Thursday, May 23, 2013

Bloodbath all across the markets

There has been early warning since the past recent weeks that the Fed could do early tampering with its Quantitative Easing (QE) sooner rather than latter. The result - BLOODBATH across the markets all across the globe. Dow Jones and S&P led the early losers while Nikkei, DAX, FTSE, HSI and STI followed soon after.
Today's STI drop of 61 points probably marks the first time since it drops more than 90 points 2 years ago during the Eurozone crisis in mid 2011. Back then, it was chaotic and almost every stocks were left on the bargain shelf. Since then, we have seen a relatively strong progress of the STI moving upwards for 2 consecutive years until yesterday before bombing out to today's losses. Of course, it is only early days now and this could simply only be a knee jerk situation. But we can almost see how much money has been pumped in and out during these situations.
This post is going to focus more on specific stocks which has been more resilient than the others in paring today's losses. As with all corrections, no stocks are spared (even defensive stocks) but these stocks fares better than others in times of corrections and could hold a key point should a recession comes. SPH, Vicom, Neratel, Second Chance, QAF and SIA/ST Engineering are a few of those in my portfolio which have fared better in today's bloodbath market. I've been a little fortunate to have switched most of my holdings in these stocks which have defensive ability performance.
REITS are not spared lightly in today's losses. Most REITS have dropped easily 5% from the most defensive healthcare (Plife/First Reit) to Retail (CMT/FCT) to Industrial (Cache/Ascendas/AIMS). I have used today's opportunity, which I think has been way oversold, to accumulate more FCT as I am comfortable with a 5% yield. I think pressures for REITS will be around in the next few weeks as we see weak investors exit the market. For the long term investor, this could be another round of opportunity to accumulate which is akin to the 2011 situation.
Have a good long weekend and most importantly, watch the DOW tonight and tomorrow!!!

Tuesday, May 21, 2013

Tadas Viskanta: "Cash is a Drug for most investors"

Tadas Viskanta - the author who wrote the book "Abnormal Returns" has recently tweeted:
"Cash is a Drug for most investors. Easy to start, difficult to kick. Always a reason not to get back in"

With the stock markets hitting a new high these days, the idea of holding cash becomes a scrutiny and natural options for investors. I know of a few investors around me who are selling off their equity holdings to raise more cash in order to "participate" in the next possible recession. The question becomes when will this "recession" comes?
In his book, Tadas Viskanta has made distinction between investors who hold "CASH as an investment" and "CASH as an asset" He advocates that Cash has over time only provided minority investors with positive real returns. Over time, by large holdings Cash has returned investors with negative real returns. Therefore a strategic allocation to cash, above and beyond what one would need in case of an emergency, represents a large opportunity cost. In his book, he said:
"Cash is at best a place for nimble investors to park assets, and avoid risk, while waiting for more attractive opportunities to present themselves."
However, the problem for this is that most investors who do this do not have the discipline nor the foresight to participate during a correction. They simply do not have a solid strategy for using these cash on an opportunitic basis. Their market timing investment strategy will always be a wall of worry. If the market corrects 5%, they will think that the market will correct more and so will wait for the next 10% correction. Once it corrects 10%, they will think that this is a recession and will wait for the next 20% correction, and so it goes on.
Some people are advocating that we are probably in a secular bull run period right now. If rightly so, then investors who are holding too much cash allocation will probably regret in a few years time after the market has run up higher and they could start employing their cash at the worst possible time, especially if they do not have the discipline.
Market timing is a gateway to cash addiction and a bad habit. Are you one of these investors?

Review of Boustead (Full Year) FY2013 Results

I previously mentioned (link) that Boustead Ltd will report excellent results for its full year FY2013. EPS for the 9 months of FY2013 at that time of writing was already matching the full 12 months of FY2012. I wasn't wrong. Since then, Boustead shares have gone higher and higher each day to a record high of 1.52.
I was also right in predicting that they will be giving a more generous dividends in view of their spectacular results - Final dividends 3 cents and Special dividends 2 cents, amounting a total of 5 cents/share. The spectacular results were driven mainly due to its Real Estate Solutions Division of design and build projects which has increased a massive 88% year on year. Energy related division is flat while Water & Waste division has dipped 38%. The Group's profits were also boosted by write-backs of previous year overprovision of tax which contributed to a lower effective tax rate.
What is interesting is that in the report, the management has played down the strong performance of the Real Estate Division for FY2014, claiming that it is almost impossible to repeat the results it had in FY2013 due to margin pressure and competition. However, the group expects its Energy related segment to perform better next year.
Boustead is currently sitting on a net cash of 37% of its total. I feel like an M&A activity would be required to boost up its earnings profile. Energy and property segment may look suspect in FY2014 due to uncertainty. At current price, Forward P/E looks to be much higher than Current P/E, making its share price less attractive. It'll be interesting to see how market reacts to the Boustead price tomorrow. If it reacts well (which I think it will), it could possibly give me an opportunity to exit partially.

Monday, May 20, 2013

Blessing or Curse of Financial Freedom knowledge

Ever since I embarked on my journey towards Financial Freedom 3 years ago, I have been keeping a frugal lifestyle in mind so that I will not be trapped into a financial sorry situation. Even though I was financially literate by the time I finished my studies, I was realistically financially illiterate. I went from a hero graduate student to a zero net worth junkies. And then one day I had a dream. A dream that I could be successful. A dream where my time is my own. A dream where I can wake up when my body is ready, go to sleep when I am tired and never again live by schedules other than my own. I am a changed person now.
Now, we often hear people around us complaining about their financial situation. A few, we may argue, are worth a sympathy but most are plain ridiculous. We hear people complaining about how they messed up financially and how undeserving they are. We see registered and unregistered people complaining in yahoo news everyday on how incompetent is the goverment. The way they are acting is as if the goverment owes them a living. To put simply, these people are plain losers who talk more than they act. In my opinion, I don't see how they can have time to complain every single day but yet denies having any time to earn extra income and plan their lives. It seems like all they need was our consensus sympathies.
What surprised me the most is that as I become more financially literate myself, my sense of frustration would grow upon hearing all these complaining stories. I try to empathize with their situations from time to time but at a certain point, you just know that it's hopeless. When someone is ready to change, they will. All I can do is to advise, guide and lead by example. The rest will still be up to them to take the lead to change their lives.

What about you? Do you consider your knowledge a blessing or a curse? Does it frustrates you to hear people complaining about their financial situations all the time?

Friday, May 17, 2013

QAF: Dividend Reinvestment Plan

QAF Ltd has recently announced a Dividend Reinvestment Plan (DRIPS) for the financial year ended 31 December 2012 to allow its shareholders to reinvest their cash dividends by purchasing additional shares of the aforementioned company.

In a normal circumstances like this, I usually prefer to receive the dividends in the form of cash option. I don't generally like to hold on to odd lot shares as I find it very difficult to remember and also to sell in the open market. However, what is attractive about the offer is that for investors who chose the DRIPS option, they will have the opportunity to purchase it at the issue price of S$0.891/share, which is about 7% discount to its current price of S$0.955.
Now, we are seeing more and more companies doing this in order to attract their investors to reinvest their dividends into the company in view of the long term outlook. A fellow blogger, AK71, had recently blogged about how AIMS AMP Reits are doing the same thing with regard to their DRIPS option.
Will I take the offer? I would love to do so if I own a larger amount of shares in the company. But with only 3 lots, the dividends (S$120) would only allow me to purchase 0.134 lot (134 shares) and it will make it very complicated for me should I decide to dispose all my holdings for QAF in the open market one day.

I am taking cash this time.

Wednesday, May 15, 2013

What are the consequences we will face after all these easy monetary policy?

The video below will show the aftermath consequences of all the easy monetary policy of printing money going on across the globe today. It is a really good video. So you should watch it.


Monday, May 13, 2013

Recent Buy: Vicom Ltd

I've recently purchased some small lots of Vicom Ltd at an average price of S$4.91 (See my transactions here).
I've been bracing up for more defensive plays in recent weeks in view of the market euphoria from DowJones and S&P to STI. I tend to be a bit cautious when everyone is too optimistic. I feel like it is about time I should rebalance the higher gearing shares in my portfolio to those with stronger balance sheet in view of the rising interest rates we might probably see by end of the year. Neratel, ST Eng, Boustead and most recently added, Vicom are a few exemplary leaders in my new look portfolio with a very strong balance sheet - net cash, no debt.

Why did I purchase Vicom?
Vicom's nature of business is no stranger to anyone.
It has a great business moat with steady earnings profile and strong balance sheet. Most recently, it announces a decent Q1 2013 results with 6.7% increase in net profit compared to Q1 2012. Whilst operating margin has decreased slightly from 35.2% to 34.8%, EPS has increased moderately at 6%. Annualised Free Cash Flow (FCF) for the year looks to be in the range of S$26M while dividends paid out (payout ratio of 60%) is around S$16M. This means that the rest of the S$10M will go into Vicom's Cash and cash equivalent which at the end of Q1 2013, has increased to a record high of S$71.7 Million.
As COE prices continue to be volatile, there will be an increase of older cars on the road requiring annual inspections. This will give recurring business income to Vicom.
If there is one thing negative about Vicom, it is that they are trading at their historical P/E high of 16.07. Comfortdelgro P/E ratio is at 16.69 while SMRT P/E ratio is at 26.50. So depending on how you are looking at it, you can view them as "cheap" or "expensive".
I am not a true and blue advocate of a value investor myself. Some people would love to buy a normal company at a great price. I think in Vicom I am buying a great company at a normal price.
For a thorough analysis on Vicom, you can view here by a fellow blogger which he did last year. I thought the analysis was very thorough and impressive.

Wednesday, May 8, 2013

"May 13" - SG Transactions & Portfolio Update"

No. of Lots
Average Price (SGD)
Total Value (SGD) based on average price
Market Price (SGD)
Total Value (SGD) based on market price
Total Dividends collected (SGD) since purchase
FraserCenter Point Trust
SIA Engineering
First Reit
Ascott Reit
SembCorp Ind
PLife Reit
Ascendas Hosp. Trust
Second Chance
STX OSV (Vard)
ST Engineering
Total SGD

This month, I sold off my only telecom share, Singtel which I had at a very nice price of S$3.93. The share price has moved up nicely in tandem with the other telecom shares of Starhub and M1 which gave me the opportunity to sell it off at a good profit. I thought the way the price has moved up is overboard given its overseas earnings (especially Optus and Bharti) still a drag on Singtel overall performance.
I also took some profits off FCT after it went x-dividend and this is not the first time I'm doing this given its stellar performance year to date. FCT still remains my number one top holdings even after the sell.
My big purchase for the month is the accumulation of Boustead. With the purchase, I now own 13 lots of Boustead at an average price of S$1.15, which to me still boasts a margin of safety in my opinion. FY2013 performance so far has been phenomenal for Boustead. EPS for the 9 month period FY2013 alone has almost equaled EPS for the full year FY2012. With such a stellar performance this financial year, I am almost certain that Boustead will announce a dividend of at least 7 cents/share (5 cents to be announced shortly in its May results and another 2 cents in November). At its latest closing price of S$1.40, this translates to exactly 5% yield.
What I like about Boustead also is that it has a policy of buying back its shares, which is why you see the number of outstanding shares have been gradually lower every year. After all, we are talking about a company which boasts a huge pile of cash in its balance sheet.
Boustead has also recently divested its entire holdings in OM Holdings Limited, an integrated manganese mining company listed on the Aussie Exchange. The divestment is good for the company because this was a wall of worry amongst investors and Mr. Wong himself. In the recent interview, he even admitted that he can at times make a mistake. Having said that, Boustead recorded a divestment gain of S$5 Million which is huge and based on FRS reporting the gain should be recognised as "Other Operating Income" in FY 2014.
This has been a fantastic month in terms of dividend income for me. My portfolio is my way to freedom and I can see how the generation of cashflow through these dividend income streams have helped me in paying my expenses. Although these portfolio updates every month show the increase in the underlying value of the equities I am invested in, it is the rising income stream which is more important to me. With that said, my lovely dividend income stream this month includes:
FCT = S$324
SPH = S$350
First Reit = S$174
Neratel = S$800
Sembcorp = S$300
AHT = S$256
CWT = S$120
YZJ = S$300
ST Eng = S$138
QAF = S$120
Noble = S$40

Total = S$2,922

With many people advocating "Sell in May and go away", it is important to stay focus and ignore the noise. Instead of diverting your attention on such uncertainty, why don't you focus your attention more on the companies you are interested in?

Have a good week everyone :D

Friday, May 3, 2013

Ascott Residence Trust (ART) - Corporate Action

I received a circular from Ascott Residence Trust (ART) this morning regarding a corporate action required from Ascott shareholders.
Ascott Residence Trust (ART) proposes to seek the approval of Unitholders for the Target Acquisitions of 3 Service Residence based in China and 11 Residential properties based in Japan.

  • Citadines Biyun Shanghai, Shanghai.
  • Somerset Heping Shenyang, Shenyang.
  • Citadines Xinghai Suzhou, Suzhou.
  • Actus Hakata V-Tower
  • Big Palace Kita
  • Grand Mire Miyamachi
  • Grand Mire Shintera
  • Gravis Court Kakomachi
  • Gravis Court Kokutaiji
  • Gravis Court Nishiharaekimae
  • Grand E'terna Saga
  • Grand E'terna Saga Idaidori
  • Grand E'terna Nijojomae
  • Grand E'terna Chioninmae
Costs of funding the Target Acquisitions

The aggregate costs for the target acquisitions are expected to be equivalent to S$166.8 Million. The company will fund almost 90% (i.e S$147.8 Million) of the costs through the net proceeds raised from a private placement earlier in Feb 2013. The rest of the 10% (S$19 Million) will be funded through debt financing. This increases Ascott net gearing from 40.1% to 41.2% upon successful completion of the acquisitions.

Increased Dividends Per Unit (DPU) for Shareholders

The acquisitions are expected to increase distributable income by S$14 Million for FY2012. Dividends Per Unit (DPU) is expected to increase by 2.9% from 8.76 cents to 9.01 cents. At last closing price on Friday of S$1.405, this translates into a dividend yield of 6.4%.

Valuations of Target Acquisitions

Ascott has engaged Independent Valuers, Colliers and HVS to assess the open market values of the Target properties. The "Income Approach" - using the expected future income cash flow is used to value the assets. To arrive at the appraised values for the properties, both valuers adopted a 10 year cash-flow and applied a terminal cap rate. The projected cash flow are then discounted based on a DCF discount rate.

  • Citadines Biyun Shanghai - Valuation using the above metric stands at RMB 325,000 (~S$63.5 Million). The target purchase costs from Ascott is S$53.8 Million.

  • Somerset Heping Shenyang - Valuation using the above metric stands at RMB 444,000 (~S$86.5 Million). The target purchase costs from Ascott is S$59.4 Million.

  • Citadines Xinghai Suzhou - Valuation using the above metric stands at RMB 122,000 (~S$23.5 Million). The target purchase costs from Ascott is S$14.7 Million.

Independent Advisor - PWC

After considering all factors, PWC has advised the Independent Directors to recommend that Unitholders vote in favor of the Transactions to be proposed at the EGM.

My Thoughts

I thought this is a good acquisition opportunity for Ascott to expand its geographical expansion in China and Japan. Its China portfolio will increase from 9.8% to 14.7% while Japan portfolio will increase from 12.2% to 14.9% after the acquisitions. More importantly, it will tap into the emerging market of Shenyang and Suzhou respectively, something that they have not done in the past.
The acquisitions will also be yield accretive, giving an DPU increase to shareholders of 2.9% from 8.76 cents to 9.01 cents.
 If there is one thing that I am worried, it is that their net gearing is pretty high. The private placement done in Feb 13 has helped to strengthen their balance sheet by reducing their gearing from 40.1% to 36%, much to my relief. Now with the acquisitions, their gearing is back to a higher level at 41.2%. It looks like the placement is an intended move to fund the acquisitions project and not used to repay its borrowings. The amount of short-term repayable debt is huge and with a dividend payout of almost 100% to its shareholders, it looks like another private placement or rights issue may be on the cards once again within the next 1 year. If not for the potential rights issue, I may pick this stock up anytime below S$1.40.
The acquisition news does not seem to come too well for Ascott shareholders. Ascott share price has dropped from S$1.45 prior to the news to S$1.405 after the announcement.

How are you coping with your 9 - 6 working lifestyle?

I've recently been bugged down again by the culture of working late into the office at night and during the recent public holiday (labor day), such to an extent that it gets me thinking again on the rationale of working for such a corporation. It is the sort of corporation that shaped and designed my lifestyle that does not fit my desire. I could have walked away from it, but after thinking of all the external factors, it doesn't seem all too easy and rationale. But I do not blame the company. I spend my weekends recharging my aching body and brainwashing my mental mind so that when the new week commences, it is an entirely fresh start to begin with.
The problem with most of these companies we are working for is that they did not make their millions and billions of their revenues by earnestly promoting the value of their products. Instead, what they did was to create a culture where it envisages the minds of hundred of millions of people to buy their products that they do not need with money that they do not have to satisfy the people that they do not like. Credit cards, starbucks and luxury goods are all culprits of such corporations in our modern society.
The reason why companies create a culture of this sort is to sustain an environment where working staffs like you and me build our lifestyle in the evenings and on weekends. You simply try to fit in your desired lifestyle into a limited time of evenings and weekends, especially after spending almost 40 to 60 hours a week on your project and work.
Advance in technology and productivity enhancement in recent years have led us to falsely believe that we might be able to work for lesser hours while producing the same amount of quantity and quality of work. But we are proven terribly wrong. Companies will take advantage of this to give us even more work and to increase more revenue for the company.
Today, we’ve been led into a culture that has been engineered to leave us tired, hungry for indulgence, willing to pay a lot for convenience and entertainment, and most importantly, vaguely dissatisfied with our lives so that we continue wanting things we don’t have, we don't need and we don't like. We purchase these items because it always seems like something in our life is missing.
To my dear friends who are walking the same path as me, our goal is near. We are almost there. It all seems too easy to simply give up and resigned to your fate right now. But it would not change anything and we know we can change this. We can make this happen. Perseverance is one trait that we all will have successfully learnt should we walk out as winner in this journey.