Monday, October 19, 2020

Oct 2020 - Portfolio & Transaction Updates

No.

 Counters

No. of Shares

Market Price (SGD)

Total Value (SGD) based on market price

Allocation %

Category

1.

Comfortdelgro

  80,000

S$1.47

   117,600.00

26.0%

Recovery

2.

Micro-Mechanics

  18,000

S$2.57

     46,260.00

10.0%

Dividend

3.

Tencent (HK)

       400

HK$560

     40,727.00

9.0%

Compounders

4.

Starhill

  90,000

S$0.44

     39,600.00

9.0%

Recovery

5.

Lendlease Reit

  55,000

S$0.67

     36,850.00

8.0%

Dividend

6.

Jardine C&C

    2,000

S$18.2

     36,400.00

8.0%

Recovery

7.

Bank of America (US)

       900

US$24.2

     29,830.00

7.0%

Dividend

8.

Alibaba (HK)

       500

HK$297

     27,000.00

6.0%

Compounders

9.

OCBC

    3,000

S$8.76

     26,280.00

6.0%

Dividend

10.

Yuexiu Trans. (HK)

  27,000

HK$4.60

     22,500.00

5.0%

Recovery

11.

Bank of China (HK)

  20,000

HK2.53

       9,035.00

3.0%

Dividend

12.

GA Pack (HK)

    9,000

HK3.20

       5,143.00

2.0%

Dividend

13.

Ho Bee Land

       300

S$2.24

          672.00

1.0%

Leftover

14.

Warchest

  

-

     20,000.00

5.0%

 

 

 

 

 

 

 

 

Less:

CFD@3.2%

 

 

(215,000.00)

 

 

 

 

 

 

 

 

 

Total

 

 

 

   242,897.00

100%

100%


Apologies for the delay in the October updates as I was busy trying out new visual things with my social media account which you can refer to here and here if you are interested. Do "follow" my social media account as there will be more frequent updates I will do to the account in the next few weeks, including some of the corporate updates and activities which I closely follow.

October has been a splendid month as the market went back into a volatile mode (particularly tech stocks) which means I get to play my trade position a couple times successfully during the month, earning myself a few good bucks which I used to add to my longer-term position.

First, I sold into one of my core position for Wilmar after it has confirmed the announcement of the listing of its subsidiary YKA. The market movement for Wilmar's share price has been unduly uncommonly seen in recent weeks, as it goes into huge market slides (not once but twice) despite YKA performing so well in its debut. The share price has been ranging between $4.25 to $4.75, with $4.40 seems like a stabilizer for a base position, so I took this opportunity to exit my position first with most of the "upside news" on the listing having been baked in. The next focus will probably turn into earnings season which I expect Wilmar to do relatively well.

I used this opportunity to also trade a couple of tech stocks during the recent correction, which I managed to buy and sell into a few tech positions such as Apple (bought more, then divested all), JD (bought more then divested all), and Crowdstrike. All three positions returned me a good > 25% returns within a space of a month, with the exception of JD, which gained around 48% across a span of 3 months.

I used the proceed from the funds to add to a new position for Bank of America, which I find they had a really solid Q3 recent earnings recently but were beaten down unduly from the market. BOA has not only managed to earn a profit of $5b in the quarter, but they have also managed to reverse some of the earlier provisions they made due to Covid-19, signaling that the worst is likely to be over. We should start to see a gradual stronger improvement right across from Q4 onwards. From a liquidity point of view, the CEO has also stated that they have never been stronger before since the Financial Crisis and that bodes for a strong recovery play as we edge closer to the end of the year.

I also added into my existing position for a recovery play for Singapore stocks - mainly doubling my position in Comfortdelgro, Jardine, and Starhill. I believe the three are still very much undervalued based on the currently ongoing development which I think will yield the highest return once a new development on Covid vaccine and phase 3 is announced.

The rest of the position remains relatively unchanged.

Networth Updates

The portfolio continued its strong month upwards trajectory by ending at $242,897, up from the previous month of $230,660.

It is still on track to hit the stretch target of $250k from the start of the year.

Given that most of the recovery play has not taken effect yet, I'm cautiously confident that the portfolio can outperform even better in FY2021 when the market starts to rotate into recovery stocks.

