Saturday, 23 May 2020

What I'm doing now that the STI has fallen to lows of 2,500

The Singapore stock market went below 2,500 - the second time it has hit such lows in a month. During this recession, the lowest the STI has went is 2,200 and we have not experienced the upward rally of the STI that was of the same magnitude as the S&P and Nasdaq (a 30% rally).

On Friday, the Singapore market lows was due to Hong Kong's protest against the Chinese government proposed new security laws. Given the STI lows, I have started to monitor some stocks.

SATS

When air travel resumes, SATS should recover because its business is mainly in the management of airport terminals and flight catering. The company has huge cash pile given that it did two rounds of bonds raising recently. This should ensure the survival of SATS in this crisis.

SATS has demonstrated that it is capable of generating about 15 cents per share of free cash annually. Will be monitoring it as a future holding for when air travel resumes.

China Everbright Water

A Chinese water company. It has a large water treatment capacity in China and is still actively constructing water plants. This is why it is still cash flow negative. Should the water plants start construction, there is a possibility of  positive cash flow. While I have some holdings, I am interested to add more.

As of now, I am monitoring and just waiting to add more to my stock holdings as the pandemic unfolds. Its the simple saying of "staying calm".

Sunday, 10 May 2020

Portfoilo Update: Addition of more Companies

Given the recent market weakness, I have added three new companies company to my stocks with the proceeds of FSL Divestment

I have added KSH Holdings, China Everbright and Suntec Reit.

The addition of KSH was due to my viewpoint that as part of the government strategy to prime pump the economy, the public sector would add construction infrastructural projects to offset the downturn. KSH is a A1 graded contractor which allows it to undertake any public project of any value. The company also has an A2 civil engineering grading which allows it to bid for civil engineer projects for up to $85million. Construction forms a major revenue component for KSH and even among its projects, most of it belongs to the Public Sector.

In addition, KSH has a property development arm which has a few projects that are pre sold. For example, its Riverfront Residence project is 80% sold. However due to accounting standards, KSH is not able to pre book the revenue/profits and will recognise such revenue/profits in the next few years.

China Everbright was purchased at 0.205 because of the resiliency of its water projects across China. However, I did not add as aggressively as KSH due to my worries of its negative cashflow business.

Suntec REIT was a purchase as I feel the dividends is worth at  current low price of 1.30ish  I forsee further dividend cuts until the REIT yields about 5-6 cents annual dividends. However, in 1-2 years time, should the Covid situation improve, we should see a return to profitability for its exhibition hall segment and a return of 9-10 cents dividends.

As of now, my portfolio looks a bit more diversified across various industries. It is unlikely I will add more stocks for now. This is to ensure a sufficient war chest should another downturn persist.

Thursday, 7 May 2020

Asian Pay Television Trust

Recently Asian Pay Television Trust (APTT) announced an issue to raise cash at a ratio of 1 new share for every 4 shares owned.

The aim is to pay off an offshore debts which is charging at a high interest rate.

Dividend Cut

In addition, APTT announced its quarterly dividends will be cut from 0.3 cents to 0.25 cents. In my view this is because APTT wishes to maintain the amount it is distributing as cash for dividends. Hence increasing the share base by 25% and reducing dividends by 17% will maintain the current annual cash outflow.

This brings to the next question. Is the current outflow of cash as dividends sustainable?

Sustainable Cashflow?

Based on APTT 2019's financial cashflow, APTT's dividend of 0.3 cents is indeed sustainable. However, there was little cash remining(nett of income tax and dividends)for APTT to repay debts. That to me signals APTT might have trouble reducing its debts. As of now, APTT debts stands at s$ 1.6 billion.

There is an announcement made that APTT is reducing its capex cash outlay over the next few years. Given that APTT's cash outflow in CAPEX was only s$91 million in 2019, even if there is a reduction of 50% in capex, translating to APTT having excess cash of s$45 million to repay debts annually. It will take 35 years to repay its debts.

Hence I believe it is unlikely APTT will repay all debts but instead roll over some.

Leverage Ratio of APTT

The current gearing of APTT is about 53.1%. It is way higher than a lot of REITs which keep to a 40% leverage ratio. 

Taking a simplistic approach of pro rating dividend yield to leverage ratio, the current yield of APTT is 7.8%. Assuming the trust is to function at 40% leverage ratio, we can guess that APTT is similar to a REIT yielding 5.85%. While other smaller REITs are now yielding between 6.5-8.0% based on last year's dividends, it is highly likely their this year distribution will be reduced by 20-30%; pro rating this, their expected dividend yield is 5 to 5.6%. 

This means APTT might have some upside but just slightly more only.

