Thursday, 1 November 2018

First Ship Lease Trust (FSL) - Q3 Earnings

FSL has released its Q3 results. All in all, the trust has survived the threats from banks. However from its recent Q3 results, it seems there has been some damage to the company.

Higher Financing Cost

Reading its latest Q3 reports, it seems the new bank loans have a higher margin than the old loans interest of (2.8%+ LIBOR). The new loan arraignments have a weighted average of (4.012% + LIBOR). This means as of now the loan's interest rates are about 6.55%. This is quite high and will definitely affect my previous valuation of FSL.

Coupled with the refinanced 7% convertible loan, it is undeniable financing cost has risen. In my view with the Fed still likely to raise interest, I may have to assume that FSL will have to pay about 7.5-8% for its loan refinancing. After all most of its loans are floating rates.

Also based on its cashflow, it seems FSL is paying down on only the interest as opposed to the previous loan pay down which was amortized.


On the cash flow front, TORM's revenue loss affected as usual. The company is likely to be only able to churn US$37 million in cashflow until 2020. Thereafter, this amount is likely to drop to US $20 million with the loss of the lucrative US$ 20 million evergreen charter.


Using a simple cash flow projection, my previous estimate of being able to pay down its loan by 2022 has been pushed back to 2024. This is because of the higher interest cost as well as the fact it has changed from an amortizing loan to that of interest only. This will definitely strain FSL's valuation despite making it easier to run on a cashflow basis.

There may be a chance of dividend resumption though because FSL's cashflow is now on a much better standing.

Based on the cashflow projection, scrap value of US$40 million and 8% discount rate, FSL's fair value is now 10.1 SG cents. There is still an upside from its recent price of 7.3 SG cents


Sunday, 7 October 2018

Raffles Medical Group

Raffles Medical (SGX:BSL), is perhaps one of the most well known and largest private medical companies in Singapore. Its brand is synonymous with Raffles Hospital situated in Bugis as well as the Raffles Clinics. In the medical line, reputation of the hospital is vital and acts as a natural moat. Raffles Medical has does such by establishing its brand name in the private medical market.

It currently operates its medical business primarily in 2 countries - Singapore and China. As part of its expansion in Singapore, RM recently opened a new center in Holland Village in 2016 and a new wing for specialist center at its Bugis Hospital. It too has business in other SEA countries


Based on full year results, Raffles has a reported earnings per share of 4 cents and a dividend of 2.25 cents. From a current price of $1.13 (as of 5 Oct 2018), it points to a 28x PE and a fairly low dividend yield of 2%.

However, it is worth noting Raffles Medical is very very conservative. Its dividends is sustainable with the company capping it at below 75% of its payout ratios, unlike Singapore Telecos who pays higher than 75%.
Figure 1: Raffles Medical Past 5 year results (Source: Annual Report)

From a cash flow analysis, Raffles Medical has always been paying its dividends out of free cash flow generated by its businesses.

Future growth - Singapore

Raffles Medical has completed refurbishing its flagship hospital in Singapore with a specialist center. This will increase the Bugis Hospital capacity. With MOH making it more expensive for foreigners to be referred to public hospitals and given Raffles Hospital Branding, the increase in its hospital capacity should be filled.

Secondly, Raffles Medical too has been granted the license to be an integrated Healthshield provider in Singapore. RM can definitely reap synergy between its insurance business and brick and mortar health business.

Future Growth- China

Raffles Medical has imported its reputable brand name from Singapore to China as well and has been gaining traction. It currently operates various medical centers in China cities. Raffles Medical will have two new Raffles hospitals in 2 Chinese cities in late 2018 and 2019.

All in all, one can reasonably expect Raffles Medical to experience earnings growth from this year until 2020. It seems a decent stock to own that will provide a sustainable dividend under its current management. Personally, I expect its earnings to grow by 20% by 2020 and this may also mean future dividends of 2.75-3 cents per share. And can be sustained perpetually until its reputation is adversely affected

Based on the above growth prospects, I expect an additional 25% growth in earnings in 2020. This probably means RM is priced at 20x its future earnings growth; just about right at current price.


Its reassuring to learn that its Executive Chairman (Dr. Loo Choon Yong) who runs its business is a doctor by training. IWith the key management being professionals in the same field, it is likely to know the running of the ground.

Its management has also been very conservative in building up the business. RM has constantly kept its leverage ratio low, currently at 10%; and pays its dividends in a sustainable manner. I feel this makes the company a good choice as a dividend stock; even better than telecos who are highly leveraged, paying a high payout ratio and beyond their free cash flow.

The only thing dividend investors have to stomach its low dividend yield and conservative management. This comes from the careful and conservative nature of doctors...