ICBC 1H 2024 Results: 7% Dividend Yielder, Likely Further Upside

ICBC has announced its 1H2024 results. Profits has decreased to a small degree but not alarming enough to warrant a scare. The main reason for decrease is due to a fall in net interest margin which I will explain in the next section

Lower Interest Rates Means Lower Profits for Banks

Banks thrive on net interest income for their main operations--> Meaning taking in deposits and then giving loans at a much higher rate. Naturally the higher the interest of the loans disbursed, the more profits the banks make. In times of lowered interest rates, bank tend to report a lower net interest margin which lowers their profit

In China, its prime interest rate set by the China (federal) bank has been decreasing due to economic woes. As shown by the banks loan/asset profile, interest rates for Corporate Loans and China T bills have fallen.

In fact, overseas loan gave better interest because of the hike in interest rates outside of China. ICBC operates mostly in China so as seen the decrease in loan rates hurt the company very badly (3.95% decrease to 3.52%)

Investors should be aware this too is applicable to Singapore banks, with our interest rates about to fall, the net interest margin of our banks too will fall. For ICBC case, its net interest income is expected to fall further.

NPL Ratio- Up to Us To Believe

The accounting of non performing loans (i.e. loans where creditors are not servicing the debt promptly) is an art not a science. Banks can classify loans on NPL or otherwise based on their own standards. So I do not delve too much on it. For ICBC, it says NPL ratio has drop.

I won't comment much on ICBC's accounting intrepretation of its loan book portoflio but I do not believe a NPL ratio for property loan of 5.35% says the truth. No doubt ICBC's clientile are individuals who take housing loans, but given how property prices have fallen and news of China Citizens refusing to service their loans, the NPL provided by ICBC is a low estimate. Transport is another segment I seriously doubt the NPL ratio too. The high speed rail project in China has been known to be a zombie project with losses incured at large scale. It is well known that the corporates are only paying the interest with no real plans to repay the debt amount. All in all, I feel ICBC is valuing their NPL allowance too lightly. 

Of course, a reduced NPL helps ICBC to report lower allowances and it mitigates the impact of a lower net interest margin on its P&L. However, 30% of its loan book is indeed up for questioning. However, ICBC being the China national bank, questions can be answered about their balance sheet but replies by them can be mum since minority investors are not of their main concern.

Minority Investors - Think of Dividend

Ignore the noise on its financial results, loan portfolio or that of its balance sheet, I do not think ICBC will run into financial troubles. This is because it is the de facto bank for China and no matter how glossed up its results are, the government will prop it as a lender of last resort.

What investors should focus on is its dividends. ICBC maintains a 30% payout ratio for dividends. So if earnings remain flattish or slightly lower, dividends will follow suit. This happened for 1H2024. 

ICBC has now switched to a bi-annual dividend scheme. For 1H2024, dividend is HKD 0.158. For investors, given the decreasing interest rates in HK, i do think 2H2024 will give about HKD 0.155. At its current share price of HKD4.49, this means a dividend yield of 7%.

Comparatively to DBS, ICBC's yield is still high. Given the political backing and financial stability of ICBC, I do not think a 7% yield justifies. In line with DBS etc, ICBC should be a 6% dividend yielder. Hence I expect it to move to around HKD$5 for its fair value.

In terms of loan size/market cap, ICBC is many times larger than DBS. Both banks are the de facto leading bank of their country and rightly their dividend yield should follow the same. P/B ratio might not be an accurate guage given the questionable NPL allowance of ICBC's loan book portfolio.

I do not think the market's current valuation of ICBC is fair. It should be HKD$5, hence one can expect a 10-15% price upside from its current pricing.

5 Dividend Stocks To Consider

As said a few times, the current cycle of interest rate hikes have made dividend stocks attractively priced at a high yield. This is because of the need to be valued at higher than the risk free rate of the countries they operate in. 

Hence, even REITs with strong balance sheet have to be priced at a higher dividend yield than before. 

When the time comes for interest rate cuts, it is natural for their yields to fall but share prices to increase. Below are 5 dividend companies which seems to maintain a good payout ratio, is sustainable and are of a high yield:

1) UnitedHampshire US REIT (Listed in Singapore)

A US REIT which operates Striple malls in the East Area of USA, with the low supply of stripe malls in USA, Utd Hampshire REIT will continue to have a high occupancy rate. The REIT has been experiencing increasing rental growth annually. The downside is that its cost of debt has increased due to US fed rate hikes. The reverse will happen once fed rates are lowered.

The REIT currently sports a 9.5% dividend yield (projected last year's was 10.1%). Its leverage ratio is below 40% with the recent sale of a retail mall at above book valuation. 

At NAV of 72 US cents vs share price of 43 US cents, it is attractively priced.

2) LINK REIT (Listed in Hong Kong)

The REIT manages malls in Singapore, China, Hong Kong and office spaces in China, Hong Kong. In Singapore, Jurong Point and AMK hub is owned by it and it is the sixth largest landlord in Singapore. Being listed in Hong Kong where risk free rate is 5.25%, the REIT is valued at 7.5%, the premieum shows it is a blue chip REIT similar to how capitaland is valued in Singapore (+2% premieum).

