[Quick Take] A Post-Mortem of our Ideas over 2023

First of all, the Skeptivest team would like to express our genuine thanks for each of you who has taken time to read our articles this past year. The blog is nothing without your support. 

Hindsight is 20/20. In view of the upcoming new year, we wanted to take a step back and do a mini “after action review” on the ideas we surfaced over 2023. Our analysis will follow the chronological order of our watch list, accessible at https://www.skeptivest.com/content/watchlist, starting from the top.

Watch list, accessible at https://www.skeptivest.com/content/watchlist, starting from the top.

Stock #1: SATS Limited (SGX:S56)

Skeptivest’s exposure: 

SATS was initially spotlighted in our deep dive on 30-Dec-2022, during which we maintained a bullish view on the stock. Regrettably, the stock has largely gone sideways thus far, from S$2.84 to S$2.72 as of 28-Dec-2023. 

We have been gradually accumulating SATS stocks over the past year at various prices. Our average buy is currently at S$2.80, representing a modest decline of about 2.86%. 

Company background: 

SATS is best known to be the chief ground-handler and in-flight catering service provider at Singapore’s Changi Airport. SATS operated as a subsidiary of Singapore Airlines until September 2009.

Initial reasons for being bullish on the stock: 

Thesis #1: We felt that the stock was overly penalized by investors for its proposed acquisition of Worldwide Flight Services (WFS). 

  • Contrary to what the market thought, our analysis revealed that SATS was unlikely to be overpaying for WFS. 
  • The market did not fully recognize that mergers and acquisitions represent among the few viable strategies for SATS to truly move the needle in the relatively saturated and mature business in which it operates in. This was a rare deal that had significant potential for synergies and EPS accretion.  
  • Pessimism over future performance of WFS was overblown given that air cargo demand has proven to be resilient in the long-term. 

Thesis #2: We also saw SATS as a prime beneficiary of aviation travel recovery, with recovery upside yet to be priced in by the markets. China’s zero-COVID U-turn was seen as a key catalyst for recovery. 

Thesis #3: We also saw SATS as a business that will remain relevant for the long-term, stemming from its enduring economic moat – economies of scale, significant infrastructure investments, high switching cost for customers, relationship network and reputation. 

Thoughts on hindsight: 

Previously identified catalysts for potential stock re-rating, namely (i) the reinstatement of dividend distribution and (ii) the realization of synergies from the WFS integration, did not play out in the past year. Nevertheless, we maintain our outlook for these catalysts to unfold within the next 1-2 years.

  1. SATS has communicated its intention to reinstate dividends upon achieving profitability. Despite narrowing its net loss from S$32.5m (31-Mar-22 to 30-Sep-22) to S$7.8m (31-Mar-23 to 30-Sep-23), the company remains unprofitable based on its latest quarterly earnings. However, the ongoing positive momentum from flight activities and air cargo growth, coupled with expected boost from the year-end holiday season, strongly suggests that return to profitability, and thus, resumption of dividends is imminent.
  1. Clear realization of synergies from the WFS integration was expected to validate our thesis #1 and drive valuations. However, considering the acquisition's official completion was just 8 months ago, on 3-Apr-23, there might not have been sufficient time for substantial synergies to be fully realized and reflected in the financials. There were several announcements like the partnership between China Cargo and WFS. But such plans will only come into fruition in 2024. Management also shared that commercial and network alignment between SATS and WFS has enabled the group to effectively engage with key customers to cross-sell services, but this will take time to realize its full benefits. 

Despite China's zero-COVID policy shift, the economy underperformed in the past year. Consumer behaviour has shifted towards saving rather than spending, impacting sectors such as tourism and air travel, which did not recover as expected. As such, we did not see our initial thesis #2 playing out as well. It is unlikely for China to recover soon, but the recent plans to implement a reciprocal 30 day visa-free entry between Singapore and China in early 2024 will likely make up for some numbers. Malaysia is already seeing an influx of Chinese travellers following the implementation of their visa-free programme. 

Fundamentally, SATS remain a sound business with an enduring economic moat. We don’t see thesis #3 changing from a year ago, but we see it more as a downside protection rather than potentially driving any significant short to mid-term valuations. 

Going forward: 

We plan to continue holding SATS to wait out for our theses and catalysts to fully play out, but we are unlikely to further increase our position given that we have already been gradually increasing our exposure for a year. Recent rating upgrades by both CGS-CIMB and Citi should also give some comfort that the market is gradually recognizing SATS’ recovery and growth potential from the WFS integration.  

