Wednesday, 12 July 2017

NetLink NBN Trust: Conflicting opinions from financial bloggers



If you are a currently investing in Singapore's market, it is likely that you are aware of the S$2.3b mega IPO, which is NetLink NBN Trust, that's happening. Singtel is to divest their 100% stake in NetLink to less than 25% as agreed with IMDA.

Offer price: $0.81
Opening date and time for the public offer: 10 July 2017, 7pm
Closing date and time for the public offer: 17 July 2017, 12noon
Commencement of trading of units on SGX: 19 July 2017, 3pm

Before the prospectus was lodged, my gut feel was that this IPO is one that I'll definitely ballot for. Mainly because there're some traits that I really like in a business that it possesses such as it being a monopoly and having recurring income. From the article by Straits Times, it mentioned that:
NetLink NBN is not a monopoly by regulation. Rather, it enjoys a monopoly status owing to high entry barriers. As part of a nationwide masterplan, Netlink NBN was given a $732 million government grant and began building Singapore's Next Generation Nationwide Broadband Network in 2009 It would be difficult for a newcomer to build a fibre network with the same extent of coverage today. 

However, it seemed that the entire picture wasn't that rosy. The IPO is priced at the lower end of the spectrum which actually could go both ways. On the one hand, a lower pricing could mean that demand for this IPO is not as encouraging as expected. This could be a result of it being an IPO of such immense scale. (One will need to go back to HPH trust in 2011 before a similar sized IPO was available)  Added with the cautious mood in the current market rendering equities with high capital expenditure somewhat riskier, dampening demand for NetLink Trust.

I had not read the prospectus but with this being such a major IPO, many financial bloggers had already done us the service and I do like to express my thanks to them for putting in effort to highlight the positives and the negatives and also forming their personal opinions.

I'm pretty sure I want to own this shares, but the question is do I ballot for this via IPO or do I wait for it to list before buying from the open market? Let's see what the popular financial bloggers have to say:

Mr IPO - One chili rating 
If you are happy with a 5.43% yield that is growing to 5.73% , then this stock should form part of your retirement portfolio for the long term. However, given the huge float and lacklustre demand at book-building, my view is that the debut will be muted and i don't expect much fireworks as most demand should be fulfilled. 
3F - I think it's a yes for me on this one
The only thing shareholders will have to be patience is to ride this out for a few years because the next year results won't be good and if we add that to a big bear market, we might see investors cashing out in panic mode.
Investment Moat  - Losing out on this may not be the end of the world
Certainly, it might be better to give it at least 1 or 2 quarter to see whether some of the doubts I mention can be cleared up by management or financial results.
TUB Investing - This is the first time I tried applying for placement shares
If this was a week earlier, you will hear me saying that I will not be applying for this IPO. However, this IPO seems like it will be "very hot" and I believe the share price will shoot up on its debut.
Sg Budget Babe - I will sit on the sidelines for now and wait for a better chance to buy in
NetLink has a highly appealing business model which is resilient through economic cycles and poised to ride on Singapore's Smart Nation initiative in the coming years. With a yield of 5+%, this is a good stock to hold for the long term for stable income payouts (as long as they don't cut or withhold dividends completely).
Seems like there's conflicting opinions even among Financial Bloggers. My strategy for this IPO is to ballot a small amount, maybe 10,000 shares. No matter if I'm allocated shares or not, if the price drop on the first day of trading, will probably monitor and purchase more after price stabilise further. If the price increase after the first day, will still monitor and purchase more only after price stabilise further. Either way, it is a buy for long term hold for me.

Wednesday, 14 June 2017

HRnetGroup - Balloted

Perhaps not many people have heard of HRnetGroup, but I'm sure most people heard of Recruit Express. Recruit express is one of the companies under HRnetGroup.
Largest Asia-based recruitment agency in Asia Pacific (excluding Japan), as compared to other key players within the professional recruitment and flexible staffing industry with presence in Asia Pacific, according to Frost & Sullivan
Dominance in Singapore
According to  Frost & Sullivan, we are the largest recruitment player in Singapore in terms of number of licensed consultants and revenue as well as the most profitable recruitment player in Singapore in terms of net profit before tax.  
Being the largest bring about Economies of scale. Which when used properly can result in further consolidation of its leading status. Personally, I have preference on companies with large presence in the local segment which HRnetGroup dominates.
Our flexible staffing business (32%) provides us with a relatively stable and steady revenue stream in economic downturn as compared to our professional recruitment business (66%), while the professional recruitment business generally performs well during periods of economic growth
With economic uncertainty, given the macro economic environment, having a stream of stable and steady revenue is important as it forms a baseline of support.

