Friday, February 28, 2014

Is your KPI an indicator from Hell?

Readers and friends of my blog will know that my workload is shitty, not in a physical way but one which is common in a corporate world. The nature of my role as an accountant isn't something that people would take on, less mention envy.

The ironic to that is promotion for the role comes in quicker than any other role. I got my promotion and a bump increase in my salary. I should rightfully be happy but sadly I'm not.

I received my KPI objective for 2014 today from my boss. With promotion comes greater responsibility, that's fine. But today, the KPI I received is incredibly quite insane. It appears to me that KPI is a devilish gift and an indicator from Hell. It never appears to make sense for me and to be honest it is seemingly futile to argue otherwise.

Let me put it this way. Imagine yourself as Lionel Messi in a striker role and your KPI were set as follows:

- Scores 50 goals a season (with or without injury)
- If your defense concedes more than 3 goals in just one single match throughout the season, you are screwed.
- The team is not allowed to win just by a single goal, at least two or more goal margins will be counted as winners.
- If your teammate does not convert shots into goals, you will be equally penalised.

Those are the types of KPI I get in my workplace. They are not only overly ambitious but also ridiculous and you get penalised for things that are not at your control. 

I'm just lamenting, it's the weekends after all I'm after :)

Does anyone share the same experience as me? Is your KPI better or worse? If that's the case, anyway out for you?

Thursday, February 27, 2014

Sembcorp Industries - Stable Earnings Results FY13 & Outlook Ahead

Sembcorp Industries saw FY13 revenues rising 6% while net profit climbed 9% year on year.
Its Utilities core business delivers a steady performance compared to 2013, achieving 20% growth in net profit yoy. Other key performance round-up includes:
  • Turnover at S$10.8B, up 6%
  • Profit from Operations at $1.3B, up 4%
  • Net Profit at $820M, up 9%
  • EPS at 45.7 cents, up 8%
  • ROE at 17.1%
  • Dividends at 17 cents (including 2 cents special dividend)
When I purchased it last week, I expected the FY EPS to come in at least 45 cents/share. It actually exceeded my expectations a little bit. Having said that, I was expecting a little more performance from its utilities in the Q4, but at the end I guess i can't complain much if it is achieving a 20% growth year on year right.
The Group breaks their segment down into 4 categories, but the main segment I wanted to really focus in on the utilities portion. I suspect the margins for Marine is going to undergone a few competition and I would be glad if they can just achieve similar profits like this year. Urban development on the other hand plays too small a part in making a huge contributions to SCI earnings.
Utilities Sector
Having already achieved a 20% growth this year, the management is still confident that the company can deliver a better and steady performance in 2014. Great.
So where can we expect the better performance from?
It appears that the management is focusing on growth in the key emerging market like China, India and Middle East in the next few years. Based on geographical statistic alone, you can probably see the shift play from local to overseas market. In fact for FY 2013, the overseas market contributes a higher net profit at 51% than the local market at 49%. Based on this, you can see why they have been aggresively expanding into other overseas market which they think will give them the growth they want.
  • On Feb 26, the Group announces the acquisition of 45% stake in India's NCC Power Project which will double Sembcorp's power generation capacity in India and expect earnings onstream in 2016.
  • On Feb 25, the Group announces the expansion of its wind power capacity in Hebei and industrial water capacity in Nanjing which will double its capacity in renewable energy to 380MW. Earnings are expected to come onsteam in 2015.
  • The Group is also pursuing other opportunities in the ASEAN market such as the 1,200 MW coal-fired power project in Vietnam.
                                                          Net Profits (S$ M)
FY 2013 FY 2012 Change %
Singapore 226.2 262.6 -14%
Rest of ASEAN incl. AU and IN 45.4 49.9 -9%
Middle East & Africa37.330.423%
UK 10.0 15.3 -35%
Americas 4.8 7.7 -37%
The Group's vision 10/10 is expected to come in from the above emerging market which we believes will provide the necessary growth for Sembcorp. They are expecting the energy sector to grow to 10,000MW by 2015, which is a 37% increase from the current 7,300 MW. For water, they are expecting it to grow to 10m3/day in 2015, which is a 16% increase from the current 8.6m3/day. In fact, they are such confident of the demand that they are expecting over 3000MW of power and 1.5Million m3/day of water treatment capacities to come onstream from 2014 to 2016.
                                              Vision 10/10
2011 Today 2015
Energy (MW)          5,600          7,300          10,000
Water (m3 in Millions/day) 6.0 8.6 10.0
Assuming that management is bullish and we now expect another 20% growth in the utilities net profits in 2014, we will see net profits at S$539.88M. Given that the net profits in the other segments remain constant, we will see a total net profit of S$910.38, which is approximately 11% increase yoy. EPS would be at about 50 cents/share yoy which would be fantastic from investors point of view.
Net Profits (S$ M) % Growth
2009 226.7 13.2%
2010 231.2 2.0%
2011 304.4 31.7%
2012 374.6 23.1%
2013 449.9 20.1%
2014                             ?             ?
I think that this is a stock to keep for the long term. The growth shown in the utilities segment looks like they have plenty more room for an upside especially if their vision 10/10 does come true. The one thing I'm probably worried is on the marine segments, which will face competitive margins for years to come.
Another thing which I don't like about Sembcorp (which I have mentioned in my previous posts) is the habit of its management to do daily share buyback of a company. Some people may argue that it has the same effect of reducing the outstanding market share which will boost up earnings per share and dividends eventually but I would rather they give out higher payout ratio to investors to decide themselves on what to do with the money. Imagine that should Sembcorp trade at extremely high PE and price and they still do share buyback on a daily basis, is that doing a favor for maximizing shareholders value?  I guess this is a small downside which I don't really like but I must say the CEO and team have been growing this company well from the past till now and to the future.