At a leverage ratio of 53% and dividend yield of 7.8%, there might be a slight upside of APTT as compared to its current price of 12.7 cents. Hopefully the trust can continue working towards reducing its debts further. Personally, I might take interest in APTT if it is successful in reducing its debts further to 45%. This means needing to clear about s$300 million more in debts.

Sunday, 3 May 2020

Jardine Cycle & Carriage - An Indonesian Conglomerate (well mainly)

Mention Jardine Cycle & Carriage (Jardine C&C) and the first thing that probably comes to mind is the Mercedes Car it distributes in Singapore. Well, one is indeed right, Jardine C&C is an automobile distributor for Mercedes; however, it does more than that - it distributes other brands such as Kia, Mitsubishi and etc. 

On top of it, it is a distributor for cars in Malaysia and Myanmar. It owns distributorship stakes in Indonesia and Vietnam

A Conglomerate in Indonesia

Besides car distribution, Jardine C&C is big and diverse in Indonesia. It owns a majority stake in Astra International which does financial service, mining, agriculture etc in Indonesia.

The market capitalisation of Astra is currently SGD$14.7 billion. And Jardine C&C 50.1% of stake is valued at $7.35 billion. Astra is trading at only 7.31 times P/E and a dividend yield of 5%; its quite cheap at the moment and I believe if Indonesia recovers from its Covid Lockdown, Astra will recover. 

The current market cap of Jardine C&C is $7.95 billion, this leaves $0.6 billion of Jardine uncounted for. So what other businesses do Jardine C&C have?

Exposure in Vietnam, Thailand and Myanmar

Jardine C&C owns stakes in Siam City Cement (25.5%), in Vietnam, it owns Vinamilk (10.6%), Refrigeration Electrical (29.0%) and Thruong Hai Auto (26.6%). 

As it can be seen, Jardine C&C has quite a diversified exposure in Vietnam and considering Vietnam is industrialising, has a growing economy which has dealt with Covid 19 well and reopened, a large domestic market which insulates it from the closure of international borders now. I am quite optimistic that Jardine C&C stake in Vietnam will grow. 

Jardine C&C stake on Vinamilk alone is $1 billion. So for us shareholders, we are essentially getting the rest of Jardine C&C Vietnam and Thailand Business for free ( as well as their Singapore and Malaysia Mercedes Benz Distributor rights)

Valuation of Jardine C&C

Using the sum of parts method at the Jardine's current share price, investors are only paying for Jardine's stake in Astra and Vinamilk. The rest of Jardine's business is free; as reflected in the market price on the various stock exchanges. * Jardine's stake in Siam City Cement is SGD$4.5 billion and its Refrigeration Electrical stake is $0.16 billion.

To me, this looks like a potential upside of 50% in Jardine's C&C value on the Singapore stock market.

Jardine has a trailing dividend yield of 6.1%, which I think will likely fall. The company declares dividend in accordance with its net profits. For a large conglomerate with exposure to Indonesia and Vietnam, its dividends and market value of its stakes in associate companies is very cheap in my view. 

I am personally optimistic of Jardine's companies and am invested in them. It is important to see how Astra performs financially because that is where Jardine's largest exposure is.

<Vested in Jardine C&C>

Friday, 1 May 2020

Plans for May and Portfoilo Update

Cancellation of My American Express Krisflyer Card
For the mile chasers out there, many of you are aware Grabpay topup is no longer considered for miles accumulation on AMEX Krisflyer Card. Owing to the card's hefty annual fees that are due soon and the lack of efficient mile accumulation, I will be cancelling my card come mid-May. Readers who have signed up for the AMEX krisflyer card in October last year can consider cancelling the card because it is now beyond the 6 months period - it’s always best to cancel the card before annual fee is charged on your credit card, which is about 11 months into your card membership. Terms and Conditons for sign up mile accumulation has also changed since then
Portfolio Updates
Now that the Covid Outbreak has stabilized, I am on the look out companies which has a strong cashflow earning and at low valuation. One company that fits the criteria is Silverlake Axis. This is a company which I have covered in past articles, so there is nothing much I can write about it. My analysis on Silverlake Axis can be found here and here. To me most of silverlake revenue is now on a recurrent basis which means it is stable and not adversely affected by the Covid Issue. I expect Silverlake will be conservative this year and will only be giving out a dividends of 1.2 cents. At 5% dividends and payout ratio of about 60%, the current price of 24 cents seems like a good deal to me.
Besides Silverlake, I have also purchased shares in Jardine Cycle and Carriage. This is due to my thoughts that countries with a large domestic market will be a better investment opportunity. I am expecting a prolonged closure of international borders. Jardine C&C is conglomerate who has stakes in multiple companies in Indonesia (Listed and Unlisted), stake in Vinamilk, Refrigeration Electrical Engineering Corporation & Truong Hai Auto (Vietnam) and Siam Construction (Thailand). Hopefully these countries, especially Indonesia, will rebound. I personally believe these countries with a large domestic market on its own and a growing middle class is good and Jardine C&C is in a position to benefit.
That’s all for now. Given the rising stock market, I doubt I will be adding more exposure.

