Tuesday, 6 February 2018

STI: What to do amid this sea of red?

My entire portfolio was not spared from the massacre over the past 2 days. The fall in prices came as abruptly as the sudden downpour which resulted in flash flooding in parts of Singapore. 

Even though prices of some stocks are currently languishing at fairly attractive prices, my personal stance at the moment is to do nothing. Why?
  1. Honestly, I only have bullet for one counter so I really need to choose the best option that’s available. 
  2. Furthermore, I haven’t been monitoring any specific stocks and this correction caught me completely off guard. Without proper conviction, I would rather let the opportunity pass me by and not regret making any rash move.
  3. Thirdly, is this correction truly over or could it be just the start of a larger decline? Major bank reports seem to support the stance that market need some time to rest after the strong surge over the past months or years even. 
Nevertheless, this represent an opportunity to split stocks into 3 different groups:
  1. The drop a lot - Stocks that decreased so much that it’s starting to offer value. During a recovery, such stocks are likely to provide trading opportunities or be kept as long term investment. 
  2. Resilient stocks - Stocks that can weather market conditions. These are stocks that I will keep for retirement purposes. 
  3. Anti Gravity - Stocks that defied market forces and continued to increase. Could these stocks be undervalued and considered safer than the rest which is why funds are switching over? 
Flood water also takes time for it to clear up. Hopefully, by then, there will be a clearer picture of what to do. 

Tuesday, 2 January 2018

ST Engineering - My SRS purchase for 2018

Unexpectedly, 2017 had been a rather uneventful year for me on a personal level. Certain events that I thought will take place in 2017 just didn’t materialise. Nevertheless, I'm looking forward to 2018 to see what's in store for me.

I started the year similar to how I started last year. I rebalanced my bank accounts such that accounts that are labeled under emergency cash are all rounded off nicely to the nearest thousands. I’m just OCD this way. Next, through I-Banking, I transferred $15,300 over to my SRS account in preparation for market to open this morning. 

After extensive thoughts and through an elimination process, the counter of choice for my 2018 SRS account is ST Engineering. Queued at $3.26 before market opened and got my allocation of 4,500 shares.  

1. Temasek Backed Company
Information obtained from sgx.com
Temasek is the substantial shareholder with 50.2% market share of the company.
I didn’t value this point much until the Olam Saga happened and that really opened up my eyes on the power a strong backer wield in times of crisis. 

2. No history of rights issues
As I only have little funds balance in my SRS account and I've contributed maximum amount, I won't be able to subscribe for rights issue should there be any, hence risk diluting my holdings. Therefore, this point is important for a long term consideration. 

3. Dividends track records 
Information obtained from sgx.com

Information obtained from sgx.com

Information obtained from sgx.com
ST Engineering has consistently been giving Dividends from 1998 till 2017 and I do not envision any possible circumstances that might result in them stopping of Dividends payout. At $3.26 and with dividends at $0.15, estimated Dividend Yield will be 4.6%, better than my first SRS Purchase

4. Shares Buyback
The last share buy back was reported on 15 Nov 2017, executed at a price of $3.30.
If the company felt that the company was undervalued at $3.30, it gives me confidence in purchasing shares at a slight discount to it.

5. Lastly, it is one of a few blue chips that is near its 52 weeks low which gives it room to appreciate should market conditions improve. Certain segments are performing well whereas certain segments are dragged down by weaker market sentiments.

Price on 5/1/15: $3.39
Price on 4/1/16: $2.97
Price on 3/1/17: $3.29
Price on 2/1/18: $3.27

One interesting point to note for ST Engineering is that it behaves somewhat similar to a cyclical stock. For the past 3 years, it had a rally from the start of the year until April to May before tapering off. Over the past couple of years, it rallied again come August before tapering off until end of the year. Let's see if the same trend persists for 2018. This could form the basis for my strategy in ST Engineering for the year ahead.

Friday, 8 December 2017

Comfort Delgro - The crucial next step after Uber

Things are starting to get interesting for Singapore stocks and it seems like there are 2 spectrums of blue chips at the moment. 

Spectrum 1: Stocks that are constantly breaking new 52 weeks high. Examples are the local banks, DBS, OCBC, UOB as well as property stocks, City Development, UOL, etc.

Spectrum 2: At the same time, there are a few stocks that are languishing near their 52 weeks low and i’ll list them under spectrum 2. Examples are ST Engineering, SPH and, star of the day, Comfort Delgro

Naturally being a value investor, I’m more interested in those companies in spectrum 2 because I have the intention to plough some or all of my SRS funds earmarked for 2018 in them. 

This evening, the long awaited news about UBER and Comfort Delgro joint venture is released. Visiting Investing Note just made things more complicated as there is no common consensus. There is one section who feels extremely bullish about this whereas the other section feels that this joint venture is disappointing. 

Even though the news is released after market hours, those who managed to sniff some information prior to release didn’t seem to like the idea much as Comfort Delgro share price declined 3 cents to close at $1.91. During the trading session, they went lowest at $1.90, which is their 52 weeks low at the time of writing. 

The news essentially said that Comfort Delgro will acquire a 51% stake Lion City Rental. The article brought up 12,450 vehicles, cash consideration of $295 million etc. so that’s about $47,389 per vehicle. 