With the election just weeks away, Nov will look to be an interesting month once again and one which I will follow the development very close to the tail.

Cheers and stay invested!

Thanks for reading.

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Thursday, October 15, 2020

Liquidity and Network Flywheel Causes Multiplier Effect On Business and Shares Valuation

One of the most important elements of a tech platform business model is the ability to create multiple expansion network effects.

A network effect is often described in economics and businesses as one of the key pillars of success as it depicts a contagion behavior of one additional usage of products or services that will have on the next users. This creates a long-lasting effect and an increasing value of a customer's lifetime value, which is one of the key unit economic metrics for a business.

The Internet is clearly the easiest example of the network effect, where everything in our daily activities flows through the web channel.

Let's take a look in more detail by using a private ride-hailing network, Grab as an example.




Grab started out as a ride-hailing platform where it aims to create a large pool network of supply and demand in each market so they can have what is called the network liquidity flywheel as depicted in the graph I created above.

First, it has to create supply by bringing in private vehicles and drivers that are willing to do the job. They have to entice drivers with incentive and attractive commissions so there is enough pool of drivers to meet the incoming demand later on.

The network also becomes exponentially more efficient with more supplies a.k.a drivers on the road.

The more drivers signed up in different areas of the network or cities, the lesser the time required for each matching to happen.

Next, the company creates demand. This is usually done by giving out massive incentive discounts through promo code that the passengers can use. 

I recalled Grab did this for a good couple of months back then just when it has entered Singapore.

The promo codes that they dished out to consumers are all costs to the company, but they are being redirected and evaluated through the retention and lifetime value of a customer, which likely yields them a greater amount of ROI in the long run.

The network flywheel cycle repeats and every node that they bring to their platform, it increases liquidity, drivers, carriers, and consumers.

In fact, they are so successful at this that they are now expanding their network liquidity flywheel not just for ride-hailing but also for payments (through Grabpay) and they are also in the midst of applying for the digital banking license.

This network liquidity flywheel has also worked extremely well for e-commerce companies such as Shopback, Lazada, and Fave.



Let us turn our attention to a digital payment enabler company, Fave, for instance (which I'm more familiar with, don't ask me why).

The key tenet of the business model lies in getting a wide variety of supply and services to its platform and encouraging them to provide cashback to its consumers to entice loyalty for them to come back and visit again the next time around. While this lowers the business profit margins that the merchant is earning, the concept of a network liquidity flywheel as consumers tend to return to utilize the cashback is highly valuable to the business.

The company can also do more to scale and expand the demand network through some user acquisition activities such as providing better support or providing more cashback to consumers.

From a consumer's (demand) point of view, they will also stand to benefit from the cashback given from the merchants as well as cashback or points that are awarded when they transact via the respective payment methods such as Grabpay, Paylah, or Dash wallet.

This creates a vicious powerful flywheel cycle and an enormous customer's lifetime value in the key unit economy (LTV).

You replicate this model across multiple different markets and you get the idea of how powerful the whole thing is.

This network liquidity flywheel effect literally applies in Investing as well, causing market valuation to expand and share price to rise ahead of future growth and optimism.

When a business is doing well - such as during a boom cycle in the industry - the company will report strong earnings which leads them to budget and incur a higher amount of future CAPEX, hire more staff and expand into other markets or divisions.

Because of this, inflows of funds from both institutional and retail start to pour in an exponential fashion, leading to buying pressure that pushes up the valuation of the company. Most analysts would also start revising their financial models leading to a favorable re-rating for the company, further pushing up optimism.

A good recent example of such a case is IFAST Corporation (SGX: AIY).

The source below is using the "Fundamental Scorecard" which I find pretty convenient to filter and identify strong uptrend stocks in favor. If you are interested, you can explore with this referral link here and use my promo code "brian5" upon the at the payment stage.


IFAST Corporation has been on a tear run this year alone, rising by close to 300% since the start of the year.

The popular thesis case for the rapid growth of the fintech industry has been gaining plenty of traction in the past recent years, as these industries seek to disrupt and digitalize the wealth management industry. The Covid-19 situation has only pushed the flywheel case even more apparent than ever.

