Alpha POWER Shares (Lions) Portfolio - June 2008
Stock Performance:
Portfolio Performance vs. Benchmark:
Market Commentary
Asian markets all registered losses in the month of June on the back of rising oil prices and increased risk aversion as credit spreads widened. Amongst the markets which we currently have investments, the performances of market indices during the month were as follows: MSCI Korea (down 12.4 %), MSCI Taiwan (down 11.4 %), MSCI Hong Kong (down 10.8 %), MSCI Malaysia (down 8.8 %), and MSCI Singapore (down 7.7 %). Account 6013: Alpha Power Shares - Lion Asia Fund Jun 2008 By Lion Global Investors Limited
Lion Global Investors’ Comments on Major Out-performers
Hang Seng Bank – HSB (+3.99 %)
HSB performed well in the current environment. This is due to its strong deposit franchise which helps net interest margin expand as the yield curve steepens. HSB is also getting growth from China with its three-pronged strategy (ie organic, Industrial Bank and Yantai) and has superior risk management as seen by its lower credit costs and also that it does not have any exposure to collateralized debt obligations (CDO’s), structured investment vehicles (SIV’s) etc despite its substantial liquidity position.
Taiwan Mobile – TM (-0.03 %)
TM reported May 08 consolidated revenues of NT$5.9 bn (up 2.2 % YoY), EBITDA of NT$2.7 bn (up 0.3 % YoY) and net income of NT$1.47 bn (up 1.6 % YoY). TM has 6.2 million mobile subscribers at the end of May 08 of which 91 % are postpaid subscribers. Blended ARPU for May 08 was NT$792, down 3 % YoY. TM remains a good defensive telecom stock in this current volatile environment.
Hong Kong Electric Holdings – HKE (-1.01 %)
In May 08, HKE announced it would invest in the Wellington Power Network in New Zealand with holding company, Cheung Kong Infrastructure (50:50 split). This is forecast to add HK$80 m to FY09E net profits (or 1.4 %) Currently, outside of Hong Kong, HKE has electricity distribution assets in Australia and New Zealand, power plants in Canada, a gas distribution network in the UK as well as a greenfield power plant in Thailand. HKE is also interested in a Greenfield power project in Saudi Arabia.
Lion Global Investors’ Comments on Major Under-performers
Suntec Real Estate Investment Trust – SUN (-18.5 %)
Sun was sold down on the back of a sectoral downgrade by Citigroup on Singapore real estate investment trusts (S-Reits) due to rising Singapore government bond yields. Singapore bond yields rose on concerns over rising inflation which hit a high of 7.5 % YoY in May. In particular, the stock was sold down on concerns of refinancing risk (S$390 million bridging loan by Oct 2008). Sun subsequently issued a statement that it had successfully secured a S$400 million loan facility to refinance the bridging loan. 65 % of Sun’s assets are geared to the office sector (Suntec City Office Towers & 1/3 stake in One Raffles Quay) and 35 % to the retail sector (Suntec City Mall, CHIJIMES & Park Mall). Over 90 % of offices leases at Suntec City are currently fetching rents at least 65 % below spot. As these come up for rental renewal in FY08-FY10, we should expect this to be a key driver for income growth over the medium term.
Hopewell Holdings – Hopewell (-16.2 %)
Hopewell shares took a beating in June. We believe the sell-down of Hopewell due to the current poor market conditions is unjustified. The shares are currently trading at 37 % discount to NAV. Hopewell has a defensive asset quality as 40 % of its NAV is investment properties with stable rental income. 30 % comes from a toll road business which has strong cash flow and will continue to benefit from the appreciation of the RMB. Finally, 20 % of its NAV is made up of cash. As part of its capital management strategy, Hopewell has consistently been repurchasing its shares throughout the year. Thus far, Hopewell has bought 8.4 million shares at an average price of HK$30.5 (HK$256.2 million). With HK$5.4 billion in net cash on hand, there is room for more buybacks.
Woori Finance Holdings – Woori (-15.7 %)
Along with other financial stocks in Korea, Woori shares slumped. The government of President Lee Myung-bak announced plans to sell a 23 % stake in Woori Finance later this year as well as reduce its controlling interest starting in 2009. Woori is currently 72.97 % owned by the government. The sale of Woori is part of the government’s plan to privatize state-run financial institutions to raise competitiveness in the financial sector. Following President Lee Myung-bak’s taking office in February, as part of the reshuffle of heads of state-owned agencies, the Chairman of Woori, Mr Bahk Byon Won, stepped down from his post and the company plans to nominate Mr Lee Pal Seng, the former head of its brokerage unit, as Chairman. Standard & Poors lifted its long term credit rating on Woori from BBB to BBB+, citing potential government support.
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