Friday, 9 March 2018

Portfolio Update: Took loss on Sapphire


Well, Sapphire clearly isn't the gem that I thought it was - it is now officially the 2nd counter out of my 12 divestments for which I have lost money.

All divestments made in 2018 by Author, price includes transaction costs

Divestment Rationale - Sapphire

In my initiation report (here), I wrote the following about Sapphire:

"Sapphire Corporation is a turnaround that is now poised to be a fast grower."

1 year on, I think it is about time to admit that they have neither turned their business around nor grown their business. Let us just leave the "fast" part out of the equation in order not to embarrass myself further.

Source: Author's compilation

Divestment is therefore primarily due to failure of investment thesis.

Timing of Divestment

To be frank, I still do believe in the long term prospects of Sapphire. I was also fine with keeping the counter as part of my portfolio. There are 2 main reasons why I chose to divest now instead of holding for another year:

1) Price

I divested while Sapphire was at S$0.215. The price is a big concern as I was worried that Sapphire would experience a free fall should it fall below the important mental barrier of S$0.200.

2) Circumstance

While Sapphire's business fundamentals did not progress as expected, they were also victims of some unfortunate circumstances. 

Firstly, Midas, another SGX-listed company primarily involved in China's rail industry, had suspended the trading of their shares. Apparently, the Company had "uncovered a number of previously undisclosed corporations related to certain Group companies incorporated in the PRC" and "cannot confirm information on the shareholdings and businesses on these corporations." Such ridiculous corporate governance is bound to weaken investors' confidence in similar firms

Secondly, Sapphire had negotiated an offer with HKICIM to sell 27.97% of their business at S$0.51 per share. I think the price shows the true intrinsic value and potential of Sapphire's business. Unfortunately, HKICIM is a unit of HNA which is so cash strapped that they are practically selling everything they can sell. In hindsight, the deal was never going to make it given HNA's well documented woes. However, when the deal did fall through, investors' confidence was affected again.

My view was that these unfortunate situations might actually help tip Sapphire below S$0.200.


As mentioned during my (happier) divestment of Micro-Mechanics and Innotek (here), I am already looking forward to deploying some of my cash. From a portfolio point of view, I am actively looking to utilize my cash hoard and have a slight preference to take up positions in companies that might be more recession-resistant in the current economic climate. (do feel free to throw me any good stock tips from SGX or HKex!)

Happy investing everyone!

This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned in this document or referred to; nor can this blog post be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. The information contained herein is based on the study and research of Dan O (“the Author”); is merely the written opinions and ideas of the Author, and is as such strictly for educational purposes and/or for study or research only. This information should not and cannot be construed as or relied on and (for all intents and purposes) does not constitute financial, investment or any other form of advice. Any investment involves the taking of substantial risks, including (but not limited to) complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent checks, research or study; and you should contact a licensed professional before making any investment decisions. The Author make it unequivocally clear that there are no warranties, express or implied, as to the accuracy, completeness, or results obtained from any statement, information and/or data set forth herein. The Author, its related and affiliate companies and/or their directors, executives and employees shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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