Sounds like quite a steal considering that cars in Singapore cost upwards of $100,000. A couple of other positives are increase in car servicing related business as well as inspection services due to an increased number of users. So far so good? If that’s the case, why is Uber doing the deal? 

Let’s put aside the dollars and cents for now. Why not throw away the argument for car inspection and repairs too and focus just on the taxi business. 

Ultimately, the bottom line is determined by how many taxis can Comfort Delgro rent out. How many cars can Lion City Rental loan out to Uber drivers. More importantly, among their entire fleet, how many vehicles are stagnant and not bringing in income? Cars have a fixed lifespan in Singapore and are also a depreciating asset. If it remains under utilized, it will be more of a liability rather than an asset. 

One major problem that Uber and Comfort Delgro are facing now is aggressive competition behavior from Grab. By dangling huge discounts, Grab are poaching drivers over to their platform, filling their cars and leaving Comfort Delgro and Uber with stagnant vehicles. 

This joint venture between Comfort Delgro and Uber will at least provide a fair playing field now that drivers for Comfort Delgro also have access to a solid ride hailing app. However, the root of the problem, which is the huge discount offered by Grab to poach drivers, still exists. 

If the poaching is allowed to continue, it will leave Comfort Delgro with an even larger under utilized fleet and that’s going to eat into their bottom line. Then again, if Comfort Delgro and Uber matches what Grab is offering to their drivers in order to keep their existing drivers, they will lower their profit margins which does not look good on their bottom lines as well. If Comfort Delgro and Uber be even more aggressive and offer better deals than Grab to entice their drivers over.. you get the idea right? 

Now that the news of the joint venture is established, the retaliation strategies that Comfort Delgro and Uber adopts against their competitors now are key to their long term profitability. 

The once stable business has been interrupted by technological advances that the largest incumbent now loses their first mover advantage. As such, I’ll prefer being a spectator and watch the episode unfold from the sidelines. 

Wednesday, 8 November 2017

Supplementary Retirement Scheme (SRS): My Portfolio Construct Thoughts

As we head into the last quarter of the year, articles regarding Supplementary Retirement Scheme (SRS) are being published through traditional media outlets to educate members of the public what the scheme does or to remind existing holders that it's time to top up the account to qualify for tax relief in 2017.

This helpful article by Lorna Tan, Investment Editor from Straits Times should provide you with the necessary insights of the benefit provided by SRS, mainly:
  1. Every dollar deposited into your SRS account reduces your taxable income by a dollar. 
Who will likely benefit from utilising the SRS account?
  1. Essentially, if you are required to pay tax this year and you do not foresee much difference to your income earned for the next year, opening up an SRS account will help to offset your tax expenditure, saving you potentially hundreds of dollars. 
  2. As this is meant for retirement purposes, I do recommend only using disposable income for SRS as it is only non taxable before withdrawal. The mechanics of withdrawals are listed in the article as well. 
Utilising the SRS for tax relief is step 1. Putting the funds inside your SRS account to work harder tso as to generate healthy returns is step 2.

I opened my SRS account in January this year. Bad move. Due to the difference of a few days, I missed out on the opening account specials as well as the tax reliefs for last year's tax. I've made this mistake and I hope you do not procrastinate as much as I did.
I treat CPF as enforced savings and SRS to me is an invitation to invest. 
I focused on 2 aspects when deciding where to channel the funds in my SRS account to. 

  1. Capital preservation 
  2. Income generation 
There are various instruments that are applicable for SRS but I'm going to stick to what I'm more familiar with: Stocks. I have every intention to keep the money untouched all the way till retirement age, hence I'm taking a risk averse approach for this account. And to counter against inflation, I'll be focusing only on stocks that have a track record of paying dividends even during market downturns. 

Importantly, do note that there is a current maximum cap of $15,300 that you can put into the SRS in a calendar year. Hence, if you were to invest in a stock that frequently have rights issues, it is likely that you will not be able to participate in the rights issue and will have to bear with dilution of your shares. For me, I'll choose stocks that do not have the track record of issuing rights issue.

Earlier this year in January, I put in the maximum of $15,300 and used it to purchased 5,000 shares of STI ETF at $3.02.

  • Index ETF does not have rights issue
  • STI ETF has less risk as it is spread over 30 of the strongest stocks that forms the index. Stocks with weak performances are removed from the index and replaced with better stocks periodically during reviews, thereby ensuring the quality of the constituents. 
  • Dividends received this year: $0.101 per share (roughly 3.3% on cost)

My original intention was to treat the SRS as a form of dollar cost averaging and simply buy as many units of STI ETF on a yearly basis. The decision was easy considering that it was made when STI ETF traded at $3.02. When it’s at $3.45 (today's closing price), its a much harder call to make. 

I have the intention of turning my SRS portfolio into an ETF portfolio. Am considering another couple of ETFs at the moment and only time will tell which one will I sink next year's allocation in!

As I can only top up my SRS earliest in January, this leaves me with some time to dod more research and make up my mind. Will update my decision when I eventually make my move.

Do you have any plans to invest your SRS funds? Will appreciate any contributions and perhaps help me make a more informed decision!  

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.