In the analysts' coverage from UOB KayHian, the report pegged the company's valuation to 40.3x FY2021 PER, which is a 2SD above its 5-year mean. IFAST's valuation currently trades at 33.9x forward FY2021 PER, so there's clearly an elevated level of optimism and future growth being priced in.

This flywheel effect can go on for months, and even years - as the case for Tesla would have made a few of us turn millionaire if we had believed Elon's story.

The same effect can be said to the bull market for crypto-currency before they had a major crash in the early part of 2018.


Final Thoughts

Network liquidity flywheel has an enormous potential for both business owners and investors to take advantage of.

They are the juggernauts in the whole tech ecosystem that makes them so powerful because of the ability to create waves, expand and gain market share in the shortest amount of timespan.

In a world where we are so connected to one another more than ever, the impact of the network flywheel system has become more important so than ever.

This also probably justify why some companies are valued at an extreme which traditional value investor can never understand.

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Tuesday, October 6, 2020

Standard Chartered Home Loan Promotion At 1%!

The pandemic we are experiencing today has pushed interest rates to record low across the globe, with some nations already headed into negative interest rates.

For homeowners, this is a blessing in disguise because the fall in home loan rates means owners will get to save more on interest payments.

3M Sibor has dropped significantly from the start of the year from 1.774% to 0.406% today.

For homeowners who took the floating rate package prior to the pandemic, you should already see pretty significant savings in the interest you pay every month. In my case, I have already seen a lower monthly repayment of about $900 in interest payments since the start of the year.


With Sibor plunging to record lows, it has been difficult for banks to earn any sort of margins from their customers, hence in recent months, they have reacted by coming up with new packages that increase the incremental margins that they charge to customers.

For instance, one of the DBS home rate packages today is offering FHR24 + 0.60%, with the FHR24 currently at 0.93%.

DBS and Maybank have been one of the pioneers in offering a fixed home rate that is pegged to fixed deposits. In the past few years where interest rates remain low, I dislike this arrangement because fixed home rate changes are indiscretion of the bank and it doesn't usually provide benefits as much as the floating rate changes. 

DBS has another package that is offering at a 1.50% fixed rate for the next 5 years, essentially locking your commitment for the next foreseeable future post-pandemic, where interest rates are likely to revert back higher than today.

SCB Home Rate Promotion Below 1%

This week, SCB has come up with a promotional FDR loan package that lowered their charged margins from the earlier 0.55% to 0.28%.

With the FDR8 currently at 0.72%, this means that their overall home rates are at 1% / annum for the next 3 years, and 1.40% thereafter from year 4 onwards.

Lock-in periods are for 2 years so you are free to refinance for better rates (if there are any) after the lock-in period.

Do note for refinancing, they require a minimum loan of $500k.

FDR Package at 1%

If you are interested to explore floating rates, SCB has also promotional rates for the 3M SIBOR + 0.58% charged margins, which is currently in your favor as SIBOR hits a record low in September.

This means that the overall rates are at 0.99% / annum for the next 2 years, which in my opinion is very attractive given the current situation. You should refinance after the 3rd year onwards because the charged margins are too high.

3M SIBOR package for commercial

Final Thoughts

Personally, I find the current SCB promotional rates one of the most attractive amongst all the other banks I've considered.

This is due to the fact that I'm favoring the floating rate more than a fixed-rate right now. I think interest rates will continue to remain low in the next 6 months at least.

We also took our loans with SCB on the floating rate package last year when we bought a new home.

With SIBOR now trending to record lows, we found what they were offering attractive, both in terms of rates and flexibility to refinance at a later stage.

If you are interested to purchase a new property or refinance your existing loan, I think this may be a good time to do so as you are able to lock in the competitive margins offered by the banks.

You can compare the various rates by filling in your requirement here.

If you are still undecided, I am also more than happy to offer my perspective. You may drop me an email and I'll find a time to reply to the question you have.

Edit (7th Oct): I was being informed that only the FDR package (FDR36 + 0.28% = 1%) and 3M Sibor package (3M SIBOR + 0.65% = 1.057%) are applicable to residential. The above SIBOR package illustration for the 3M SIBOR + 0.58% = 0.99% are meant for commercial properties.

Thanks for reading.

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Sunday, September 27, 2020

Why Are High Income Earners Struggling Too With Wealth?

An interesting article from TODAY (Link Here) shows why for the majority of people, even a highly paid career such as a pilot - they continue to struggle and face the crunch to survive when these are considered high-income earners.

The article interviews a random selection of 12 pilots, and while the sample number is considered relatively small, it gives a good indication of how numbers crunching and dire the situation is for these pilots during the pandemic.

High-Income Earners = Higher Wealth?

Many of us would think that high-income earners have a better correlation to wealth

After all, if you earn $10,000 as opposed to say $2,000, you should be much better off technically when it comes to your savings rate.... right!?

Most People Would Think Linearly That Nothing Can Go Wrong

As it turns out, this isn't necessarily the case.

From the article, one of the pilots is earning an income excess of $14,000 (including allowance) yet still struggles when the company had to force a company-wide pay cut to $6,000. Another pilot being interviewed has also admitted to being cash-strapped as his total compensations suffered a major cut down from the earlier of $23,000 to $13,000. We would think that is still a lot by most standard but when he has an obligation to pay $19,000 in his expenses the whole story is completely different.

It was easy for most of us (the bottom ladders) to assume that with that sort of income earned per month, it would have been a breeze to survive the winter. After all, basic housing, medical and food supplies don't take up that much of a pile.

But life has a way of making fun of us when we least expect.

As some of us earn more money, the potential of our savings increases. But we ended up with so many social junks that our expenses start to increase. Most people ended up with a lesser or equal number of savings rates or worst fare poorer than before.

High compensation including allowances and variable bonuses are often deceptive in nature.

They make us feel rich because we think that's where we should belong.

Welcome to the Life of Social Junk

At first, we started off with an upgrade coffee lifestyle venturing into the likes of Starbucks or Coffee Bean.

Then, we started upgrading our cars, homes, vacations, and many more of our other social lifestyle.

Earning high salaries have a way of filtrating us into a lifestyle that systematically drains each and every single drop of us, through spending more with the convenience of free x-month installments and debts.

You see your friends getting the latest gadget up on the market - Buy.

You look at your co-peers sending their kids to many different tuitions - Follow.

You look at that nice view from the top of your dream apartment - Buy.

You check your debt borrowings and it allows you to upgrade your car - Do it.

These are the kind of life we ended up today because we are filled with material possessions with little or no meaning to it. 

We are simply chasing the better after the next best, only to find out there are infinitely better things to chase.

What If Those Pilots Act Differently?

Some people like me, especially if you linger around longer in the finance community, would always think cynically.

At first, I don't think it's healthy to always exhibit this sort of thinking, but it usually helps mentally and the amount of work you put in at the other extreme when the world gone bad has tremendously helped to turn the situation around.

For instance, I am always skeptical about how long I can survive in the corporate world. 

I have always assumed that bad nasty people leads the corporate world and at anytime at their discretion they are going to eat me up.

Because of this mentality, I've gone into the other side of always trying to look after myself first. 

I saved hard. I saved for the rainy days. I saved preparing for winter moments like today.

And I invest for the future.

Increase Other Income, Think Cynically

Will these pilots end up in a better position than today had they saved more in good times in preparation for the rainy days? Perhaps so.

While it is difficult due to the nature of their roles having to fly in and out and keeping up with their fellow peers, I believe they can do that to a certain extent.

Most pilots also probably do not qualify for basic housing subsidy given their high household income so they are likely to live in a private condo. Nevertheless, they should still have enough buffer to save for their rainy days given their high level of income and allowances.

Perhaps, the journalist should have come up with a "What Would You Do Differently?" type of questions that would intrigued the readers from the lessons learnt.

Thanks for reading.

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Sunday, September 20, 2020

Sep 2020 - Portfolio & Transaction Updates

No.

 Counters

No. of Shares

Market Price (SGD)

Total Value (SGD) based on market price

Allocation %

Category

1.

Comfortdelgro

  40,000

S$1.50

     60,000.00

26.0%

Recovery

2.

Wilmar

  10,000

S$4.40

     44,000.00

19.0%

Momentum

3.

