Yongnam: Profit guidance 3Q 2013.

Yongnam's share price declined more than 10% early this morning. Reason? The management issued a profit guidance. It is more like a fair warning that the latest quarter's results will be negative and that investors should not be too optimistic. This is due to:

1. Cost overruns from 3 on-going projects, paring operating margin to new lows

and

2. A significant one-off loss on disposal of some fixed assets.

So, what did I do? Thanks to an SMS alert from a friend, I did a quick read of the announcement before buying more at 24c a share.



I believe that Yongnam's position in the construction industry is not shaken. It owns a large inventory of reusable steel struts which are valuable assets as they also present a high barrier to entry in Yongnam's niche in the industry.

The decline in share price has presented a good opportunity for me to buy into the business at a discount to NTA. I cannot see how it is a bad idea to own what Yongnam has at a discount.

Of course, cost overruns and suffering losses are unpleasant but we are buying a business with an eye on its future. So, it is important to question if such instances will become the norm? Will they happen again and again in the future? Will they be persistent?

I am of the belief that these are one-off events and that Yongnam's balance sheet will not be negatively impacted in any big way. Overall, Yongnam will still remain profitable for the year although it will pale in comparison to the year before.

Yongnam's future is bright as they will be a beneficiary of the government's drive to double the MRT network in Singapore and there will be work aplenty until 2030. Even if there should not be any iconic projects (which is unlikely), Yongnam will probably have quite a bit of work to keep them busy in the years ahead.

When one-off events like this send Mr. Market into a manic depression, they present a chance for me to buy a business with a proven track record and a bright future at a discount.

Some of us might remember there were times when Mr. Market was very optimistic about Yongnam (for example, on the Myanmar airport projects). Its share price rose to be much higher then. That was probably a bad time to buy.

Please note that I am not glossing over the challenges that Yongnam is facing. Like other construction companies, Yongnam is having a hard time with cost pressures.

With a 3Q loss, they might or might not pay a dividend for the year although a lower DPS should not be demanding. Without major CAPEX in the year, this is a possibility.

See:
Profit guidance: 3Q 2013

Related post:
Yongnam: A chance to accumulate cheaper.

Photos of AK's home.

In my last blog post, some readers thought that the photos were of my home.

Nope. Too luxurious. 

Anyway, curiosity is only natural and since I took some photos of my place a couple of years ago, here they are:

Main entrance to my home on the right.

I gave away the TV console and LCD TV to my sister.

Kitchen with inexpensive washing machine and fridge.

The rather small guest room which was rented out to a friend.

Washroom.

My bedroom.

This is SPARTA!

Related post:
Moved in after 2 weeks and an $8,000 renovation.

Moved in after 2 weeks and an $8,000 renovation.

I shared in Facebook how I spent $8,000 doing up my apartment 6 or 7 years ago and moved in 2 weeks after I got my keys.

Someone asked me how did I do it and whether I could blog about it.

I did a quick summary in Facebook in the wee hours of this morning and I am doing a cut and paste here since the majority of you guys (and gals) don't follow me on Facebook.

"Terrence, it was so many years ago. There isn't much to write really... Lights >$1K... Curtains/Blinds >$1K ... 26" LCD TV, Medium size 2 door fridge, top loading fuzzy logic washing machine >$1K... Furniture from IKEA (Queen Size Bed/Single Bed/Mattresses, 2 Seater Sofa, Dining Table + 4 chairs, TV Console, Shelves, Side Tables) >$2K... Painted the place myself in one weekend... :) 

"It really depends on what we can accept. Many people told me IKEA furniture CMI but mine lasted >4 years and when I sold my place, the buyer asked to have all the furniture. Still good. Just imagine that the money I spent on all my furniture cannot even pay for a bed or a sofa for some people. -.-"







"I am not saying that I am right and they are wrong but there are choices. The same goes for electrical appliances. I spent less than 2K on washing machine ($299), fridge ($499) and LCD TV ($699). For some people, their TV already costs $2K (or more)!

"Very often, I see people trying to keep up with their friends and relatives. "They have, I must also have! If I don't have, I will lose face!" Big problem if they think like this especially if they cannot afford it. Even if they can afford it, should they spend that money?






"To me, it wasn't about affordability although I could afford better. I could put the money to better use. People laughed at my TV back then. It was CHIMEI brand. My Taiwanese friend told me it was Taiwan's 2nd biggest brand. Good enough for me. 26" LCD TV at $699 7 years ago was a very good price. I think SHARP would have cost 50% more.

"I don't think I was extreme in delaying gratification but I did delay within reason. Why use our hard earned money to buy a super high tech TV when we could get one "free" later on with passive income generated by our investments?"

We have choices in life.





We can choose to be 
"Under-accumulators of wealth (UAWs)"
or 
"Prodigious accumulators of wealth (PAWs)".
Source: The Millionaire Next Door.

"I have been labelled a person with a peasant mentality when it comes to wealth building... Unfortunately, I was not born with a silver spoon in my mouth... I can only do what I can with my limited resources to move upwards."
Source: To be a happy peasant.







As long as we are not severely disadvantaged in life, this is definitely something which all of us can do. 

If AK can do it, so can you!

Related posts:
1. A reader in his early 20s.
2. The secret to avoiding financial ruin.
3. From rich to broke.
4. If we are not rich, don't act rich.
5. Not enough money to be married.

How much more will AVIVA be paying AK?

I have blogged about how I buy single premium endowment policies with my SRS money before.

The best product ever was the Guaranteed Rewards plan from UOB Life which unfortunately is no longer available.

That guaranteed 3% to 4% returns per annum over an 8 to 10 year period. Of course, there was a life insurance component as well.

A Guaranteed Rewards $20,000 endowment policy that matured 2 years ago became more than $30,000 after the 10 year period was up.

That was 4% compounded yearly over a 10 year period. Some might not agree with me but I feel that for a relatively stress free option, it was not too bad.

I have another Guaranteed Rewards policy that is going to mature soon. I think it is probably going to be next year.

In the meantime, I have a single premium endowment policy from AVIVA called Guaranteed XO which is maturing on 21 November 2013 after 8 years. This one has a guaranteed portion and a non-guaranteed portion which pays every 2 years.

I cannot remember exactly but the last three payouts were unimpressive. I was probably paid less than $800 in total.

In their latest advice to me, they did not say how much more I would be paid on top of the single premium of S$10,000 all of which would be returned to my SRS account.

Will I get a pleasant surprise in November?

Pleasant surprise or not, this is going to beef up my SRS account which is one of my 4 war chests.

Related posts:
1. Great Eastern Life paid me $4,000.
2. Customer service in insurance companies.
3. A war chest called "SRS".