Asia/Europe - 03/25/11

Bilibala Finance’s 7 Top Holding by Region: (with net present value in 1 year) Asia / Europe (46.4% of asset mix) 1. China Mobile (0941/CHL) HK$101.2 STRONG BUY 2. China Life (2628/LFC) HK$43.3 => HK$41.5 STRONG BUY 3. China Construction Bank (0939) HK$9.0 BUY 4. Total SA (TOT) US$61.6 HOLD 5. Siu On Land (0272) HK$6.7 STRONG BUY (pending to update) 6. HSBC Holding (0005/HBC) US$67.3 BUY (pending to update) 7. IFSE A50 China Fund (2823) HK$22.4 STRONG BUY · Mar 11 major transactions: add Honda Motor (HMC) US$36.93; add MTR (0066) HK$29.1; add China Resource Power (0836) HK$13.0 · China Life 2010 earnings up 2.3% to RM$1.19 meet expectation. However, as I kept mentioned, earnings is irrelevant to the valuation of an insurance co. Let’s read those meaningful data · Analysts concerns about loss ratio, let’s look at it 1st, it up 1.5% to 88.5% (mainly because of addition reserve on higher premium) to me, it looks reasonable. Combine ratio up 0.6% to 108.8% (which means every dollar of premium China Life received, it loss about 8.8 cents if excluding investment). Premium earned up 15.6% to RM$318B while value of business up 22.5%, looks great with strong growth. Sales to VNB up by 3.2% to 16.2 times, VNB up slightly slower than premium growth · Future sales growth continue looks great, as interest rate continue to go up while equity market is recovering and should back to peak in 10 years, China Life is in nice growing pace · Embedded value up 4.9% to RM$10.6 & based on all estimation & assumption, I will calculate China Life’s value at 4.05 times of its embedded value & discounted by 25.3% (instead of 21.6% previously) to come up with Bilibala’s new NPV of HK$41.5. · Japan Economy: Japan 1q11 GDP for sure will be hurt by the earthquake & the fall of the national electricity capacities, but most of the analysts think it will pick up in 3q & 4q (Bilibala think it will pick up even earlier than that) · Japan government estimate the damage will be US$0.3T and death may end up close to 30,000. · Bilibala believes in Keynesian Economic Theory, the damage may help Japan to have more meaningful & useful construction development. Given the following fact: 1. Japan’s debt will top 213% of total GDP (after counting the damage, the highest among G7), however, its net debt is only 120% (similar or bit lesser than the PIIGS), 94% of all debts are holding within Japan (means the government do not have interest rising pressure from foreign investors nor force to cut expenditures). 2. Also, Japan’s citizens are rich, having US$14T saving, while there are only US$7T government debt. Meaning Japan still have room to borrow from its nation to spend in order to boost up economy 3. In normal time, Japan can’t change much, where’s now, I hope the government will be able to try something “new”, instead of holding the money supply tie to control inflation, it should let inflation grow a bit to stimulate consumption and economic activities · Corporation like Automotive Toyota, Honda, Nissan etc, lol, you may think they are in big trouble cuz few of their plants have been damaged badly. Production line stopped till end of march, may affect global auto sales. But is it really bad for Japanese auto makers? Think again!! 1. insurance will compensate all the damage in the plants 2. parts can be produced in all other unaffected plants around the world 3. while lots of cars are total loss, people have to buy brand new cars in the coming 2-3 years, and they will most likely buy their own nation’s cars · I will talk about the impact to China economy later. # Bilibala personally uses fair value @ 2016 to do all investment, however, I think for most small investors, net present value @ 2011 (fair value multiply by discount factor), would be more relevant. · STRONG BUY with NPV over MV above 30% · BUY btw 15% to 30% · HOLD btw (15%) to 15% · RE-RE-RECONSIDER below (15%)

Performance - 03/21/11

Return % Comparison as of 03/17/11:
(2010 YTD, vs peak, 6 yr average)

· Bilibala (3.1%), (4.1%), 20.3%
· USA up 1.7%, (18.8%), 0.9%
· Canada up 2.6%, (10.0%), 6.6%
· HKG up (3.2%), (30.2%), 7.5%
· China down 3.6%, (52.5%), 14.2%