Pool of 2000 clients, including 104 Fortune 500 clients, meant their business is more diversified and spread out over many different segments. Their top 5 customers only contributed 14.1% of their business!

Net profit and revenue looks to be in an upward trajectory over the years since they were formed.
The prospectus showcased many charts with them leading in almost all categories against peers. I'm not going to look so much into those.

Positive net cash from operating activities.
Our rewards system is based on sharing of profits rather than payout of sales commissions. The emphasis on business unit profitability directs the energy of every team member to focus on:
  • gross profits instead of market share and/or revenue
  • cost effectiveness instead of budget spend  
  • business unit profitability as opposed to pure individual sales achievement
No fixed dividend policy but the directors intend to recommend and distribute dividends of 50% of their net profit after tax (excluding exceptional items) for FY2017 and FY2018.

There are clearly some downsides to it with the largest negative being that it is not a value stock with its premium over their net asset value. It is also harder to value a company that is dependent on their staff abilities as there are no tangible assets involved.

However, it has always been my dream to start a company that focus on providing pure services and just for this point, I've balloted for the IPO. My battle plan is to keep the stock for long term if I'm lucky enough to get the IPO. Under the high chance of not being allocated. I'll only purchase from the open market if it is less than $1.00.

All the best!




Tuesday, 11 April 2017

ParkwayLife Reit - Stability in tough market conditions


I mentioned that I have 3 REITs in my portfolio and ParkwayLife Reit (PLife) is the second to be shared over this space.
I personally like stocks that fit this profile

  • Little fluctuation in price
  • Stable earnings 
  • Pay decent dividends yearly 
On my numbers app, PLife is highlighted Golden. I rate Golden stocks as stocks that I do not mind doing Dollar Cost Averaging and will also accumulate more if the price dips.

The Healthcare sector, in my opinion, is an evergreen industry. the 4 stages of life, 生 - Birth, 老 - Aging, 病- Sickness, 死 - Death revolves around usage of heath care. As long as there's life, health care is part and parcel. With higher life expectancy to be expected, it further increase the demand for health care.

Some additional information with regards to PLife that are extracted from their annual report for FY 2016.

  • There is no immediate long-term loan refinancing needs till 2019
  • Post refinancing exercise in January 2017, life rent's weighted average debt term to maturity improved from 3.2 years to 3.6 years with no significant amount of loan due in any single year.
  • Healthy gearing at 36.3%
  • Low all in cost of debt at 1.4%

PLife core markets are in Singapore (62.4%) and Japan (37.3%), with 0.3% going to Malaysia.

For Singapore side, it consists of 3 strategically located world class local private hospitals. A growing concern that was in the limelight recently was the lease of HDB. I'm glad to say that the leases for the 3 Singapore Hospitals will not be facing this issue for at least half a century.

  • Mount Elizabeth Hospital (Balance 58 years)
  • Gleneagles Hospital (Balance 66 years)
  • Parkway East Hospital (Balance 66 years)

Quoted from the annual report:
Distinct features of our Singapore Hospital
Long-term Master Leases with Parkway Hospitals Singapore Pte Ltd
  • 15 + 15 years with effect from 23 August 2007
  • 100% Committed occupancy
Triple Net Lease Arrangements
  • PLife Reit does not bear these cost: property tax, property insurance, property operating expenses
  • Minimal exposure to escalating operating expenses
Favourable Lease Structure
  • CPI + 1% rent review formula for Singapore Hospital Properties guaranties minimum 1% growth annually (CPI deemed as zero if it is negative)
Ultimately, PLife is still a REIT and having 100% committed occupancy means that it is being leased out at full capacity.

For the Japan Side, in March 2016 PLife acquired another nursing home property, Silver Heights Hitsujigaoka (Ichibankan & Nibankan) in the Hokkaido Prefecture for JPY 1.1billion (Approx $13.6m SGD) which comes fresh on 20 year master lease.

Other than 1 Japan Property, all others are freehold in nature. PLife had done an excellent job in capital recycling with regards to their Japan nursing home. This probably is earned through their first mover advantage as well as vast experience accumulated over the years and is a competitive advantage for them that competitors will find it hard to replicate.

