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>

Saturday, 28 March 2020

My View On What Causes Market Crashes

Many Stock Market indexes have now rebounded approximately 20% from their lows. Now market spectators are divided- some say this is a technical rebound and the bottom has not arrived; while another group says the Monday close was the bottom and we are out of the woods.

I will weigh in my thoughts on market bottoms, based on what I observed of the GFC 2008-2009

GFC 2008-2009 Bottom - 2 Bankruptcies in 2 Industries

There were two events that triggered US markets to crash each time. I will be basing on the Dow Jones Index Performance as a reference.

The first was the collapse of Lehman in late Sept 2008. This resulted in the Dow crashing from its 11,000 point level. The crash happened for a period of market days and the Dow only stated to range bound when TARP was officially implemented in Oct 2008. The Dow remained at the 7000-8000 levels for the rest of the year after this. However, this did not spell the end of the market crash.

The second event was the collapse of the US automakers where a bailout was announced in Dec 2008 and was finally implemented in March 2008. Again the Dow crashed over a 2 months period and only stopped its decline when the US government officially took control of GM and Chrysler in March 2008. The second event caused the Dow to fall from the 8700 levels to the 6500 mark.

From these 2 events, my view is that it takes the entire implementation of a policy before markets will regain normalcy. And if there is a bankruptcy in another industry, markets will collapse and only stabilise when the subject industry stabilises.

Back to 2020

By now, we know the collapse of airlines have been starved off with countries providing credit lines to their airlines. For our markets to resume normalcy, the proposed legislations have to be implemented. As of now, US has signed its legislation but has not put it into place yet. 

Hence one may expect things to be volatile for the next few months until the official implementation. After that, the next order of thinking is if there are any more industries that are poised for bankruptcy. 

Saturday, 14 March 2020

What Low Oil Price Environment Means to Investing?

It has been one week since the Saudi and Russia disagreed in their production cuts. The week long price movement in WTI Crude and Brent gives an indication of where prices will be in the year or so.

To me, it seems WTI will trade in the band of US$30-40, while Brent will trade in the band of US$35-$45. It is at this junction one will wonder how they can position themselves in their oil investments

Four Main Ways to Extract Oil

There are 4 ways to extract way: I) Onshore (land) drilling, ii) Extracting Oil from shallow Water wells (less than 150 metres), iii) Deep water oil wells and iv) Shale Oil.

Each method has their own breakeven cost. Onshore land drilling is the cheapest where the Saudis are extracting oil at a single digit per barrel, the Russians are extracting oil in the USD$10-$20 range. This means at current levels, it is still cashflow positive for many onshore drillers to extract oil. Do note, I am looking at the cost of extracting oil, there are other cost items to look out for such as corporate overheads etc which is why there are news that says "Russia need $40 oil per barrel to break even/balance their budget" etc.

For me I am looking at purely the cost of extracting oil which will affect the immediate businesses supplying to the 4 different oil extraction Segments. Their is another cost analysis people look at which is the total breakeven cost, this affects their decision to intiate a new oil well or otherwise. For shallow water, deep water and shale, such breakeven cost tend to be US$50-US$70 per barrel. This means it is unlikely we will see new oil projects coming in.

How much it cost for Shallow Water Drillers and others?

Moving on, the cost of extracting shallow oil is unknown to many of us; fortunately, there is one listed Shallow Water Oil Producer company here- Krisenergy. Based on their corporate presentations, the cost of extracting oil ("Lifting cost:) in South East Asia shallow waters is US$20-25; it means shallow water oil operations is still cash flow profitable under current circumstances.

Deep Water drilling cost is about US$25-40, while Shale is US$25-60, the US Permian basin has one of the cheapest extraction for shale oil but its the only one, the rest are in the range of US$30-50s.

Seen in this light, at current oil prices, it is definite shale oil is not profitable to extract and companies will not be adding new shale oil wells (Shale oil companies need about US$50-60 to justify drilling new shale wells). My view is that Shale Oil will fail in the next 2 years.

How it Affects SGX Companies

There are only a handful of companies that has exposure to shale such as CSE Global. At current low oil prices, CSE is going to see a fall in revenue especially when the US segment is one of its largest revenue.

The other SGX companies tend to service the shallow oil producers. Examples are Nam Cheong, Penguin Holdings, Marco Polo Marine, MTQ (MTQ services companies across the 4 extraction segments). While shallow water oil producers extract oil at a much lower cost, the lower oil prices will affect their revenue and they will try to ask for lower quotations from the mentioned companies for the services they provide.

Sembcorp Marine and Keppel Corp services the deep water and shallow oil segment where the profitable contracts tend to be deep water oil rigs. It is likely with such low oil prices, Sembcorp Marine and Keppel will see very little new orders. They will have to rely on refurbishing ships to sustain their yard operations.

However as we progress through this oil crisis, it is likely shallow oil producers will emerge from the woods first. This is due to their lower cost base

My rough gauge is that Shallow Oil needs US$50-US$55 per barrel to breakeven from all costs they have.  

How Long will the Oil Price War Continue?

In my opinion, this can go on for a long time. Saudi Arabia and Russia carry very little debts. So if they continue to sell oil at below their budget breakeven, they can resort to taking on more debts at cheap rates. They have to be thankful for the QE by the 3 main reserve banks (US Fed, ECB, Bank of Japan).

Shale oil producers will not last long because they are already in a state where they have taken a lot of debt and are struggling to repay their debts even at these low interest rates. Russia and Saudi Arabia can move to the phase of taking more debts and with their low oil extraction rates, they can easily service the low interest on their newly issued debts.

In 2021 and 2022, we will likely see shale oil being almost wiped out and at that junction, I believe Oil will then move on to $40-50 range. I do not think Oil will go back to above US$70 for a long time because this makes it profitable to drill new shale oil wells. 

Tuesday, 10 March 2020

FTS International (NYSE; FTSI)- Hydralic Fracking Solution Company with No Turnaround soon

This is my first foray into evaluating a company outside of Singapore. This company was brought to my attention in a forum and because the format it reports its financials are similar to how Singapore companies report here; likely because its institutional shareholders are Singaporean linked companies, I was able to analyse the company easily.

Background of FTS International (FTSI)

FTSI is in the USA Fracking Industry. Its main business is the leasing of fracking units to oil exploration and production companies in the US Shale Oil industry (also known as Fracking). Their model is similar to rig companies who own the rigs and leases these rigs to oil exploration companies who are extracting oil in the sea.


FTSI financials can be found in this link, under "Current report filing" dated 12 Feb 2020. The group has only two full years of financial results because it IPO'd in 2018 to raise funds for its operations.

Will it be Able to Repay its Debts?

As of writing, the company is trading at a range of US$0.40-US$0.50 per share. It made a loss of US$72.6 million or US$0.67 loss per share in 2019. It is now selling at a book value of 1.45 times. Quite an expensive valuation in my view.


What is interesting is its debt profile and cashflow generation ability. FTSI has two tranches of debt:

(A) Term Loan Due in April 2021 of US $90 million
(B) Senior Notes (Bonds) due in May 2022 of $369.9 million

Its cash profile is as follows:

(A) Cash Reserves of US$223 million, of which it needs only about US$100+ million to run its business (a Q&A asked during the presentation of financial results by FTSI management), indicating an excess of US$100million in excess cash.

Weakening Fundamentals of US Shale Oil 

One of the biggest news that happened this week was the disagreement between Saudi Arabia and Russia in maintaining oil prices. This resulted in oil prices falling to the US$30 per barrel range which was last seen in 2015-2016.


For the past 2 years, FTSI had been operating in an oil environment where WTI price was in the US$50-70 range. If one observes the free cash flow generated by FTSI in those 2 years, one can notice a pattern: In 2019 when WTI was at a US$50-60 range, FTSI produced $26 million from the leasing of its fracking units. In 2018, when WTI was in the range of US$60-70, FTSI produced about US$280 million in free cashflow. See Page 6 of the financial report in the Link

If WTI is to stay in its range of US$30+ to US$50 range over the next 2 years, we can perhaps say that FTSI will be producing very little free cash flow for its business. Furthermore, the current low prices means US frackers will definitely reduce their drilling activities in the USA. Furthermore, some fracking oil E&P US companies are poised for bankruptcy under current oil conditions. All these point to a fall in demand for FTSI fracking units.

As mentioned, FTSI is definitely able to repay its 2021 term loan due to its cash pile, however I doubt FTSI will be able to redeem fully its 2022 bonds, especially when capital markets are now less welcoming to the energy sector. In the market, FTSI bonds are currently selling below the 70 cents range which indicates distressed levels.

Furthermore, with US fracking industry poised to decline, there is going to be an oversupply of fracking units in the market.

Expected Value of FTSI

The weakening of US shale raises the question if FTSI will be able to roll over its debts in 2022. Until WTI moves to above US$50, it is prudent to value FTSI at a book value of between 0.25 to 0.50 times its book value, to indicate some form of distress. This points to a US$10-US$20 million market cap or US$0.10-US$0.20 range


Saturday, 7 March 2020

Sembcorp Marine- No end in Sight and Possible Privatisation Target?

Just when we thought the oil and gas downturn is over, it seems the night just got darker. Sembcorp Marine, one of the bellwether company, posted a higher year on year losses. Loss per share was at 6.5 cents per share. Sembcorp marine's financial results can be found here.

Here are two insights into the company:

1) Construction of Rigs and other offshore vessels is still weak

This is the main business of Sembcorp Marine and is found in Pg 21 and 22 of the financial report. As observed, revenue in this segment has fallen along with a wider loss. That said, revenue recognition for such business is lumpy and it could be that in 2018, SembCorp Marine recognised a larger portion of its projects. Hence we turn our attention to Sembcorp Marine's order book. It is seen that the company has not replenished its orderbook and it has fallen from 3.1Billion to 2.4 Billion as of end 2019. It means Sembcorp is not getting enough orders to replace the older projects it is completing or completed

A lack of orderbook mean significantly lesser revenue will be recognised in the near term. With fixed overheads to cover, it is likely Sembcorp Marine is going to post another financial loss for FY2020.

2) Weak Cashflow

This can be seen in Pg 11 of the report. Operating cash flow before working capital changes was a positive $103 million. Sembcorp is paying $108 million for interest on its loan and receiving about $68 million from dividends and finance sources. Furthermore with the need to pay about $300 million to maintain its plant and equipment, the conclusion is that the current business is in a net cash outflow situation. With $380 million in cash reserves left, its going to be tough on Sembcorp Marine

Possible Privatisation Play

Given the large fall in share price and weak fundamentals, my opinion and possibly the market's as well is that there may be plans to consolidate Keppel Marine and SembCorp Marine into one entity to reap cost savings.

Sembcorp Marine is struggling on its own and with our sovereign wealth funds not coming in to act as a back stopper; if no merger is going to happen, it is likely Sembcorp Marine will sink.

Hence how much will Sembcorp Marine be privatised at?

To me, a price book of about 0.7 times is the likely number (this means 70 cents). This is because business condition in the oil and gas is still deteriorating and we are right now in a monetary easing scenario with QE and close to negative interest rates, yet Sembcorp Marine is struggling!

Hence the acquirer is likely to only buy where there is a significant discount to its current book value of $1.03 per share which is set to decline again this financial year. 

Saturday, 29 February 2020

Will Starhub maintain its 9 cents Dividend Policy?

Starhub has released is latest financial reports and investors are probably keen to know if starhub's fortune has turned and is its 9 cents dividends sustainable.

ARPU has Stopped Declining

Let's focus on the positives: the first is that ARPU for Starhub's mobile subscribers has stopped. In Dec 18, average revenue per post paid user (ARPU) was $41, it declined to $39 in Sep 19 and then moved to $40 in Dec 19. Based on the other previous quarter results, the decline in ARPU has probably stopped. This is a positive since mobile revenue is the largest contributor to Starhub's business. Its mobile revenue has experienced a slight decline by about 2%

The second positive is the growth in the enterprise business largely due to its recent acquisitions as it can be seen revenue has grown by 10 million, which offsets the negative I am seeing in a certain revenue segment of Starhub's - its PayTV business.