ð Bilibala portfolio took the hit in Mar 11 as four of its top holding fall mainly trigger by the Japan earthquake - China Mobile (4.8%), China Life (3.5%), Google(8.5%), Manulife (8.3%).
ð Manulife down was directly impacted as 6% of its account value & 4% of its sales come from Japan. As I mentioned in the previous sharing, I think the max claim will be $1B (assume unclear leaking situation will not get any worse). China Mobile & China Life fall were due to funds being pulled from Hong Kong to Japan or to those who invest in HKG by borrowing from Japan. That’s the reason why HKG stock market fall even crazier than Japan. As the situation get stabilize, I think HKG stock market will recover by that time.

Top 5 holdings by sectors:
· Insurance 26.5%
· Banking 16.5%
· Telecom 15.6%
· Information Technology 9.8%
· Energy 9.2%

America - 03/21/11

Bilibala Finance’s 7 Top Holding by Region:
(with net present value in 1 year)
(53.7% of asset mix)
1. Manulife Financial (MFC) CA$31.4 STRONG BUY
2. Google Inc. (GOOG) US$754.6 BUY
3. Wells Fargo Financial (WFC) US$43.8 STRONG BUY
4. General Electric (GE) US$23.5 HOLD
5. TD Bank (TD) CA$92.3 HOLD
6. American Express (AXP) US$48.6 HOLD (pending to update)
7. Suncor Energy (SU) CA$50.0 BUY (pending to update)

· Mar 11 major transactions: switch Imperial Oil (IMO) CA$52.0 to Suncor Energy (SU) CA$41.3; add Manulife (MFC) between C$15.8-C$16.2 add Berkshire Hathaway (BRK.B) US $85.0
· Warren Buffett pull the trigger to buy Lubrizol, a lubricant maker for $9B. Can’t tell whether it is good or not, but global demand on lubricant are rising. Also Berkshire Hathaway held 10% share in Munich Re (10% SwissRe is preferred shares only, will have no impact), It sure took the hit from Japan earthquake

# Bilibala personally uses fair value @ 2016 to do all investment, however, I think for most small investors, net present value @ 2011 (fair value multiply by discount factor), would be more relevant.
· STRONG BUY with NPV over MV above 30%
· BUY btw 15% to 30%
· HOLD btw (15%) to 15%
· RE-RE-RECONSIDER below (15%)

Asia / Europe - 03/18/11

Bilibala Finance’s 7 Top Holding by Region:
(with net present value in 1 year)
(46.3% of asset mix)
1. China Mobile (0941/CHL) HK$96.4 => HK$101.2 STRONG BUY
2. China Life (2628/LFC) HK$43.3 STRONG BUY
3. China Construction Bank (0939) HK$9.0 BUY
4. Total SA (TOT) US$61.6 HOLD
5. Siu On Land (0272) HK$6.7 STRONG BUY
6. HSBC Holding (0005/HBC) US$67.3 BUY (pending to update)
7. IFSE A50 China Fund (2823) HK$22.4 STRONG BUY

· Mar 11 major transactions: MTR (0066) HK$29.1; China Resource Power (0836) HK$13.0; ESpirit Holding (0330) HK$37.1. I have to admit my mistake to invest in MTR & ESpirit Holding too soon, if I wait for one more day, I could have save a lot more, even though the unrealized loss was partially offset by the gain from China Resource Power
· Bilibala has increased China Mobile’s NPV by 5% after 2010 full year earnings release.
· 2010 profit up 3.9% to RM$120B
· 2010 EBITDA up 4.5% to RM$239B
· 2010 Revenue up 7.3% to RM$485B
· 2010 ARPU down 7.3% to RM$73
· Growth slowdown compare to prior years mainly due to 1) ARPU down; 2) sales & marketing cost; both because of competition from China Union Com & China Telecom
· Even if China Mobile’s growth slow down to 5.0% per year, its price over earnings ratio should still at 15. So I think its price is significantly under valued.
· Bilibala will write a sharing about Japan economy forecast.

