence in my research and decisions.  I’m investing in businesses, therefore long-term profitability and actual risks to the business as a going concern are all that I care about. I would be lying if I told you I didn’t give a shit about near term share price fluctuations, because it does plant some doubt in my mind as to my ability to value companies and assess risks. However, reason must come before emotions. I’m trying to be rational by using the recent selloff in natural resource stocks to selectively add to my positions. I hope I will be rational enough not to get overexposed to the natural resource sector and to quickly realize permanent impairments in intrinsic value if they occur.      

Anyway, here are the transactions I made for the Greedy Dragon portfolio in the past couple of months or so. I hope I didn’t leave anything out. Please do your own research before investing in anything. I recently added to my position in Northern Oil & Gas, Natural Resource Partners, Cloud Peak Energy and Comstock Resources. I sold my positions in LRR energy, Mercadolibre and National Bank of Greece (NBG). NBG is the first investment in the Greedy Dragon portfolio which I believe has become permanently impaired. Maybe the stock might start to go up soon, but I don’t want to take the risk (I wish I had been more professional with this position from the start and cut my losses earlier). If Greece wants to get out of this crisis, it needs to move towards capitalism. But with a socialist as their prime minister, I don’t think that a Greek economy based on free markets is likely in the foreseeable future.

Well, that does it for this update. Take care and stay rational.

Sunday, July 5, 2015

Analysis of Northern Oil & Gas

Sup, y'all. As I mentioned in my last post, I was trying to create a professional analysis of Northern Oil & Gas to showcase my skills to potential employers. Well, it's finally done and I'm proud of that bad boy. Please click this link to go to my analysis. Please do your own research before investing in anything. As always, take care and stay rational. 

Sunday, May 31, 2015

Drinks with the Dragon, Session 2

Hey, how are you guys doing? No, I didn’t forget about you. I couldn’t really think of anything to write, so I decided to just do another “Drinks with the Dragon” post just to shoot the shit on some investing as well as personal stuff. I’ve been tied up trying to write a professional report (no using of the word bitch, fuck, shit, cunt or Mexican sticky balls) on Northern Oil & Gas, one of the Greedy Dragon portfolio’s positions. I plan to use that report to showcase my ability as an analyst to my potential employers. Hopefully the person in charge of reviewing the job applications actually bothers to read my work. I thought of just putting a link to my blog in my CV, but I think my blog is a little too gangsta for the corporate world. I will post my research on some document sharing site when I’m done so that you guys can check it out, if you want. I know I’ve mentioned that I wanted to get a job for quite some time now, but the fucking wound under my foot took fucking forever to heal up. The wound is much better now. It stopped discharging pus, so I don’t have to worry stinking up the office. I plan to send out my job applications at the end of June. I still have a lot of fat to work off. After all, one reason I wanted to get a job is to get out of the house and find a nice girl to date. I can’t really do that if I look morbidly obese. A Grand Prix for a card game I play (Magic: The Gathering) is also taking place in Singapore at the end of June, and I want to get my geek on and have a fucking good time before starting work.

Update on the Greedy Dragon portfolio: I recently added to my position in Natural Resource Partners. Please do your own research before investing in anything.   

Shale oil stocks have taken an absolute beating recently because of a presentation by David Einhorn (in my opinion, one of the best investors in the world) and horrendous Q1 earnings reports. I can’t really remember all of what Einhorn said, so I won’t try to refute him. The points I’m going to make isn’t directed at him, I’m just saying stuff just to say stuff. I don’t think you can just look at the depletion, depreciation and amortization numbers of shale oil producers and conclude they’re not viable investments. The cost of drilling wells has come down significantly and the estimated ultimate recovery of new wells has gone up significantly as well. Investors should of, of course, exercise prudence when attempting to figure out a shale oil company’s cost to develop its reserves. Shale oil producers may have also overpaid to lease acreage in the past, but that should be treated as a sunken cost. I will admit that my oil investments seem riskier than I initially thought after reading their Q1 results. I should really reevaluate those positions soon.

Coal stocks have also been hit pretty badly recently. I invested in a coal stock which I knew from the start would be one of my riskier investments. Now, I don’t regret investing in it as I knew that I could make a lot of money if it survived this downturn. Where I fucked up is investing too much money in this stock. I had an unspoken rule to never allocate more than 5% of my portfolio to riskier investments. I went full retard and put about 15% of my portfolio in investments that I deemed to be riskier. I believe my investment in one of these positions has already been permanently impaired (not the coal company, although it might if coal prices remain weak for a prolonged period of time). I will try to de-risk my portfolio whenever I can find the opportunity to do so. Maybe even realize some losses, which I fully deserve. Anyway, thank you for reading. Take care and stay rational. 

Saturday, May 2, 2015

Fundamental analysis of the Greedy Dragon portfolio

Hey, I hope you guys are ready to tear shit up because it’s portfolio analysis time! To be a badass mofo in investing, I think it’s important to think of your portfolio as a holding company and your positions as businesses. That’s why you should know if your holding company/portfolio has a big enough war chest and healthy cash flow to pursue opportunities when they arise. Having an idea of the industries and countries where the businesses in your portfolio earn their profits is also important.   

Update on the Greedy Dragon Portfolio: I recently sold my entire position in Biostime. I also increased my stake in Northern Oil & Gas and Natural Resource Partners. Please do your own research before investing in anything.

Let’s start analyzing the fundamentals of the Greedy Dragon portfolio by looking at concentration risk. The following tables illustrate the exposures of the portfolio:

Natural resources (specifically fossil fuels)
Real estate

United States
Latin America

While my portfolio’s exposure to natural resources may seem high, I’m actually alright staying around this level or maybe even increasing my exposure to the sector by a little more. However, natural resource stocks have to drop drastically from here before I will consider allocating more than 50% of the portfolio to the sector. I know I’m taking a big risk here. In fact, I think that most people should not have a portfolio with so much exposure to one sector. But I’m confident in my ability and I’m prepared to take the losses if the “shit hits the fan” or the “condom breaks” or whatever metaphor for being fucked that you care to use happens. I will attempt to reduce my exposure to the natural resource sector when it recovers and move into other stuff like consumer goods or industrials to reduce the portfolio’s concentration risk. Assuming that no sector is significantly undervalued, I would rather not have more than 30% of my portfolio exposed to any one sector.

In terms of geographic concentration, I think the portfolio is less risky than it looks. Yes, 56.38% of my portfolio consists of companies that operate in the United States. However, I don’t think my portfolio’s foreign exchange risk is high as a large portion of my U.S. investments are natural resource companies that tend to be more profitable when the dollar declines. Because commodities are priced in dollars, they tend to go up when the value of the dollar weakens. Despite the damage done by all the leftist and socialist bullshit, U.S.’s country risk is low as it still respects property rights and is one of the most politically stable countries in the world. America: Fuck Yeah!

I really would like to get more exposure to Europe and Asia if I can find good companies there at attractive prices. Although it may look like the portfolio has decent exposure to Asia, about half of the portfolio’s Asian assets are cash. One of the long-term goals of the portfolio is to generate a significant amount of profits (whether its paid out as dividends or reinvested for shareholders’ benefit) from each of the following regions: Asia, North America, Europe and Latin America. This would mitigate the impact a devastating event in one of the regions would have on the portfolio. I also think that there’s a lot of growth potential in Asia and Latin America over the long-term, and I want to profit from that growth by investing in companies with a presence there.

Cash made up 11.5% of my portfolio. I used up a significant amount of cash recently to invest in natural resource stocks. While my cash position isn’t too bad, I want to increase it to at least 20% of the portfolio or I just won’t feel comfortable. However, that could be a challenge as I might want to buy more stocks for the portfolio. I guess that I could exit/trim some of my positions to increase my cash buffer and make new investments. But that’s a short-term fix. My long-term goal is to increase the dividends generated by the portfolio so that I don’t find myself in the position of having to sell good stocks in order to buy other good stocks so often. Being in that position results in you paying a fuck load of fees to your broker, which is not optimal. It’s also not fun selling a stock only to see it go up 100% in less than a year. Especially if you wouldn’t have sold it if you had enough cash on hand or could build up enough cash from your income streams. Every time I look up Monster Beverage’s stock price, I feel like bitch slapping myself for selling the stock the day before Coca-Cola took a stake in the company.

Disclaimer: I’m not recommending any of the stocks mentioned in this article.

After roughly taking into account taxes, the portfolio should have a dividend yield of about 1.79%, assuming no further dividend cuts (less if you include fees). This is indeed quite low and I aim to boost the portfolio’s dividend yield to around 4% over time by investing in quality dividend paying companies if the opportunities present themselves. Another way that the cash generated by the portfolio could increase is if my current positions initiated or increased their dividends. It’s important for the income from your portfolio to 1) grow at a faster rate than inflation over the long-term and 2) have some resiliency during tough times. A good source of income is asset light companies with pricing power like a Hershey or a Nestle or some other badass company. These companies are able to maintain healthy dividends as they don’t have to keep plowing back a large portion of their profits in capital expenditures. As these companies are able to raise prices, they are more likely to maintain if not increase their dividends in real terms over time. If you don’t get hard/wet at the thought of cash streams that can keep up with inflation (and possibly grow even faster than inflation), then value investing is probably not your thing. There’s no reason to limit your passive income sources to stocks. Bonds, real estate or private businesses could also be good cash generators, assuming that you understand those asset classes.            

Note: When calculating my portfolio’s after tax dividend yield, I exclude income from positions where all I can buy with the dividend payments are happy meals. This is a result of the stock having a low dividend payout, me owning too few shares and high fees relative to the dividend charged by my brokerage firm.

Well, it looks like we’ve come to the end of this analysis. It certainly was longer than I expected. Anyway, I hope you guys found some useful stuff in this article. Thank you for reading. Take care and stay rational.

Tuesday, April 14, 2015

Analysis of Comstock Resources

Please read the disclaimer here: Enjoy the article, bitches!

Sup fellow value investing hombres, today I will be analyzing Comstock Resources. The company is a shale oil & gas company. The stock closed at $4.74 per share on Tuesday, which is around the average price I paid for this stock. In 2014, the company primarily drilled wells in the Eagle Ford formation in Texas. Have I ever mentioned that I would really love to live in Texas for a while? If I was a billionaire, I think I would be there right now buying up Eagle Ford acreage, eating barbecue and hopefully dating a nice southern girl. Anyway, let’s get back to business. The following excerpt from the company’s 2014 annual report details its 2015 drilling plans: “As a result of the improved economic returns expected for Haynesville shale natural gas wells, and the fall in oil prices in late 2014 and early 2015, our drilling activity in 2015 will primarily target natural gas in the Haynesville shale.” At current well costs and service costs, the company believes that it can achieve internal rates of return of 27% to 47% on new wells and 40% to 69% on refracs at natural gas prices of $3.00 to $3.50/Mcf. You can refer to slide 10 of the company’s presentation dated 04/06/15 to get a better idea of the economics of the company’s Haynesville wells. The company also has 82,500 net acres prospective for the Tuscaloosa Marine shale play, but drilling has been suspended until oil prices recovers.

Update on the Greedy Dragon portfolio: I recently took a position in Cloud Peak Energy and LRR Energy. I also increased my stake in Natural Resource Partners. Please do your own research before investing in anything.

Comstock Resources’ cost of production was $1.97 per natural gas equivalent (Mcfe) in 2014. I calculated cost of production as the sum of lease operating expenses, gathering & transportation expenses, production taxes and general & administrative expenses. As the company is planning to shift its focus from the Eagle Ford shale to the Haynesville shale for the time being, I won’t be covering the finding and development costs. The lower end of the company’s 2015 production estimates is for 9.5 thousand barrels of oil a day and 145,000 mcf of natural gas a day. According to Comstock’s Q2 2014 earnings call transcript on Seeking Alpha, the company’s realized oil prices averaged 97% of the average WTI price; the company’s realized natural gas prices was 94% of the average NYMEX Henry Hub gas price. The company could realize $4.248 per mcfe based on the lower end production estimates and assuming Monday’s closing price of WTI crude oil of $52.03 and NYMEX natural gas of $2.51 remains constant (assuming also that the company realizes 97% of the WTI price and 94% of the NYMEX natural gas price).

As at December 31, 2014, Comstock Resources had long-term debt of $1.07 billion. This is indeed a significant amount of debt. However, the company has some breathing room as the debt only starts to mature from November, 2018 onwards. It’s unfortunate that the company had no outstanding commodity derivatives as at December 31, 2014.

I was mainly interested in Comstock Resources for its presence in the Eagle Ford as I read some good things about the play. However, if the company’s new Haynesville wells turn out to be as profitable as it believes it to be, it would be like getting Snapchat photos from not one but two girls that you want to get between the sheets with. Thank you for reading. Take care and stay rational.