Shrinking PayTV Business

Netflix and Disney streaming services are probably chipping away consumers who used to purchase Starhub's pay TV bundle for their usual entertainment. The decline is still moving in the double digits with recent PayTV revenue falling by 14 million.

Stable Revenue for Now

Thanks to Starhub's recent acquisition strategy, I do expect revenue for FY2020 to be similar to that of FY2019. Given that Starhub's business model allows its revenue to flow down to its cashflow generation easily, a stable revenue also signifies that cashflow generated in Starhub's business should be about the same as this year's. This year the company generated about 621 million before netting off finance and income tax expense, I think this will be the same as the next few years as well.

So let's estimate the potential cashflow generation ability of Starhub.

In its cashflow statement, it seems Starhub has cash outflows of s$230 Million in PPE. This number is rather low from my past data of its PPE spent which ranges about s$290-300 million. It is likely due to the new line in lease liabilites which is recorded as s$60 million cash outflow. The new lease liabilities is a result of accounting method changes in Singapore.

With other cash outflows of s$70 Million in income taxes, s$37.7 million of interest expense and s$7.9 million in perpetuals payment. Starhub is likely to be left with s$215.4 million to give out as dividends. Concidentally, this cashflow genreation projection amount is similar to what I have written in my 2018's coverage of Starhub.

Starhub has bonds due in 2022 and my personal feel is that the company  definitely has to reduce the bond amount because the interest rate environment will not be low forever. With 2-3 years left, it is prudent for it to set aside 100 million tover a 3 year time frame.

This leaves Starhub with about s$180 million for dividends. With its share base of 1.7 billion shares, it seems Starhub can give out a dividend of 10 cents per share. Hence I won't be surprised if the management provides the same dividend guidance policy of "80% of earnings or 2.25 cents per quarter."

Its cashflow generated from its business should be sufficient to support it, even if there is an increase in annual CAPEX in implementing the new 5G network which it is bidding with M1.

Good Dividends but at What Rate?

Considering that Starhub perps are now yielding 3.95% with a potential increase to 4.95% if it is not redeemed within a timeframe, one can reasonably peg Starhub as a 5% dividend yielding machine.

If you are considering Starhub at its current price of $1.50, my feel this is just about right and one can consider it as part of your dividend portfolio.

Monday, 20 January 2020

Ways to use Your Grabpay Credits

Now that Grab has banned people from using Grab credits to top up into Multi-Currency Prepaid Cards, people are now looking for other ways to utilise their Grabpay credits; this is especially so for those who still plan to utilise the UOB x Grab rebate or were caught out with the sudden ban by Grab and are stuck with large amount of credits. Below are some ways utilising your Grabpay Mastercard (GPMC) to use up the credits:

Use GPMC with Lazada

The GPMC card can be linked with your lazada account to fund purchases on Lazada, this allows you to "shop the universes" happily while earning outsized cash rebates via the method of topping up your grabpay credits using the UOB one card. In my view, this method is better than Citi Lazada Card which gives a 4.4 mile per dollar.


Use GPMC with Shopee

The GPMC card can be linked with your Shopee account to fund your purchases at Shopee. This means should you have upcoming big ticket items to be purchased, you can use your GPMC to make the purchase (provided you have the credits).


Pay any Big Ticket Item or Recurring Bill Online 

Because many of us do not have the GPMC physical card yet, this means the GPMC is only useful for online shopping. However do not fret, many things can now be bought online and is cheaper than those at physical stores. Hence, if you have plans to switch for a new handphone/laptop, perhaps this is the time to browse online and buy them online using your GPMC.

In addition, you can also link your GPMC to pay recurring bills such as teleco (I have linked my Circles life billing to my GPMC)

So there you have it- some ways to utilise your Grabpay credits. The above should help you to sustain the next few months of topping up into grab to optimally enjoy the grab cashback in your current billing quarter with UOB one card.