Micro-Mechanics

  18,000

S$2.24

     40,320.00

17.0%

Dividend

4.

Lendlease Reit

  55,000

S$0.70

     38,500.00

17.0%

Dividend

5.

Tencent (HK)

       400

HK$522

     37,285.00

16.0%

Compounders

6.

JD (HK)

       500

HK$291

     25,982.00

11.0%

Compounders

7.

Alibaba (HK)

       500

HK$267

     23,840.00

10.0%

Compounders

8.

Yuexiu Trans. (HK)

  27,000

HK$4.80

     23,142.00

10.0%

Recovery

9.

OCBC

    3,000

S$8.50

     25,500.00

10.0%

Dividend

10.

Starhill

  50,000

S$0.45

     22,500.00

9.0%

Recovery

11.

Jardine C&C

    1,000

S$18.5

     18,500.00

7.0%

Recovery

12.

Bank of China (HK)

  20,000

HK2.53

       9,035.00

5.0%

Dividend

13.

GA Pack (HK)

    9,000

HK3.20

       5,143.00

2.0%

Dividend

14.

Apple (US)

         40

US$106

       4,240.00

2.0%

Compounders

15.

Ho Bee Land

       300

S$2.24

          672.00

1.0%

Leftover

16.

Warchest

  

-

     23,000.00

10.0%

 

 

 

 

 

 

 

 

Less:

CFD@3.2%

 

 

(171,000.00)

 

 

 

 

 

 

 

 

 

Total

 

 

 

   230,660.00

100%

100%


This month, I was stomped over-busy for work so apology for the slight delay in the updates.

There were not many movement and updates this month so I'll quickly run over the portfolio to see the latest movement I have.

There were 3 new additions and 2 divestments that left the portfolio per my updates from the previous month.




The first addition is Starhill Reit, which I managed to add a considerable amount of 50,000 shares at $0.435 a few weeks ago as retail malls continue to suffer brutal damage from the lack of tourism coming in. Having gone a few times to Ngee Ann City and Wisma Atria myself, I can definitely see where that other crowd is missing. Having said that, the locals' crowd is starting to pick up and I definitely see a more robust crowd as compared to the early stage of Phase 2. 

At the current valuation, I feel that Starhill presents a good entry opportunity with i.) P/BV at 0.54, ii.) Some amounts of funds retention in Q4, iii.) long lease WALE and iv.) ongoing AEI on Starhill Gallery completing in phases, which provides an upside lift.

This month, I have also started to add banks, and in my case OCBC amongst the three other banks. I do not have any particular banks that I wanted so much but given that UOB is in the South East Asian sector focus (and I already have Jardine C&C covering those areas), I wanted to avoid that repeatedly. Given STI is currently at major support and OCBC makes up 10% of the whole STI components, it's sort of taking a chance at the STI ETF equivalent. 

I don't expect banks to outperform in the short run so this feels a bit more mid to longer-term as options on other sectors start to run out for me.

The other counters which I added was an HK listed Toll-road company called Yuexiu Transport. I was alerted to this company from a friend after discussing and having liked the recent profile of acquisition plus recovery from China, I decided to put some money in it. I was skeptical earlier about the short lease of a typical toll play but over the years, the management looks to be very active in recycling older assets and buying new ones at a higher irr. Given the recent 1H result loss given many of the breaks during the first half of the year, I am confident that 2H will post a very strong rebound back to normalization.

On the divestment side, I have sold off my hospitality play for CDLHT and Carnival at about 10-15% gainhoping to buy back later if the share price comes down. Having still quite a bit of play in the recovery sectors, I wanted to be a bit more agile in the turn in terms of churning out and pocketing the gains. I may buy them back if they would come down to my target again.

Networth Updates

The portfolio has continued to slowly climb back up from the previous month of $218,470 to $230,660 this month.

A couple of sectors in the tech and retail REITs pushed up the portfolio while Wilmar dropped quite considerably from the previous month due to a shareholder's sell-off.

With three months to go, it seems like it's going to get difficult to meet the revised target of $250k by year-end, but we'll see if any surprises spring in the next couple of months.





Cheers and stay safe everyone.

Thanks for reading.

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