Sunday, 26 April 2020

APAC Realty: Better known as ERA

Say APAC realty and many people will not know what the company does; however if I were to say ERA, then everyone knows it is a property agency company.

To avoid further confusion, APAC realty is in fact ERA realty.

Business Profile of APAC Realty

APAC realty is one of the big 3 property agency in property crazy Singapore; the other being Propnex and OrangeTee. APAC has thelargest network of property agents in Singapore and are planning to expand in Vietnam, Indonesia and Malaysia

How APAC makes money is that it collects the commission for the property transactions, gives a cut to the property agent who did the transaction and uses the rest to finance its cost. Its a straightforward business.

APAC Realty revenue is greatly dependent on how many property transactions its agents make in a year. The more transaction, the greater the profits. And in a property crazy country like Singapore which has a lax immigration policy that encourages property demand and a "Chines culture" where property is a favoured way to store wealth, the property agency business will thrive (this statement may change should the government changes its immigration/housing policy stance).

Why It is Interesting

The industry is not capital intensive because it just needs property agents to do more deals to grow. Furthermore, its property agents are incentivised to do more deals because they themselves earn more commission (and in turn for APAC Realty). This is similar to many sales job like insurance agents, an industry that makes an insane amount of commission from consumers.

Throughout its year of listing, APAC realty has never encountered a year of negative free cash flow. And even during the GFC 2008, the company was profitable. This is because property transactions have to be made. What is more interesting is that despite HDB having their own e service transaction portals, a lot of property owners are still engaging agents to help them transact, instead of doing on their own and saving the 2% commission of their property value (2% of a 1 million property is $20,000 fyi).

All these shows how APAC and to an extent Propnex, another listed property agency company, are cash flow accreditive company. To me, it seems they will make a good dividend machine due to easy to scale up models with minimal CAPEX cash outflow.

Why APAC Realty over Propnex?

To me, its the relative valuation. This is the current valuation of APAC realty and Propnex as of now.

APAC realty P/E: 8.02
Propnex P/E: 8.80

Both are 5% dividend yielders at current prices and are paying well below their free cashflow. However do note their dividends fluctuate according to their market performances. When they make lesser property commissions on that year, APAC Realty reduces its dividends; this is in line with its 50% dividend payout ratio.

That said I am definitely interested in investing in a property agency company. The question is when, given that I am expecting a slowdown in property transactions. I am optimistic that the Singapore property market will improve in the medium term because it has to happen. Singapore's economy is built on the property market and a downturn in property market is a significant credit risk to our economy and thus the government will find ways to avoid it.

Given that APAC realty is still heavily concentrated in Singapore's property market despite its recent expansion, it will be a good proxy to the health of Singapore property market.

Friday, 3 April 2020

Two Companies Doing Share Buybacks During the Covid Crisis

The Covid 19 Crisis has caused valuation of companies to plummet. For companies, it is an opportunity to back their own shares at low valuation to increase shareholders value.

However one downside of a share buyback is that it depletes your cash reserves, cash reserves act as buffer to protect you during a downturn. During this crisis, we have seen airlines and cruise operators suspend buybacks and dividends in order to preserve cash to survive. Many corporations such as HSBC and DBS has not done share buy backs consistently despite the low prices, in order to conserve their cash. 

To me, the fact that these 2 companies have been buying back shares daily shows they have excess cash reserve to protect their operations and at the same time, is using this opportunity to increase shareholder value.

The 2 Companies

Both are listed on the SGX- Silverlake Axis and China Sunsine Chemical

I have covered Silverlake Axis quite extensively, you can find it here. Basically, it is a software company which provides its core banking software to run its operations. As far as I know, it is providing services to OCBC, UOB, Malaysia Banks and some of Thailand Banks. Its competitor is Infosys; DBS is using Infosys's core banking software. Silverlake's Cash flow generation ability is exceptional

The other is China Sunsine who is the largest supplier to rubber tyre makers globally. As far as I can recall, about 50% of tyre makers raw materials come from China Sunsine. Again China Sunsine's Cash flow generation ability is exceptional.

Share Buyback

A picture says a thousand words just look at how frequent their share buybacks are!

     
 Silverlake Axis- Share buyback Since 10 March 2020

     China Sunsine- Share buyback Since 9 March 2020

Currently both companies have dividend yields above 5%. To me, I feel there is a margin of safety in investing in them now

<Author is Invested in Silverlake Axis>