LINK REIT has a low leverage ratio of below 30%, dividend of 7.5% and is in the Hang Seng Index list cementing its place as a blue chip. Strong buy, just that us investors need to use a foreign custodian account or purchase through webull/tiger/moomoo to own this attractive REIT.

3) Pacific Century Developments (Listed in Singapore, PCRD)

A large shareholder of HK largest teleco, PCCW/HKT, part owner of FWD insurance and Viu (OTT). PCRD generates dividends from the dividends decalred by its asosciate companies. In 2024, iPCCW/HKT generated a bumper dividend and PCRD then shared the earnings as dividend to shareholders. PCRD is a holding company which just holds investments with no main business on its own, similar to Taiwan's Hotung Holding. It sports a 13-14% dividend yield for now.

How much PCRD distributes as dividend annually depends on the performance of PCCW in HK and Viu. The current strucutre of PCRD is that it is largely held by Pacific Century Group with Richard Li at the helm. PCRD is structured to be milked as a cash cow providing the cash to its parent, Pacific Century, to finance its operations.

Hence as long as the structure remains, it will definitely be a top dividend stock for shareholders.

4) ICBC Bank (Listed in Hong Kong)

The largest bank in China and world, ICBC is a household name. Surprisngly due to the negativity to China companies, it has one of the lowest price earnings ratio as compared to its overseas banking rivals. Naturally with a low earning ratio but respectable dividend payout, the result is that this Chinese bank gives investors a 7% dividend yield.

In terms of risk, it is unlikely the bank will collapse despite concerns of non performing loans in China. Similar to LINK REIT, the bank is in the Hang Seng Index (blue chip status), , just that us investors need to use a foreign custodian account or purchase through webull/tiger/moomoo to own this attractive REIT.

5) Asian Pay TV Trust (Listed in Singapore, APTT)

APTT is in the TV/Broadband business in North/Central Taiwan. Its annual dividend is 1.05 cents. 

Dividend forms only 30% of its free cashflow with the remaining used to pay down its  debts. The trust is highly geared but i believe it will not affect its dividend. I foresee a continous issuance of 1.05 cents dividend. Its TV business is declining but the remaining cashflow generated from its broadband business is able to support current dividend. 

What investors are currently worried about is the trust's ability to refinance its SGD$1.1 billion debt that is due end 2025. If debt refinancing is successful and it is to extend for another 7 years (its usual cycle), APTT will be a very attractive 13% yielder and post news of the refinacing, will see an upward revaluation.

Even among the dividend stocks, it is of a high risk high reward profile.

Portfolio Purchase: Sold Shares that Reach Fair Value and Buying Dividend Stocks

KORE has reached my perceived fair value and I have encashed. Proceeds were used to buy more UnitedHampshire REIT and Asian Pay TV Trust. A few shares in Alibaba were sold too to purchase LINK REIT.

Dividends Glory

With the purchase of more REITs/ business trusts, my expected annual dividends has increased. Likely starting from next year I will log a "year to date" dividend tracking, this after I have purchased my targeted amount of REITs.

With the sky high dividend yield required in the current high interest rate environment, buying of a REIT/Business Trust makes sense.

What I Want to Buy More

Utdhampshire US REIT is the only REIT left I wish to achieve a larger stake. While dividend has been falling due to an increasing interest cost, the eventual decrease in US Fed Rates (SOFR) will result in an increase in the REIT's distributable income. Then, it will become a very high dividend REIT.

Utdhampshire US and LINK REITs carry a relatively lower risk with a good dividend in the range of 7-10%. When global rates sink from 5.25% to about 4%, yield compression for these REITs will kick in. If there is a thing I wish to say, that is buy Utdhampshire US and LINK REITs

Both REITs have a leverage ratio below 40% and have a proportion in the retail sector which is more resilient to a recession.

The Best Dividend Stock for now: UnitedHampshire US REIT

While I have written slightly more about the attractivness of Asian Pay TV Trust's 13% dividend yield, there is a REIT which has delivered a strong first half financial result and has continued to give out 9+% dividend.

Choice Between UnitedHampshire US REIT and Asia Pay TV

Between the 2, I will definitely choose UtdHampshire US REIT; while its dividend is less for now, its future ability to grow its profits/dividend is there. Secondly, its less levered in its balance sheet which makes it safer.

My current plan is to add more Utdhampshire REIT and in terms of proportion, it may be higher than how much I own in Asia Pay TV.

Dividend Prospects 

Asia Pay TV is a fixed dividend stock that an investor can expect to obtain 1.05 cents annual dividend. I do not expect the trust to raise its dividends anymore because it has to deleverage from its high debt ratio of 58% and bankers would want it to reduce its SGD$1.2 billion debt.

Utdhampshire REIT on the other hand, has a lower leverage of 39% and a dividend policy of  90% distributable income.