There are some concerns for the REIT though.

Quoted from the annual report:

Despite Singapore's healthcare facilities still being widely recognised for its high quality by its neighbours, the soaring healthcare costs in the country has led to a decline in tourist treatment receipts since 2012
As cost competitive neighbouring countries such as Malaysia invest considerable funds in upgrading their own facilities to meet increasing demand, this could potentially have a negative impact on medical tourism in Singapore in the longer run
Furthermore, there will be an increase in private hospital with the development of Raffles Hospital new wing. 
PLife is currently being traded at a premium as compared to their NAV. This is also helped with the seemingly revival of the S-REIT sector. With low cost of debt and low gearing ratio, there is headroom for further expansion. I intend to keep PLife for a long time and might do a yearly DCA to increase my position further if it shows no sign of dips.

Disclaimer: I'm currently vested in PLife Reit. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions. 




Thursday, 23 March 2017

UPP Holdings Limited - Recent announcements and what to make of them


Listed on main board of Singapore Exchange on 15 October 1980
Business activities (obtained from UPP's website)

Singapore - Investment holding and rental and management of properties.

Malaysia - Produces industrial grade papers such as Testliner, corrugating Medium, Chip Board and more from 100% recycled waste paper

Myanmar - Built and operates a 50 megawatt gas-fired electricity generating plant in Ywama, Myanmar

From the Key Metrics, UPP Holdings Limited is a company that has practically no debt, and runs a stable business. Nothing much to complain about unless you are looking for explosive growth.

What I actually intend to focus on are their recent announcements.

Announcement 1
Placement of 40,000,000 shares at $0.25 to 4 individuals

I took the liberty and googled for more information regarding them. I have to declare first that I am unsure if the below is the correct person or if they just happen to share the exact same name. I chose the person that most likely fits the bill. 

Mohamed Nazir Bin Abdul Razak - 16,000,000

Source: http://www.bloomberg.com/research/stocks/people/person.asp?personId=8367777&privcapId=877377

John Vlasto - 14,000,000
Unfortunately I could not find much information online to draw a conclusion as to the identity of Mr John Vlasto.

Hsieh Fu Hua - 8,000,000
Source: http://www.gic.com.sg/about-gic/corporate-governance?id=227

Chan Chia Lin - 2,000,000
Source: https://www.moh.gov.sg/eldershieldreview
Total - 40,000,000
The subscribers were introduced to the company by business associates of the Group as strategic investors. Each subscriber's subscription of the Subscription Shares is for investment purposes only
Each Subscriber has undertaken to the Company that he/she shall not, for a period of 6 months commencing from and including the date of issue and allotment of the Subscription Shares to him/her, directly r indirectly offer, sell, contract to sell, transfer, pledge grant any option to purchase, grant any security over, encumber or otherwise dispose of, any of the Subscription Shares.
I have to admit that I'm pretty impressed with the above names. I'm unsure if the sources are updated to reflect current day situation but nevertheless, their credentials (past or present) speak for themselves and if UPP Holdings Limited managed to entice the 4 investors to invest in them, it pretty much shows promise in their future earnings.

Announcement 2
Warrants - I brushed up my knowledge of warrants via investopedia but feel free to correct me if I made any mistakes.

Exercise price: $0.37
Last transacted price: $0.19
Warrants listed on 16 February 2017
Exercise date: 6 months from listed date
Warrants will be in the money should the share price rise above $0.37

Warrants Premium:  [(warrant price + Exercise price - current share price) / current share price]* 100
[($0.19 + $0.37 - $0.28)]/$0.28 = no premium?
Goes to show that early investors with warrants are already sitting on large gains.

Setting a high exercise price is a sign that the company is confident about the stock performance and it bodes well for long term investors.

Disclaimer: I'm currently not vested in UPP Holdings Limited. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions.

Thursday, 16 March 2017

Kimly Limited IPO - Balloted



You've probably heard of the saying IPO, instead of Initial Public Offering, stands for It's Probably Overpriced. The owners of the companies that chooses to go for IPO will only list the stock if they have the impression that they are able to gain something from listing, be it excess funds to expand the business or reduce debts, obtaining public status deeming them easier to clinch public tenders, etc. The owners are offering part of their business to public shareholders and obviously won't do it at a price that is not favourable to them. On their part, they have to access what is a reasonable premium to price it such that market participants will not be turned off by unfair valuations.