Wednesday, February 19, 2014

"Feb 14" - SG Transactions & Portfolio Update"

No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
FraserCenter Point Trust
Ascott Reit
FraserCommercial Trust
SembCorp Ind
First Reit
ST Engineering
Mapletree Greater China Commercial Trust
China Merchant Pacific
Plife Reit
Second Chance
Ascendas Hosp. Trust
Mapletree Logistic Trust

Total SGD


For the Feb month, I have added Sembcorp Industries at the price of $5.32 as an addition into my portfolio. The price looks somewhat decent to me and their fundamental looks acceptable at the point of purchase. I remembered having bought them sometime 1-2 years ago at a price of $5.44. At that time, Earnings per share (EPS) came up to about 45 cents/share. For this year, the 9 months results have yielded 33.4 cents/share. I suspect the full year results are going to be about the same with a dividends probably in the range of 15 cents/share, which is expected to be paid sometime in April/May. Great.

Feb month is also a fantastic month in terms of the dividends I received. Contributions coming in from a couple of Reits owned are especially handy in terms of my own personal cashflow. The more income coming in means the higher percentage of earnings retained and therefore the more money I can put to use to earn higher returns. The total dividends received in Feb amounted to $1,951.10. That's enough to cover the whole expenses for the month itself. Lovely.

First Reit$256.1
Plife Reit$84.6

As we move on towards March and beyond the earnings season, the noise will once again dominate the market and give that extra volatility to the stock price. For investors holding it mid to long term, this should provide opportunity to pounce on any weaknesses in the price itself and buy it at your own comfortable price range.

Sunday, February 16, 2014

How Dividend increase can help achieve your goal faster

As a passive income investor, one of the main objective is to look at dividend growth stock that can give us passive return that well compensates our need. Some may be comfortable at 4% yield while others may require 7% yield. But all in all, a company that can increase their dividends over time will be one that investors seek for and it can help us achieve our goal at a faster rate.

Dividend increases usually mean that the company are doing well and they are returning excess earnings to shareholders in the form of dividends. They usually play a huge part in the investor's cash flow for years to come.

Consider Vicom for example, the company's earnings have been growing steadily over the years and so does its dividends. They are comfortable doing this not only because earnings have increased but also because their payout is relatively low compared to others. Thus, in times when earnings might be affected, they are able to use the excess earnings that is retained to give a higher payout to investors in the form of dividends. Here are the figures for the past 5 years from 2008 to 2013.

VicomDividend per share% Growth

Consider another example, ST Engineering. Their returns in dividends over the past couple of years have been in the single digit growth though decent for the past 3 years. One thing investors need to take note though is that ST Eng payout is in the range of 90% so the company does have very little earnings retained for further growth. Dividend growth for the company are dependent on the earnings which gives a vicious cycle of how is the company going to grow growth if earnings retained are small.

ST EngDividend per share% Growth

What about Reits then? Investors would know that Reits tend to payout more than 90% earnings to investors and have very little earnings retained. Thus any acquisition or improvement in yield would need to be funded via debt or equity which gives a vicious cycle to investors especially if the acquisition is not yield accretive. So the structure Reit investors can expect is dividends, more funding, higher earnings, more dividends, more funding and so on...

A few other companies which I have not looked closely at probably fits into the above criteria as well. Jardine, Banks, Keppel are probably a few of those that have increase dividends over time. Perhaps, we should be looking closely at this. Dividend increases over time can really help you and I achieve our goal together and ...faster.

Wednesday, February 12, 2014

Vicom - Steady Results for FY13 & Outlook Ahead

Vicom Ltd has just released their FY results yesterday evening which I thought was decent.
Results Highlight
Vicom’s revenue grew 8.1% year on year to $105m while profits grew 7.7% higher at $28.4m.
Considering the company’s activity slowdown in the past year, this is decent numbers we are talking about.
The company’s cash flow from operations (CFO) has increased by about 7% to $32.5m while Free Cash Flow (FCF) for the year was at $28.6m. The management has declared a higher final and special dividend for the year at $0.081 and $0.064 compared to $0.075 and $0.032 respectively in 2012, giving a 23.6% increase in dividend growth year on year. Dividend payout remains at slightly below 60% for the year which means that the company gets to retain the rest of the $12.5m which flows back to cash in the balance sheet.
The company has been growing their humongous cash equivalent which now stands at $78.5m (that is more than 50% of the total assets they own). With the company being debt-free, it will not be subject to any interest rate risk that investors have been so worried about in the market. The worry would come more from the operational outlook which I will explain more in the later section.
Management has given guidance that in the next 12 months, demand for the vehicle testing services is expected to moderate as more vehicles are expected to be deregistered in the year. For the non-vehicle testing services, demand is expected to grow despite the keen competition.
Based on the annual report 2012, we know that the number of vehicle testing from Vicom amounted to 505,123 while LTA figures came to 687,484. This gives a rough 73% market share (505,123/687,484) for Vicom for its vehicle testing service. With this being the core drivers of Vicom’s business, a dip in the number of vehicle testing demand services will reduce the company’s earnings, all things being equal.
A Finance Professor I had in my class always said to us “What is expected will be priced”.
The question for Vicom becomes how many vehicle inspection demand dip are we expecting. Let’s look closer.
No. of Vehicles Inspection (by LTA)
% Growth
Based on the past 6 years data, it appears that the total number for vehicle inspection has increased, albeit at a decreasing growth rate over the years. This is not surprising given that on the 13th Jan 2014, LTA released a statement which states that with generally rising vehicle de-registration numbers in recent months and with the trend likely to continue until about 2016, it seems that total number of vehicle inspection growth will slow down, with the two being correlated together.
No. of Vehicles Deregistration under VQS (by LTA)
With that being said, I do not forecast a huge drop suddenly in Vicom’s earnings. Assuming a flat growth in the vehicle testing services in 2014, the growth would probably come from the non-vehicle testing services which are expected to grow. The question then becomes what should investors do with Vicom not only in 2014 but in 2015, 2016 and beyond.
Some investors have expressed disappointment at the final and special dividends announced by Vicom yesterday. Even though dividend has grown 23.6% year on year, investors were still expecting more given the huge cash hoard they currently have in their balance sheet.
To me, I think the company is holding onto their cash in anticipation for future slowdown in their businesses. Even with the slowdown, I expect the company should still be able to generate more than $16m of earnings comfortably, which means I do not foresee the dividends to drop anytime soon. At the worst scenario, they can dip into their cash holding to pay out the $0.225/share dividends to investors.
At current price of about $5.66, it is yielding at about 4% while PER is around 17.5.
For me, I will be holding on for the shares at the moment while enjoying the decent 4% dividends and the $78.5 cash hoard the company has.