# Bilibala personally uses fair value @ 2016 to do all investment, however, I think for most small investors, net present value @ 2011 (fair value multiply by discount factor), would be more relevant.
· STRONG BUY with NPV over MV above 30%
· BUY btw 15% to 30%
· HOLD btw (15%) to 15%
· RE-RE-RECONSIDER below (15%)

review Manulife on impact due to Japan earthquake

I try not to analysis for terrible events, cuz I think in certain degree that is unethical.
I changed my mind, read details from the following link:
http://bilibala-life.blogspot.com/2011/03/blog-post_16.html

Ok, how’s the earthquake impact Manulife? & is Act of God need to pay claim?

Summary
To me, it is over-react just like what most ppl do in history when bad news happen.
Life insurance need to pay claim for Act of God. P&C insurance may not, depends on the type of policy.

Analysis
Yes, from a growth perspective, Japan’s sales growth is huge in 2010, but from the corporate Japan business is tiny.
Japan’s Premium & Deposit is about 3.5% of the entire corporation (you can’t just look at 1st year premium growth when you calculate the benefit & claims in earthquake)
Japan’s asset under management (included insurance reserve) is about 5.9% of MFC’s AUM - US$28B ($11B in insurance & $17B in variable annuities)

Assume 15,000 dead (+4000 confirmed dead & +9000 missing) with general 8% market shares & 80% insurance penetration and each with a coverage of said C$1M, Manulife may set asided $1.0B addition reserve, after tax, will be about $0.7B.

C$0.7B is about 2.6% of Manulife’s book value while 2011 original estimate earnings after tax are C$2.0B.
Manulife’s book value (before dividend) will still go up by 5.2% to C$28.2B after this addition reserve.

Compare to its share price, down by 8.6% to C$16.0 since the earthquake.

Other concerns
· Since the earthquake has triggered a downside in equity market and a potential slow down in economy in 2011, if market fall 10% (another 5% from today’s), Manulife will loss $0.7B.
· Partially offset by $0.2B on reserve release as government debt interest rate go higher by 20 bps
· Usually, premium & deposit growth rate will go up, lapse rate will go down, claims will go down…..in the next 3 years after earthquake. But I will not take those benefit into account

Conclusion
Overall impact of $1.2B to net earnings or C$0.67 per share.
Bilibala’s previous NPV for Manulife Financial is C$31.4, and based on all the above calculation, it will reduced to C$30.7
If you think that’s too good to be true. Then take the overall wall/bay street 12 month’s target price (which is C$19.27) and reduced by $0.67 will be C$18.6 (around 15% above current market value).

PS:
In theory the nuclear plant keep cooling down every second, right at this moment, the situation still ok, and market will rebound soon. What if the nuclear plant finally & completely meltdown? It is not the meltdown ppl worry, but the worry trigger the hearts & the market to meltdown, until either 1) the nuclear plant really meltdown; 2) it's under control. Either way, the market will recover (a lot greater & much more supportable if it is under control).

分析不斷

每逢遇上天災人禍, 做分析都變得有點監介, 怕被人指指點點, 說要發災難財, 就連自己也不自覺地為自己的滿身銅臭感到內疚.前 3日為日本地震/核危機, 雲南地震, 以及中東局勢祈禱, 和主耶穌討論當今局勢. 主給了 Billy & Bilibala 好好提醒:「你為何因為分析感到內疚?」Bilibala:「因為遇上天災人禍嘛!」主:「你是分析人, 在什么情况下, 做好分析是你的職份. 在平日是, 在艱難的日子更需要. 不是為了冷手執熱煎堆, 乃是為了讓人明白當今時勢和明天仍有盼望與否. 經濟金融分析不是牧師的專長, 不說財經演員, 時事評論/金融分析員不懂聖經. 要有兩套本事才可做好你的職份, 懂嗎?」就這樣, Billy & Bilibala 就重返岡位, 繼續如常分析, 就如每一天一樣.

Bilibala Finance Performance - 03/10/11

Return % Comparison as of 03/10/11:
(2010 YTD, vs peak, 6 yr average)

· Bilibala up 1.3%, 1.7%, 21.2%
· USA up 3.0%, (17.8%), 1.1%
· Canada up 1.4%, (10.0%), 6.4%
· HKG up 2.5%, (26.1%), 8.4%
· China down 5.3%, (51.7%), 14.5%