So why did I choose to ballot for this IPO?

1. Mr IPO rated it highly
The expert in this field is vested in it via way of placement and gave it a rating of 3 Chilis. I had been following him for some time, reading up on his analysis (usually just scroll down to the end and read how many chilis he's giving the IPO) of IPOs and generally, he seldom make the wrong calls. He also openly declare if he is vested in the IPOs so readers can make a fair judgement. Despite being vested, he still gave an objective view of the business nonetheless (that's what I feel).  

2. Issue price of $0.25 
Figures obtained from sgx.com
$0.25 is the price that Jumbo Group Limited, Singapore O&G Ltd as well as MM2 Asia Ltd chose to list their shares. If you held onto these 3 stocks from IPO or bought them on the first day and held until now, you would have gotten some multi baggers in your portfolio.

3. Good management team
The track record of the management speak for themselves. They manage 56 coffee shops, 3 industrial canteens and 5 food courts in tertiary institutions. On top of that, they also operate 121 food stalls including 36 mixed vegetable rice stalls as well as 43 dim sum stalls. Here's the clincher. They have no debts in their balance sheets. Expansions don't take place overnight meaning which, they grew their business bit by bit without leveraging and using the cash generated from their business. This shows they are prudent with handling cash and with the added funds from the IPO, ceteris paribus, they should be able to expand their business further prudently.

4. Mismatch of demand and supply
Cornerstone investors, Vanda and ICH have a lock in period before they can sell their shares. Public tranche is pitiful at only 3.8m shares whereas placement shares amount to 173.8m shares. Hence, people like me who balloted for the shares actually got a very low chance of getting any. The lucky few who managed to be allotted will probably not have too many shares until that they are comfortable with. Therefore, the people on the street who really want a part of this business will have to purchase it through the open market when it launch on Monday. I feel that demand for this IPO is likely to be strong given that they have presence over Singapore and it is a business that is easy to understand. Hence there is a mismatch of demand and supply.

The above 4 points are why I balloted 208k shares. 

Strategy
My strategy for this IPO is simple. 
Allocated = Keep for long term. Set "stop loss" to the opening price or the closing price, whichever is higher. 

Not allocated = Will probably not chase this stock despite high chances of contra gain  

Friday, 10 March 2017

GuocoLand - Divestment opportunity

This afternoon, a little after having had my lunch, I was doing some routine checks on my stocks only to find that Guocoland reached my buy price of $1.875. Not only that, the price kept on climbing and the sell queue was being consumed fast and furious. 1.88 1.89 1.9 1.905 ...

I switched to a neighbouring watch list which contains more property counters such as Capitaland, CDL, Wingtai, and indeed, they were all as excited as Guocoland. I went to browse Investing Note hoping for an answer but it seemed like the community was as clueless as I.

Only an industry wide change can create such an impact. I was thinking along the lines that perhaps ABSD / TDSR were reduced or even removed!

After awhile, the news finally released. I read and reread the article at least 3 times. By then, Guocoland was already hovering near their day peak of $1.95. I could not comprehend the rapid rise in prices as I couldn't extract significant positives from the policy changes. At best, I felt that it is only a slight tweak to the property cooling measures. But I thought others knew better hence I held on.

When the price continued dropping to 1.915 / 192, I decided to take action and divest. Remember that I bought the stock because it was a laggard in the previous property rally? It had since closed that gap (at least by a little) with today's surge and for now, I believe in locking in a small gain and wait for the market to calm down and fully digest the news.

Do also read this article that was also released this afternoon. It paints a grim picture for developers who still have unsold properties and could face QC charges. Essentially, it closed off an escape route that white knights can offer the developers. For Guocoland, which was considering an option that could be somewhat similar, it doesn't bode well. On the other hand, it could force the developer's hand into taking the stock private as it is still very under valued and with many catalyst for better earnings ahead.

From today's action, what I can conclude is that the property sector is indeed heavily suppressed. A small tweak sent a ripple, removal or easing of key cooling measures such as ABSD and TDSR is going to create huge waves.

Disclaimer: I'm currently not vested in GuocoLand. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions.

Monday, 27 February 2017

QAF - What's with the heavy sell down?