Stock #2: Sea Limited (NYSE:SE)

Skeptivest’s exposure: 

We first surfaced Sea Limited (NYSE:SE) in our quick take on 6-Jan-23. We had significant reservations about this stock. While it appeared to be undervalued, there were indications deteriorating fundamentals. Not surprisingly, the stock has tanked from US$55.69 when we published our quick take to US$40.00 as of 28-Dec-2023. 

Nevertheless, we decided to buy some Sea stocks when the stock saw a steep price decline in Mid-August after its earnings release. The compelling valuation presented an enticing opportunity, leading us to initiate a small position with the intention of a short-term liquidation upon recovery. Average buy is currently at US$40.86, representing a slight decline of 2.10%. 

Company background: 

Sea wants to be the defining internet platform in Southeast Asia, a combination of Alibaba, Tencent and the financial businesses they’ve both set up (WeChat Pay, Ant Financial). It owns 3 main businesses – Garena (game publishing/development), Shopee (e-commerce marketplace) and SeaMoney (digital payments and financial services).  

Initial reservations about Sea Limited: 

Thesis #1: We saw Garena as a cash cow that was running dry. 

  • As a game publisher, it had an outsized dependence on Tencent’s stream of games. 
  • As a game developer, it appeared to be a one-hit wonder with Free Fire. All games will eventually lose popularity over time and Garena did not seem like it could reproduce another success at the same scale as Free Fire. 

Thesis #2: Shopee was consistently struggling to balance profitability and growth – primarily because it lacked a wide enough moat (asset light vs Amazon/Mercadolibre) vis-à-vis peers. 

Thesis #3: E-commerce growth, which experienced a surge during the COVID-19 pandemic, is now moderating. 

Despite our initial reservations regarding Sea, we opted to initiate a small position, prompted by the compression of valuation multiples to historic lows in mid-August – the market was beginning to price Sea more as a value stock vs a growth stock that it is. 

At a buy price of US$40 (implying ~US33.8b market cap), there is huge downside protection given Sea's ~US$8b cash position against only ~US$4.5b of debt. Hence, risk-reward ratio justified a buy despite our bearish sentiments.

Thoughts on hindsight: 

As anticipated, growth has indeed continued to slow down significantly vs its glory days of triple-digit growth in 2020 and 2021. 

  • Thesis #1 proved to be accurate. Garena continues to see negative year on year growth every quarter as it continues to grapple with the challenge of launching a new hit game. It is pertinent to highlight that Sea has divested the Canadian game developer, Phoenix Labs, which it acquired in 2020 – further diminishing its game development capability. 
  • Thesis #2 also proved to be accurate and continues to haunt Sea’s Shopee. Competition continues to intensify, especially with new entrants like TikTok Shop. It was during the Q2 earnings call in August-2023 where CEO Forrest Li indicated a return back to loss-making days to ramp up growth. Investors reacted poorly and share price tanked. Since then, there are even more headwinds as TikTok Shop basically bought out Tokopedia, combining forces against Shopee in Southeast Asia’s biggest market (Indonesia). 
  • Nevertheless, to give Shopee some credit, take rate has gradually increased and cut in marketing spend has helped Shopee achieve its first-ever adjusted EBITDA quarter for Q4 2022 released in Mar-2023. While all these headwinds above remain true, we still think that things are not as dire as the market believes. The capital markets have dried up this year alongside interest rate hikes. Fundraising has practically come to a halt for most of these firms. Incumbents have all already spent tens of billions, are done with and cannot afford to continue burning cash. 

Going forward: 

We will maintain our position and continue to monitor Sea. Based on experience thus far, Sea’s stock is pretty sensitive to its quarterly earnings results – thus that will be our focus. 

Stock #3: WeWork (NYSE:WE)

Skeptivest’s exposure: 

We first surfaced WeWork (NYSE:WE) in our quick take on 15-Feb-23. We saw it as an extremely risky binary growth bet with a very real possibility of a complete write-off. With its valuation plummeting from its peak of US$47b to a mere US$17.57m, the anticipated outcome has indeed materialized.

Company background: 

WeWork needs no introduction. It is the co-working brand founded by disgraced co-founder Adam Neumann in 2010 has been immortalized in case studies in business schools as the poster child for corporate governance failure. 

Thoughts on hindsight: 

On hindsight, WeWork’s downfall came as no surprise. It was a pity that we did not initiate a short position despite our strong conviction of WeWork's bleak prospects.

  • Profitability was a structural problem. WeWork had never posted a quarterly profit. 
  • They were running out of cash, quick. It had a small cash balance, huge debt outstanding (>US$18b) and still burning at alarming ~US$700m cash flow from operations each year. 
  • The “turnaround specialist” CEO was turnaround – leaving the firm after 3 years. 
  • Multiple cost cutting exercises were already done. Ther simply wasn’t much room to do anything else. 