Saturday, February 8, 2014

Second Chance - Disposal of their Properties

On 6 Feb 2014, Second Properties Ltd has entered into an option agreement to dispose all their properties at a price of $175,376,412, which is somewhat a premium to the total market value of $134,773,500.


The proposed disposal is expected to unlock equity value tied up in the real estate for a number of years and the company will use the proceeds for:

1.) 39% of the proceeds will be used to repay all the debts, bringing the gearing to 0.
2.) 6% of the proceeds will be used to distribute dividends to shareholders.
3.) 55% of the proceeds will be used to redeploy into business operations which can generate a higher return.


I thought it's a pretty good deal.

Based on the market value alone they probably would have made significant profits from it. Now with a premium proceeds, they have gained easily another $40 Million profits.

For investors, based on the 6% proceeds out of $175,376,412 and outstanding shares of 677,210,218, each share will be awarded $0.0155 which translates to about $15.5 per lot. It's pretty good I must say for investors. I hope I am calculating this correctly.

Based on this move, it does seem that the Group is feeling some heat on their properties and have decide to lock in their profits.

A friend of mine who are invested in the shares were quite disappointed that the company has decided to part with their golden nest. By giving up their properties business, revenue is expected to fall almost 28% and investors should expect quite a significant drop in their FY dividends.

Whether this move will be good for investors in the long run it is a guess to anyone. For Salleh the CEO, he certainly feels like a good deal for the company.

Saturday, February 1, 2014

Stock lists on my radar

It is the end of the January month and we can already see some turbulence in the market, especially affected by the news of the EM crisis we are having right now. The overall STI index has gone down by 4.42% in this one month alone and it does look like the trend will continue to spread in the February month.

I've listed down a couple of stocks that I am currently keeping a close look on. I may not necessarily buy them in the near term nor is this a call buy for you to follow on. But it may be worthwhile taking note on these stocks as they may provide a longer risk reward horizon.

Counters31-Dec-1330-Jan-14% Change
Far East H. Trust0.840.785-6.55%
Croesus Trust0.8850.875-1.13%
Raffles Medical Group3.113.00-3.54%
STI Index31673027-4.42%

Out of the 7 stocks listed above, Capitaland, FEHT and Wilmar have underperformed the index while the other 4 have performed slightly better.

Capitaland for instance, have fallen almost 9% from Dec due to poor market sentiment from China and the downward pressure coming from the local residence market. Having said that, I am still pretty bullish on the new CEO management as they have indicated a stronger ROE target to meet within the next 5 years.

I am equally bullish on DBS as they have posted a stronger set of results this year as compared to the past. The higher profit means that the same payout has now attributed only 30% of earnings as compared to 38% in previous year so I do expect the management to dish out a higher distribution for FY14.

With most of the stocks now below their moving average, we could see downtrend pressure within the next few months, which would be really interesting if that happens. What about you? Are you looking for any opportunities in the market?