QAF reported earnings on 24th February (Friday) after office hours. When market opened today, QAF suffered a heavy sell down from $1.53 to a low of $1.375. before recovering slightly to close at $1.415.

Summarised Results:

Full Year Revenue declined 11%
Profit after tax gain 113%, due to exceptional item
Earnings per share excluding exceptional items: 10.9 cents vs 9.4 cents
Earnings per share including exceptional items: 21.4 cents vs 9.4 cents
NAV Group 93.8 cents versus 76.1 cents
Proposed final dividends of 4 cents per share, totalling 5 cents per share for the year. (unchanged)

Exceptional items:
"Group 'Exceptional Items' relate to the Group's sale of its 20% shareholding interest in Gardennia Bakeries (KL) Sdn Bhd ('GBKL') which was completed and announced by the Group on 6 April 2-16. The purpose of the sale of the 2-% shareholding interest was to comply with the Malaysian governmental regulatory condition imposed on GBKL's manufacturing license. Accordingly, GBKL has ceased to be a subsidiary of the Group and has become a Joint Venture of the Group."

According to Investopedia:
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. The task can be a new project or any other business activity. 
A subsidiary is a company with voting stock that is more than 50% controlled by another company, usually referred to as the parent company or the holding company. A subsidiary is partly or completely owned by the parent company, which holds a controlling interest in the subsidiary company. In cases where a parent company owns a foreign subsidiary, the subsidiary must follow the laws of the country where it is incorporated and operates, and the parent company carries the foreign subsidiary's financials on its consolidated financial statements. 
Exceptional item recognition:
"Previously, the Group has recognised an exceptional gain of $9.7 million as a result of the sale of its 20% shareholding in GBKL, as announced in the Group's financial results for the second Quarter ended 30 June 2016 on 12 August 2016. Subsequently, in compliance with Singapore Financial Reporting Standards, the Group, with assistance of external independent advisors, carried out an exercise to determine the fair values of the Group's remaining 50% stake in GBKL's identifiable assets and liabilities. 
As a result, a net exceptional gain of $59.4 million arising from the sale of 20% stake in GBKL and the remeasurement of the remaining 50% stake in GBKL has been recognised during the year" 
Analysis of Statement of Cash Flow (I may be wrong on this)
Cash flow from operating activities
Profit before Tax: $130,615,000 (Inclusive of $59.4m gain from sale of GBKL)
Gain on dilution of interest in a subsidiary company: ($59,375,000)
Essentially, Cash flow from Operating activities did not change as they cancel out each other

Cash flow from investing activities
Net cash inflow from dilution of interest in a subsidiary company (Note A): $986,000
Under Note A:
Main bulk of the cash is classified as reclassification to Joint Venture: $81,906,000
Under their Statement of financial position, non current assets, Joint Venture is recorded as $76,318,000, beefing up their assets. (I got no idea how to account for the balance $5,588,000)

Under review of the performance of the group
Other than the above mentioned deconsolidation of the financial results of GBKL, increases in sales were achieved by all business segments of the Group - Bakery, Primary Production and Trading & Logistics. 
Despite the deconsolidation of the financial results of GBKL and the resulting declassification and exclusion of GBKL's operating profits from the Group's consolidated operating profits from April 2016 onwards, the Group still achieved an increase in Profit Before Taxation of 90% to $130,8 million in FY 2016 from $68.8million in FY 2015. Excluding the one-off Exceptional Items of $59.4 million, Group PBT of $71.2 million increased by 4% and this increase is mainly attributable to the increased profitability in Rivalea. Rivalea achieved increases in profitability through higher average selling prices from a better product mix, increased sales volumes, productivity gains, increased meat processing activities and lower operating costs, in particular, lower feed costs. 
Essentially, it seemed to me that the reason for the sell down is due to investors expecting more from QAF's performance. Share prices had increased by 50% from the $1 range one year ago to $1.50 range but earnings excluding exceptional items did not reflect the share price surge hence there is a correction this morning. Based on past performance as a guide for current value, QAF should trade in the range of $1.04~1.10. But considering the exposure given to QAF by many established financial bloggers, notably ASSI, value has somewhat been realised by the investing crowd over the year. Compared to other similar companies, it had been concluded that QAF is still under valued.

Either way, I took advantage of the sell down today and took up a position in QAF.

Disclaimer: I'm currently vested in QAF. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions.