Monday, November 30, 2015

My Strategy (Update) During This Market Downturn

I wrote an article some months back about how I was planning to utilize my warchest strategy should the market trend lower. You can view them here. Since then, the market has gone down at one point to less than 2800 and many people were scratching their heads when would be a good time to enter.
Timing the market may look easy to the common naysayers. Some would look for macro events to take place while others are simply looking for directions to take place. Either way, it almost seems that one can predict the event that things would get cheaper before they decide to nibble on the stocks they were eyeing.
In the article I wrote previously, I mentioned that cash represents a call option for investors to purchase companies at a cheaper valuation when Mr. Market misprices them occasionally. Many people shun the value of cash at face value as they tend to erode over time due to inflation so they aren't willing to hold cash for a long period of time but I look at it in a balance. Sure, it isn't cool to hold cold hard physical cash but who wouldn't want to pounce on the opportunity given when it is time to do so.
On the other side, I also wanted to talk about opportunity loss. Missing a good opportunity for an entry is to me as bad as getting an entry at the highest. This is probably the reason why scaling the purchase and understanding the company's valuation becomes all the more important because good companies will eventually rebound back in value, even though they may go lower in the shorter term due to market weakness.
I personally do not advocate myself timing and entering the market at the bottom as part of my strategy and I probably do not have clue to where is the bottom anyway, but what I do know is that over the longer term, the stocks I am holding will be one which will rise in value and support my lifestyle till the day I leave this earth. At least, I have to make sure that conviction stays true. For instance, when the market went lower at below 2800, I have used quite a portion of my warchest to take opportunity of stocks that I think has value proposition. If it goes down further, then I would activate my next batches of purchase and this will continue. The strategy is clear, so the fear of missing out is exacerbated.
There are many other bloggers who are advocating different strategy that fits their own profile. Some like consistent dividend paying companies while others have a lower threshold before they start buying in. Regardless, I think the common theme is to have a strategy in place so that you won't panic when the real war begins. When that happens, you are already prepared and the battle is won halfway.

Friday, November 27, 2015

Dividend Income Update - Q4 FY15

I am attempting to tabulate the dividend income update on a quarterly basis from now onwards since I think it provides a better visibility comparison year on year.

The purpose of doing this is really just about forcing myself to consolidate the amount of dividend income received every quarter because this will ultimately be what I am going to depend on once I reach the state of financial independence. So the progress will be an important feedback to how close I am reaching the goal.


Regular readers of my blog would know that I am a heavy proponents of cashflow and dividend investing provides the root solution for that. The reason for that is because companies which tends to pay dividends allow shareholders to reap the rewards in the form of dividends that they can use to fund their lifestyle elsewhere. Sure enough, we can argue that some companies use the retained earnings to fund for their further growth, but it really depends much on the capability of the management to ensure that growth takes place which can be difficult to sustain especially if the growth has stalled in the latter years.
Think about it this way.
Many workers look for a job that ensures the company pays sustainable salary and increments every year, benefits such as medical leave and paid vacation. The company you are working for does undergo changes depending on the macro economic conditions and there will be a time when they will face difficulties and your increments and bonus will get compromised.
It really goes the same way if you are a shareholder.
Sometimes, the dividends of the companies you are vested in gets cut or stay stagnant when companies face some challenges but over the long run, strong companies will mange to bounce back and reward their shareholders.
If the theory stays true, then why are there are so many people who are willing to work until 30 or 40 years but unwilling to stay invested for the long term in a similar ways? It definitely gives some food for thoughts in a different light.

Without further ado, these are the dividends that I have received or will receive in the 4th quarter of FY15.

CountersDividends (S$)
FraserCenterpoint Trust171.5
Silverlake Axis259.2

The total amount of dividends received for the 4th quarter amounted to $1,312.30. I used to have a traditionally strong dividend income for the 4th quarter in the past due to a couple of more reit holdings but it has since tapered off. I guess they are still a very good amount of money that I will mostly likely be using it to reinvest in the market given that there seems to be a couple of nice opportunities recently. I'll update that shortly in my next portfolio update for Dec.

Friday, November 13, 2015

Blog Leave - 14 to 30 Nov 2015

I am going to take a short 2 weeks break away from blogging as i will be traveling with my family to Thailand this time round for leisure purpose.

The market hasn't been very kind the past these days so there could be another round of opportunity for long term investors. Crises represent opportunities but please do it safely knowing your situation.

Till then :)

Thursday, November 12, 2015

Ho Bee Land Q3 FY15 - Review and Thoughts‏

There is a wave of companies reporting results traditionally in today’s busy market and I’ve got a few results to look at on my hands but let me pick Ho Bee Land for this time round.

Ho Bee Land reported a very impressive 3rd quarter net profit increase of 50.3% year on year while YTD they have managed a profit increase of 61.4% year on year. This includes a one off divestment for their industrial building they made in Jun which gives them a $6.9M gain on the book. However, if we compare them against last year, they also have a one off write back accrual which they have recognized in the 3rd quarter. So the two one-off would net off against one another for comparison purpose.
Do note that this impressive results was on the back of a decision by Mr. Chua to go via the rental income strategy given the muted outlook of the residential. None of the income came from the sale of a development property so far yet. This is important because while the company is waiting for the market cycle to recover, they are building themselves up to operate like a Reit where there are recurring income to support the company’s bottomline. They have been fast and furious in purchasing more buildings in the UK, which pushes their net gearing up to around 0.50x. It’s starting to get really high now compared to the other developers like Bukit Sembawang, CDL and Wing Tai, though evidence shows that their interest coverage ratio are still at a comfortable 6.3x.

In my earlier post, I estimated their full year EPS after these acquisitions to come in at around 10 cents. It does look like it is going to materialize. At current price, this gives them an earnings yield of around 5%.
The company does have a few launch in China and Australia which they will recognize revenue upon TOP sometime next year, so we can expect earnings to contribute positively into the book.
The company’s net asset value at $3.96 remains a huge deep value play at current price while the earnings are contributing positively into the net asset value over time.
The other thing that I am also watching out is on the provision of fair value on their development/investment properties for developers. Just yesterday, I saw UOL reporting a huge provision loss on their financial assets, not sure if this is related to their properties. There's also a couple of translation losses for companies like Stamford Land. Good thing I do not see anything for Ho Bee Land. I’ve also noticed none so far for Bukit Sembawang and City Development.

UOL Financial Statement

Final Thoughts

I like what I see as part of their evolving strategies to venture into the UK and building up recurring rental income to mitigate the poor outlook of their development properties.
The earnings yield is a tad too low for my liking, and if we compare against other overseas commercial properties reit, I think we are getting a higher earnings yield than this one. We'll have to see over time if it gets better.
This is a slow build up play where you get to buy the business and ignore the share price and over time it'll do well. But if you are expecting a firework, you may be disappointed by the development.

*Vested with 6,000 shares as of writing.

Wednesday, November 11, 2015

Vicom Q3 FY15 - Brink of Slowdown?

I am running through the Vicom quarterly results as part of my usual keeping up routine with the company.
You can view the past quarterly results I have covered here.
Vicom results have been pretty much straightforward in the past couple of years. However, there has been a couple of recent growth stocks who have gone down the path of downhill - Super Group, Sarine and Osim have all suffered similar fate recently. Will Vicom be following their footsteps?
Topline growth has finally dropped year on year and if I remember correctly, this has been the longest time ever the company has reported negative growth on their topline. The management did reiterated and gave a guidance that their non-vehicle segment would slow down so this shouldn't come as a surprise. Still, it's interesting to see how investors would react to this. It's pretty evident slowdown there at 6% negative growth.
Fortunately, the company is able to mitigate their bottomline by reducing their operating costs correspondingly to counter their topline slowdown. The most obvious reduction was in the salary related costs where the company is able to reduce by 8.1% year on year. A friend of mine who has friends working in the company told me that the staff were getting 5 months variable bonus during good time. If the source is true, I think it's good that the management did pare that down in the midst of global slowdown. I think that's prudent management set up there.
Net Profit managed to creep up slightly 3% year on year and this should be maintained in the last quarter as well I predict.

I changed my full year EPS estimate to come almost flat at 35 cents for FY2015. Dividend should remain same as previous year at 27 cents, giving investors a 4.4% yield at $6.05. Payout would also be similar at around 77%.

Final Thoughts

The problem with valuing this kind of company is people tend to value them using discounted cash flow because it is the most common method given their cashflow predictable nature. When topline growth stalls, we assume that cashflow growth stalls as well and this can have an impact to their intrinsic value as part of the valuation exercise.
The company isn't exactly cheap at this price at a forward PER of 17.3x and with global storm coming fast and fury now, we wonder if it's finally the end of the journey for this long term darling company.

*Vested with 6,000 shares as of writing.

Saturday, November 7, 2015

"Nov 15" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
China Merchant Pacific
Accordia Golf Trust
ST Engineering
Stamford Land
Ho Bee Land
Fraser Centerpoint Trust
CapitaCommercial Trust
IReit Global
Nam Lee Metals
First Reit
Silverlake Axis
Dairy Farm*
Total SGD

I am doing the update a little earlier than usual because I will be traveling with my family away on a holiday trip shortly for about 2 weeks sometime next week. It's a long awaited trip I am excited about because this will be the first time we are traveling with a kid on a plane. It'll be a well equipped experience I'm sure. I'll try as much to disconnect from the real world and the stock market, though I'll be interested to find out about how my companies are doing when they report their results next week.

The market continues its ascend towards the consolidated range of around the 3,000 point and I've seen most of my holding gaining momentum from the previous month, especially my top 3 holdings. Meanwhile, I've also accumulated a few counters for this month.

First, I accumulated another 16,000 shares of Accordia Golf Trust at a price of $0.64 to make this into my top 4 holdings. The investment thesis remains similar to what I've blogged about previously here and I remain confident on what I see in their operations in the last quarterly results. They will be reporting their updates on the results shortly and the distribution would most likely be in around December.
Second, I also took the opportunity to purchase 8,000 shares of First Reit at a price of $1.17 after the stock price plummeted due to rumors that the Lippo group were going to delist them. I wrote a detailed post on it here. Given the company's strong fundamentals, I think this would be a good candidate to own when people are generally more bearish towards its uncertainty aspect.
For all the transactions listed above, you may refer to the "recent transactions" for the details.

Nov has been another good month in terms of the overall portfolio networth.
First, net savings for the last two months of the year would be very favourable because we will be doing most of the traveling and expenses have previously been prepaid and taken care of in the earlier months. So unless any unexpected expenses cropped up, income would go straight to the investment warchest. In addition, there are also the dividends in Nov/Dec (which I will report once all numbers are in) and aws in Dec which will be a big boost for extra funds. I am quietly confident about the rest of the year aspect.
The portfolio has increased to $356,316 (+3.1% month on month; +26.8% year on year) mainly due to the much better performance from CMP and Silverlake this month and increased funds. It's another step into the right direction towards the big goal at the end of this whole thing.
The warchest has now gone down to below the 30% point and I'll be working to increase this over the next few months to where it should be. Ideally, my preference would be looking at somewhere along the 33% to 35%, but it really depends on how strong the cashflow is. My recent addition towards Reits would mean that I will have a stronger cashflow in favour of cash. That would do for now.
With job numbers coming in strongly last Friday, it does look like we are finally (FINALLY) going to see a hike in the interest rate. I still have some more rooms for reits in my portfolio, so that would be my main focus going forward. I am also eyeing on one big growth addition into the portfolio, but I'll have to see if the share price fits my preferred profile.
Thanks for reading.
How are you doing in the month of Nov? Would you be looking at any strategy changes towards the last 2 months of the year?

Friday, November 6, 2015

Jumbo IPO Balloting Results

I wrote an analysis previously about the company which you can view here.
We knew that the chances to get them for the public would be massively low and that is because only 2,000,000 shares were offered. Most of them (86,233,000) goes to the placement which was also oversubscribed.
As you can dissect from the below table, the allocation came somewhat surprising because for most of the IPO which are popular, they would give a higher balloting ratio to those who applied for smaller lots, but this goes ascending in distribution. This means that if you apply between 1,000 to 9,900 shares, your chances are as low as 1% of getting it and even if you get it, you are only allocated 1,000 shares. I seriously don't know how that can become value.
Most people I reckon would apply between 10,0000 to 49,900 shares and that puts them right in the next bucket where their chances gone up marginally to 2%. Successful applicants would be allocated 3,000 shares while the rest will go home empty handed.

I think this would trade well on the first trading day but we'll see if the volume would sustain after that. If institutional are not selling through placement shares, then I'll reckon volume for this would be low with only 2,000,000 shares floating around the retail public shares.

Thursday, November 5, 2015

Where Market Valuation Is At Right Now - Nov 15?

I provided an update almost half a year ago on where the market valuation is at that point in time. You can read the article here. The market was obviously much more bullish back then. I remember the index going up and up and there is only one way the market was going to go. Everyone was bullish and our local STI index has even hit the 3,500 point. Everyone was putting their guard down.

Then Black Monday came and the market went into correction mode since then. At one point, STI even came close down to a bear territory before bouncing back to where they are now. The mood in the market was visibly much more cautious than where they are half a year ago.

1.) Market Capitalization to GDP (Buffett Valuation Indicator)

The market cap to GDP ratio, also dubbed the Buffett valuation indicator, is a long term ratio used to determine whether an overall market conditions is undervalue or overvalued. As the ratio suggests, a ratio that is greater than 100% is known to be overvalued while a value below 100% is known to be undervalued.

The ratio approached the highest at 127.4% in the 2nd Quarter and it kind of digress down a little bit now to 118.8%. Even though the figure has dropped, it still suggests that the market is overvalued and still above +1.3 SD on the average mean for the past 65 years or so.

2.) Q-Ratio (Developed by Nobel Laureate James Tobin)

The Q Ratio is an indicator of the total market value divided by the replacement cost of the overall market. This is a little bit like measuring the Price to Book where the earlier was like the Price to Earnings. Again, anything above 100% represents overvaluation while anything below represents undervaluation.

Back in the 2nd quarter, the ratio was as high as 1.11, and again it has dropped down to 1.03 now, though it is still at +1 SD above the mean. The ratio went up to as high as 1.64 during the tech bubble and you can see in one of those years they represent a crash in the market.

By now, you should realize that this is just an indication and by no means it gives a call to go right into cash. High can mean that it can stay high for years and you can be missing all the opportunity loss if all you are waiting for is a crash. Ultimately, if you are an individual stock picker, the valuation of the company itself is more important than using the general macro economic trend and ratio to justify your decision.

Tuesday, November 3, 2015

Recent Action - First Reit

Given the recent announcement made by Lippo Group that caused quite a panic amongst the retail investor, I used the opportunity to load up 8,000 shares of First Reit at a price of $1.17.

The addition was timely because you don’t often get such opportunity to add quality reits into your portfolio, unless there are some fundamentals issue or rumors that are spreading. For me, I pounce onto the latter.
In this post, I will not be covering on the fundamentals of the reit because I think it has been covered quite substantially by other bloggers in the past and everyone seemed to know the strengths and weaknesses of the company.
Based on my experience previously working for one of the two reits involved, and also given my native background, maybe I’ll offer something else that are different and may be value adding to readers.
Policy Changes
I think by now everyone is already familiar to the news that Lippo Group might be planning to delist the two Reits and move them back to Indonesia where they can potentially save on the tax breaks. You can read the news here. But let’s take a deeper dive into what that really means to the group and to investors.
The decision to remove the tax breaks by the Indonesian government is in fact a policy move in a bid to spur economic growth over time. This decision started with the intention for developers to revalue their assets, which many companies have not done so based on the recommended IFRS because they were using the Indonesian GAAP reporting. The policy involves encouraging companies to submit proposals for fixed asset revaluation in order to increase the firm capacity so that they get a higher valuation and can take on more leverage to boost the company’s return and hence the economy. The specific tax breaks is as follows:
- Companies that submit their proposal before 31 Dec 2015 would only need to pay 3% tax on the increased amount.
- Companies that submit their proposal in the first half of 2016 would pay 4% tax on the increased amount.
- Companies that submit their proposal in the second half of 2016 would pay 6% tax on the increased amount.
If you see across how the Indonesian developers compare against Singapore developers, you can see a vast different across how much is premium these developers are trading above their book value and how much DISCOUNTS they are trading below their RNAV. This is almost as if the company revalued all their assets, their market cap can almost double in value. In this case, property developers would almost certainly record a huge amount of accounting gains in their books once they revalued their assets.

In addition to the tax relief in asset revaluations, the latest economic policy package also removes double taxation on portfolio investors who invest in Reits using the collective investment contract system. This system would enable investors to pool funds in a collective investment vehicle, without being liable for double taxation. This is similar to the setting up of a Special Purpose Vehicle (SPV) we have in Singapore. At present, the investment method is subject to double taxation on its dividends and on the activities because the vehicle itself is considered a corporate body. You can immediately see how the Indonesian government is replicating a similar model when the same set up was done in Singapore many years ago to remove the tax breaks.

Borrowings and Earnings Done In Indonesia

Every investors of First Reit and LMIRT would have known that the companies made their borrowings in SGD at a rather low costs of borrowing since we are in a stagnant zero percent rate environment. The difference between the two is that First Reit earnings and assets are being earned and reported in SGD while LMIRT earnings and assets are being measured in IDR.

For the purpose of this article, I’m just going to touch on First Reit.

First Reit dividend yield based on 100% distribution are currently at 6.6% based on current price while costs of borrowings are in the range of 3% (higher because First Reit does not have credit ratings). Risk free rate in Singapore are at around 2.8%.

Now let’s think what happens if they decide to list the reit in Indonesia.

Based on the table appended below, you can see that loans made from banks are in the range of 11%. Sure, they might deviate a little amongst the different banks, but I can confirm that is the average interest rates for mortgage home loan payments taken by most Indonesians. The risk free rate, which in this case I have taken the Indonesian Treasury Bonds as reference, is currently yielding a Yield to Maturity (YTM) of around 5.3%. The fixed deposits, offered from various banks (yet to confirm on this one) is currently yielding 5% to 6% based on the table below.

Costs of Borrowings
Fixed Deposit Rates

Indonesian Treasury Bonds

Now, ask yourself this question. If you are an investor in Indonesia and are looking to invest in First Reit, given that you are able to obtain a risk free rate of around 5.3% and fixed deposit north of 6%, what is the premium yield you are looking for before you are willing to invest in First Reit? Surely, in this case, a 6.6% dividend yield would not be attractive anymore and they would have to priced it way such that the reit is yielding a dividend of around 10% to make it at least attractive for investors. Of course, Lippo could always provide an income support to these reits like what they did with OUE here with the other reits but that is not organic and sustainable. Question still remains if it is a viable option to list them down in Indonesia.

Final Thoughts

Given that the Indonesian market is not as established in the one we’ve had in Singapore, I seriously doubt if the listing would take place in the near term.
Based on my arguments above, there are simply too many things to consider if they decide to list the reit in the Indonesian market.
This is not a case where the parent is taking the company private. This is about delisting them in an established market and then list them again in a not established market. To me, at least it doesn’t look like it is going to work out for now. Maybe I’m wrong.
I am betting that Lippo would not take First Reit back to list them in the Indonesian market, though the scenario appears to be more likely for LMIRT because all of their assets, liabilities and earnings are already measured in IDR. Even if I am wrong, I am assuming that this will not take place in an instant and much still needs to be discussed over delisting the two Reits with a lot of floating shares around (Lippo only owned about 30% so far). At least, we could be looking beyond 2016 and 2017 before this could take place.
I’m betting I’m right, but don’t trust my word for it.

Sunday, November 1, 2015

Things To Look Forward To In Life

For most of us, we would possess both a mixture of things that we look forward to and things that we don't look forward to in our everyday lives. For instance, I would most certainly not look forward to going to work on Monday and facing those daunting emails. On the contrary, I look forward to things like weekends or going home from work so that I can play with my son. These are just the most direct day to day events that I am going through right now.
The thing with going through events that we are not looking forward to is that life suddenly becomes a drag and meaningless. It is like waiting for those moments to pass by and if you'd be given a remote control that you can fast forward the time, you'd take it straight away. Life would be deemed colorless. Of course, the argument is that no human beings can sustain a life filled with extreme euphoria all the time but having something to look forward to in life is a different matter altogether.
When financial bloggers set up a goal to reach early financial independence by X years old after Y passive income meets Z expenses, they are unconsciously thinking of an ideal state of life post financial independence. By then, you no longer have to face the same dreadfulness of going to work on Monday (something you don't look forward to) and you'll be able to schedule your week according to what you desire taking out money as a factor in your decision (something that you look forward to). These are all state of matters that financial bloggers would desire.
On the contrary, life can get equally meaningless if you managed to attain financial independence but are lacking of ideas or things that makes you look forward to. In fact, I would say that this can be very dangerous because suddenly you no longer have goals in life. See, if you had attained financial independence, that would mean that you no longer have to worry about money, so that factor is taken out. Unfortunately, if you had attained those at an expense of your health and time (age), then you'd realise later on that you'd just miss the important moments in life and that is something you cannot rewind back.
I've been blogging on the topics of financial independence for about 5 years now and I've come to realize that achieving financial independence is not about attaining an ideal state of life but rather I would need to continuously rack my brain as hard as I would have done right now before I reached financial independence. There needs to be something that I look forward to in life, regardless whether I am 10 or 90 years old and they are independent of my state of reaching financial freedom. If not, life would just go downhill from there and that'll be the end of the journey.

What do you think? Can you schedule your life without a purpose or things that you look forward to in life?