Going forward: 

Let this be a important lesson not to (i) catch a falling knife and (ii) to act and follow on your conviction by adhering to principles - esp numbers and data.

Stock #4: Kanzhun / BOSS Zhipin (Nasdaq:BZ)

Skeptivest’s exposure: 

We first surfaced BOSS Zhipin (Nasdaq:BZ) in our deep dive on 12-Jun-23, during which we maintained a bullish view on the stock. The stock has since trended upwards to US$16.27. 

We started a position in BOSS Zhipin at an average price of US$15.36, representing a slight upside of roughly 7%. 

Company background: 

Kanzhun is the company behind BOSS Zhipin, which has become the largest online recruitment platform in China in terms of average Monthly Active Users (MAU). BOSS Zhipin has an average MAU of 30.9m users as of 22Q4. 

Initial reasons for being bullish on the stock: 

Our optimistic outlook was grounded in a four-fold thesis: 

  1. Favourable industry outlook – BOSS Zhipin is well positioned to capitalize on the online and mobile transition of China’s recruitment industry‍. 
  2. Widening economic moat – Reinforcing network effect coupled with a tested and proven product-market fit indicates a highly defensible core‍ 
  3. Strong financial position – Prudent capital structure alongside a profitable and OCF positive business model makes BOSS Zhipin primed for growth  
  4. Capitalization table gives added conviction – Absence of significant disposal post-IPO lockup period by key shareholders (i.e., founder, early-stage investors) signals strong internal conviction

Thoughts on hindsight: 

Chinese stocks continue to be punished by the market. Structural problems plaguing China (especially demographic and debt) coupled with ongoing US-China geopolitical tension, institutional demand for China has been flowing elsewhere (e.g. Japan). China internet stocks are unsurprisingly largely underperforming.

However, the market fails to recognize that BOSS Zhipin is unlike other Chinese tech stocks, which are facing growth challenges due to saturated penetration and intensifying competition. In reality, BOSS Zhipin is a rare vertical leader in the China internet space operating in a underpenetrated and growing sector.

We consider this stock a long-term play, driven by its favourable industry outlook and expanding economic moat. Our conviction in the above 4 arguments remains intact and we intend to maintain our current holdings and potentially increase our position, contingent upon the ongoing validity of these 4 factors.

Despite a challenging macro environment, BOSS Zhipin has demonstrated strong buffer from cyclicality in the broader job market in the past 2 quarters via its earnings results. It is after all operating in an underpenetrated and underserved segment (i.e. blue-collar users and SME employers). Moreover, the higher unemployment rate also means that users are more active in finding employment opportunities, translating to generally lower customer acquisition cost for BOSS Zhipin.

Going forward: 

We will continue to maintain our position in BOSS Zhipin and potentially accumulate more shares in the time to come. This is a longer-term play for us.

Update (14-March-23): BOSS Zhipin FY23 4Q earnings

Market reaction

  • +40.43% Month-to-Date due to strong earnings released 12-March
  • Markets reacted bullishly primarily due to: (1) Margin expansion, (2) Improving recruitment outlook  

BZ 4Q 2023 results

  • Revenue: US$222.6m, +46% yoy
  • Monthly active users: 41.2m, +33.3% yoy
  • EBIT: +US31.3m (vs US$48m loss in 4Q 2022)
  • Net income: US$46.7m (up from US$26m loss in 4Q 22)

BZ FY23 results

  • Revenue: US$838.3m, +31.9% yoy, slightly above consensus by 0.3%
  • Avg monthly active users: 42.3m, +47.4% yoy
  • Total paid enterprise users: 5.2m, +44.4%
  • EBIT: +US$81.8m (vs US$18m loss in FY22)
  • Net income: US$154.8m, 925% yoy, above consensus by ~10%  

[1] Drivers of margin expansion

  • Sales and marketing expense fell from 44% of revenue in FY22 to 33% of revenue in FY23 (note FIFA sponsorship in 2022). Mgmt provided some guidance that this figure should remain flat/drop slightly going fwd.
  • Higher interest income (2.5x to US$85m); stemming from higher i/r from large cash balance it received from IPO in 2021

[2] Improving recruitment outlook

  • Growth from FY23 was captured from blue-collar (28% of rev up to 34% of rev), SMEs (+5pp) and non T1 cities (>50% of revenue mix now).  
  • Feedback that (i) newly posted jobs and online active jobs reached new highs since CNY, (ii) improving ratio b/t enterprise users and jobseekers, (iii) white-collar jobs are recovering and driving growth —> Indicating strong QoQ growth to be highly likely

Growth levers going forward: (i) Expansion into manufacturing sector, (ii) Product expansion into other HR ancillary services, (iii) Further deepen into blue-collar/SMEs/non Tier 1 cities, (iv) Overseas expansion into mature markets with ancient players + good laws + wealthier people

Stock #5: IBM (NYSE:IBM)

Skeptivest’s exposure: 

We first surfaced IBM (NYSE:IBM) in our deep dive on 04-Oct-23, during which we maintained a bullish view on the stock. The stock has since trended upwards to US$163.46. 

