Analysis of marine companies

I did a very quick broad analysis of the offshore companies covered in the talk. After the analysis, I have narrowed down to just two companies: CSE Global and Yangzijiang. I will discuss why the other companies didn’t make the cut.

SBI Offshore

  • Good financial numbers
  • But, just IPO recently so have to wait and see how they do
  • In a competitive industry. There are so many companies like SBI offering offshore equipment supplies.


  • Revenue decreasing over the years
  • Inconsistent cashflow from operations over the years
  • Net profit margin and Return on Equity (ROE) a measly 2%
  • Return of Assets (ROA) is worst off at 1.6%

Otto Marine

  • Low ROA
  • ROE has been decreasing over the years
  • Increasingly negative cashflow from operations for the past 2 years
  • Net earnings is increasing but operating cashflow decreasing due to the reason that they have $150 million in cash locked in with customers who have yet to pay up. In uncertain periods like now, this is a no-no.

Marco Polo Marine

  • Current ratio less than 1
  • ROE decreasing over the years
  • Net profit margin decreasing over the years
  • Revenue not consistent over the years
  • Cashflow from operations in FY2009 was $38.4 million but in FY2008 was only $8.6 million. Cashflow from operations jumped so much over one year. Skeptical about this.

So, the better companies are CSE Global and Yangzijiang. I will do a thorough analysis on them soon. I also came across CH Offshore after doing a stock screener in the offshore industry. I’ve heard about CH Offshore previously but I’m not sure why I didn’t look into it before.

What is value investing?

Value investing is a form of investing in businesses which appear underpriced compared to the price it’s selling at in the stock market. Fundamental analysis (qualitative and quantitative) is done on the stock to determine if it’s a good business to own. It was founded by Benjamin Graham and it was later popularized by Warren Buffett, Benjamin Graham’s student.

There are basic 4 steps involved in value investing:

1st step: The company must have a competitive advantage or wide economic moat. Then, ensure that it is fundamentally strong by assessing its financials and reading up on the management.

2nd step: Once a good company is identified, determine the price to buy at by calculating its intrinsic value.

3rd step: Buy the company only if it’s trading below its intrinsic value. I usually buy if the current price is 25% below my intrinsic value and the 25% is a margin-of-safety (MOS) in case my calculations are not accurate. If price is not right, just wait on the sidelines and save up some money. Great buying opportunities are presented during a bad economic news, natural disasters, financial crises or a one-time solvable problem faced by the company.

4th step: Once the current price is below intrinsic value, scoop up the shares.

5th step: Sell when the price has hit your intrinsic value, fundamentals have turned for the worst or you have made a mistake.

Repeat steps 1 to 5 on other companies. Remember to always re-invest your dividends into the stock market to compound your money.

Value investing can be very fun once you get the hang of it. When you start off, it might seem tedious plugging in all the numbers to analyze the company. But after a few tries, it will become interesting and you can analyze companies almost instantaneously.

*The picture above shows Warren Buffett drinking his favourite Cherry Coke. He has invested a huge sum of money in Coke because it has a wide economic moat and is a fundamentally strong company. Even fifty years down the road, Coke will not go obsolete like technology does.

Offshore Marine Talk

I went for an offshore marine sector talk organised by CIMB and it was held at Raffles City Convention Centre. I have been staying away from the offshore marine sector every since I started investing as I didn’t understand the industry at all. However, after attending the talk, I have a better understanding of the industry and the value chain part of it. The companies covered were CSE Global, Yangzijiang, SBI Offshore, Viking Offshore Marine, Otto Marine and Marco Polo Marine. So far, after having heard the company briefs, I like Yangzijiang, SBI Offshore and Otto Marine. I like Yangzijiang for its good cash balances, strong order book and has a record of no cancellation of orders so far – shows how it only builds ships for credible customers. I like SBI Offshore for its high gross profit margin at 34.4% in FY2009 but I’m unsure if it’s sustainable. I like Otto Marine for having a frank and credible management. The person who gave Otto’s brief was its Vice President and he was very candid and frank with the audience. I have yet to research thoroughly in these companies though. I will keep you posted on any further developments.

Protective puts, covered calls, rolling options – HUH?

Yesterday, I went for a free value investing workshop with a friend of mine just to see what it would be about. I have been to lots of free previews and workshop and actually one can learn a lot from these free workshops. Yesterday, too, I learnt a few new stuff after the workshop.

The workshop touched on value investing strategies by Warren Buffett and another strategy on trading options with the value investing strategy. It was a very interesting eye-opener for me. I knew options exists and they can be very versatile at times to hedge on your positions. I have done some research on it myself and have paper traded it before. However, I just knew yesterday that you can incorporate value investing and options to mitigate risks and also make monthly consistent profits. I know it sounds too-good-to-be-true and that was how I felt when I heard it at the workshop. So this morning, I went to google on the strategy (the strategy or its name wasn’t revealed fully but I kind of knew how it works) and by using my ever-reliant spidey senses, came across the actual name of the strategies and found some interesting websites on it as well.

The strategies are called ‘selling puts’ and ‘covered calls’. There are other strategies to hedge your positions using ‘protective puts’ and ‘rolling options’.

Selling put is done when you believe the stock will be bullish and the company is fundamentally strong. So, you write a put and sell it to a buyer while you collect the option premium. If the option expires worthless, then you keep the premium. If the option becomes in-the-money, you are willing to buy the stock anyway since it is a good business and you want the stock at the said price (intrinsic value). For example, let’s say I want to buy Nike at $50 (its intrinsic value) but the stock is now trading at $75.55. I don’t want to buy it at $75.55 as it’s too expensive. So, I write a put option at $50 strike price and collect premium for it. If the stock continues on a uptrend, then the option will expire worthless and I keep the premium. If the stock reverses downwards towards $50, then the option will become in-the-money and I have the obligation to buy it at $50. It doesn’t bother me as Nike is a fundamentally good company and I wouldn’t mind holding it anyway (you can do a ‘covered call’ now since you own the stock. Covered call is discussed below). Why would the buyer want to buy a put from me? To protect himself from downside risks. I’m just like an insurance underwriter and the buyer is paying a premium to me to protect him (his stock for this case) and this is called buying a ‘protective put’ in the buyer’s point-of-view. This is how ‘selling put’ works. And it can be done monthly. Click on Selling puts to learn more.

Next is selling a covered call. You do a covered call when you believe the stock will move sideways or downwards in the near term but are bullish in the long-term (useful for a value investor just like selling puts). Before, you do a covered call you need to physically hold shares of it (that’s how covered call got its name). It’s the opposite of selling naked call where you don’t hold shares of the stock and this exposes you to unlimited risk! When you own stocks of a company, you can sell covered calls and make money through the options premium. You sell the call at a strike price higher than the stock price and hope stock price will never hit the strike price. If it does, the option becomes in-the-money and you have an obligation to sell the stock to the buyer.  So, this strategy is used only on stocks that you are neutral on in the short-term. Also, choose a stock that will give you monthly dividends. So, on top of receiving premiums, you also receive dividends. This can give you monthly income from the dividends and premium.  This is sometimes called the ‘stock rental strategy’. Click on Covered Call to learn more.

So, you can combine selling puts and doing covered calls in a single strategy as seen above. This provides another weapon in the value investor’s toolbox instead of just waiting for dividends or capital gains.

Warning: Before diving into options trading, research thoroughly first and learn fully. Try paper trading to get a hang of it. Options trading is risky for the uninitiated!

How I got interested in the financial world

Currently, I’m 21 and I’m still young and have lots to learn. I got interested in investing when I was in the National Service in 2007 and when I was still 19. September-October 2007 was a turning point in my life. I passed out as a specialist in the National Service and had extra monthly allowance due to the 3rd Sergeant rank. I was looking for ways to budget my money and how to allocate the allowance I got each month. Thus, I went to “Popular” to look for some books on finance and budgeting. My main motive was to find a book on budgeting but I got more than that. While I was entering Popular, to my left stood the “Popular Bestseller’s” section and on that shelf, a book with a purple cover grabbed my attention. It was entitled “Rich Dad, Poor Dad”. I turned the book over and started reading the blurb. It sounded interesting. I flipped through the book and it looked good. I bought the book immediately and came home.

To be honest, I didn’t start reading the book after like 2 weeks. It was lying in my cupboard waiting to be read. 2 weeks later, I started reading the book and I was literally awed by the theories in the book (if you still haven’t read this book, I recommend that you turn off the computer right now and head to the nearest bookstore). It shared on how the rich make money work for them and the poor work for money; how we are trained in schools to trade time for money; what is financial freedom; what are assets and liabilities (mind you, the house you are staying in is a liability unless it’s fully paid for); what instruments to invest in, etc. After reading that book, I got more interested in the financial and investing world. I started reading more books and attended free courses on investing. I also went to study part-time to be certified as an “Associate Financial Planner” to plan for my own finances and not rely on others. I went on to read value investing books by Warren Buffett, among others.

I have not looked back since. I must be blessed to be introduced into the financial world at such a young age. I also have good support from my Mom, my friends and relatives, namely my uncle and cousin, and we discuss on investing regularly. It helps to have a support group to ask questions and it accelerates learning and makes learning easier.