We started a position in IBM at an average price of US$140, representing a slight upside of roughly 17%. 

Company background: 

International Business Machines Corporation (IBM), affectionately known by some as “Big Blue” is a multinational tech behemoth. The company operates across various segments, including cloud & cognitive software, global business services, global technology services, systems, and global financing. After selling its consumer computing unit to Lenovo back in 2004, the company has been focused on catering solely on enterprise clients. IBM today is a mature, profitable, but slow growing company with a US$133b market cap. 

Initial reasons for being bullish on the stock: 

Thesis #1: We saw bright spots within IBM’s twin strategic growth sectors of AI and Hybrid Cloud, which are underappreciated by the markets 

Thesis #2: Proven economic moat, stemming from an enduring enterprise brand, synergistic offerings and high switching cost

Thesis #3: Financials are healthier than what the market gives IBM credit for

Thoughts on hindsight: 

Similarly to BOSS Zhipin, we see IBM as a longer-term play. Our theses remain intact, though the generative AI narrative have seem to die down slightly. Nevertheless, given IBM’s status as a dividend aristocrat with annualized dividend yield of roughly 4.63%, we are perfectly good with lower expected capital gains. 

Going forward: 

We will continue to maintain our position and monitor future earnings.

Stock #6: Malibu Boats (Nasdaq:MBUU)

Skeptivest’s exposure: 

We first surfaced Malibu Boats (Nasdaq:MBUU) in our deep dive on 27-Oct-23, during which we maintained a bullish view on the stock. The stock has since trended upwards to US$55.76. 

We started a position in Malibu Boats at an average price of US$44.20, representing a slight upside of roughly 26%. 

Company background: 

Founded in 1982 and IPO-ed in 2014, MBUU is a leading designer, manufacturer, and marketer of a diverse range of recreational powerboats. It has 8 brands under its portfolio with the premium Cobalt brands being the most profitable. 95% of its FY23 revenue comes from North America. Size wise, FY23 revenue at US$1.38b and market cap is just shy of US$1b.

Initial reasons for being bullish on the stock: 

Thesis #1: The Street has overblown the severity of short-term industry headwinds and underappreciated MBUU’s mid to long-term growth runway. 

  • The Street maintains an increasingly bearish outlook towards the recreational boat industry, stemming from a hawkish Fed, which I believe are overblown.
  • In the short-term, the Street has overlooked replacement demand from Hurricane Ian that will soften pain from normalizing pandemic-induced demand.  
  • In the mid to long-term, the Street has also underappreciated MBUU’s potential to capture growth underpinned by changing consumer patterns and its ripe potential for internationalization.

Thesis #2: The Street has misunderstood the resiliency of MBUU’s demand profile and undervalued its enviable financial position. 

  • Sales is more resilient to economic cyclicality than at face value due to access to premium buyers.  
  • MBUU has a surprisingly low operating leverage, indicating a relatively small fixed cost base.
  • Prudent capital structure, profitable and OCF positive business model places MBUU in a favorable position to scale and offers it a large buffer for failure against downturns.

Thoughts on hindsight: 

We only started this position not too long ago and have only seen 1 earnings call thus far, whereby earnings expectedly fell, but beat earnings and revenue estimates. Share price tanked slightly primary due to weak management guidance offered of $846-$916m revenue in FY24. Looking historically (since FY19, actual results always beat management guidance slightly), management seems to have the tendency to be slightly more conservative when providing forward guidance. It is looking quite probable that our initial theses might be wrong. Nonetheless, it would be interesting to observe the results of the next few earnings call to further test and validate our theses. 

This is actually what makes me really love investing in the public markets. Being able to get the constant feedback and ability to test, reiterate and retest our hypothesis really supercharge our growth and learning.

Going forward: 

We will continue to maintain our position and closely monitor future earnings.


The above are just some of our stock ideas in 2023. Thanks again for your support - we will continue working hard to deliver quality research and ideas. We always welcome any feedback at all at skeptivest@gmail.com.

Happy new year for now! :)

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