For this year, investors can expect an annual dividend of about 3.9-4.0 US cents (or about 9.5% yield). The REIT earns approx US$28.2 in distributable income and has an interest expense of about US$19 million. Reduction in interest can be expected because we are moving to lower rates in USA. This means a few million in interest saved. I forsee $4 million in interest savings in the upcoming 2 years. This means an additional 15% increase in dividend. This means future growth to 11%

At the interest rate lows, Utdhampshire REIT paid only US$12 million in interest. If this happens and the sponsor continues to collect its fees of $2.8 million in cash, the REIT is a 12% dividend yielder.

Once the manager collects its fee in shares, the REIT becomes a 13% dividend yielder at 90% payout ratio. All these hypothetical scenarios have not assumed a growth in property revenue yet.

Assets

Secondly with rising property revenue due to a low supply of stripe malls, Utdhampshire REIT will enjoy increased property valuation and higher property revenue. This makes it a dividend grower and have a safer balance sheet than APTT. In fact as shown above, the REIT has been making sales that is above its balance sheet valuation which means much value can be unlocked. I do view that the relisable book value of this REIT can be higher than the US 74 cents stated.

APTT on the other hand, as a TV segment which is declining in revenue. Growth wise, I do not expect much from APTT but this will not affect its 1.05 cents dividend.

In terms of earnings in proportion to debt, Utdhampshire REIT property income to debt is 6.5 times, while Asia Pay TV's is of 7.6 times. Hence the ability to repay their debts should their bankers start to cut off financing, Utdhampshire's is of a better footing.

The exchange rate risk- Weak US Dollar

US dollar has weakened and I think it is a good time to use the strong Sing dollar to buy the reit. I do not think USD will weaken much further relative to Sing Dollar.

Asian Pay TV Trust: Why I think It's Debt Is Manageable, Interest Cost and It's 13% Dividend Yield

Asian Pay TV Trust (APTT) is a stock I am looking at. This is because its debt profile seems manageable for now. For starters below is the debt profile of the trust:

Onshore Taiwan Debt: SGD$1.12 billion, Offshore Debt: SGD$87 million

Total Debt: $1,209 million

Onshore Taiwan Debt Interest, Taiwan Interbank (Taibor) : 2.1% 

Singapore Debt Interest: 7.7% 

CEO Talk

In the latest CEO update, he says APTT is trying to bring all its offshore debt to Taiwan and its not hard to see why. The cost of borrowing in Singapore is 3 times the cost of Taiwan!

With a promise of bringing the Singapore debt back to Taiwan in mid 2025 and with constant debt repayment by APTT, I do expect an amount of SGD$50 million will be returned to Taiwan.

In addition, while APTT has successfully hedged its Taiwan debt at 0.94% interest, it expires when its debt is refinanced in mid 2025. The current TAIBOR rate is 1.35% and I expect it to remain there. As for the refinancing, I think the eventual margin APTT will pay for all its debts is TAIBOR + 2%. This means an effective interest rate of 3.35%. Hence, I do expect APTT interest expense to rise by 3.4% next year.

Debt Repayment

However, the good news is APTT plans to pay down SGD$40 million in debt from its $1,209 million debt. This means a decrease of 3.3%. Factoring the decrease in debts and higher interest cost, 2025's interest expense will remain similar to 2024's.

Debt Management

APTT's debt is due for refinancing next year end.

With ability to service its debt interest and paying off some of its principal, I think its Taiwanese banker will refinance. Expected debt to ebidta is 9 times which should be okay 

Cashflow and Dividend

With only 30% of its free cash given as dividends currently, APTT has the capacity to continue giving 1.05 cents dividend every year, this despite the decline in cable TV business.

Therefore, I am confident APTT will be a dividend giant giving 1.05 cents annual dividend. Investors can use this parameter to judge how much should they pay to get an APTT share.

For me, I have added more share of APTT, a purchase of about 190,000 shares. This brings my holdings to 880,000+ shares. APTT will be a cornerstone in my dividend portfolio.

Asian Pay TV Trust 1H2024 Results: Good Result, Set to be Top 5 SGX Dividend Company

Asian Pay TV Trust (APTT) has released its 1H2024 results.

Summary

• Revenue Down, Net Profit Up due to good margin control
• Maintain 1.05 dividend guidance, translating to 13% yield

There is nothing surprising in its 1H report. While revenue is down due to the declining TV business, good margin control by the trust and its improving broadband business has cushioned the decline.

The trust produces about $90 million in free cash. Factoring interest expense on its debt, APTT cash generation ability is $48 million per year.

1.05 cents DPU needs $19 million in cashflow, that means 32% of free cash is used. It is sustainable.

Conclusion

APTT giving out a dividend of 1.05 SG cents is sustainable and given Taiwan's interest rate is not expected to rise, we should not expect downside revision to its dividends. 

The trust is in an essential service, however, its leverage ratio is high (58%). I am valuing APTT to be a 7% dividend yielder, the company can be a 14.5-15 SG cents company for its recurring dividend. A potential upside of 81% is in store.

United Hampshire REIT: 10% Dividend with Growing Rental Income, 70% upside

Just as I had expected, UtdHamsphire REIT delivered a good 1H results. 

Dividends declared was 2 US Cents.

Retail Business is Doing Well

Its stripe malls have continued to provide increasing rents. With the low supply of stripe malls in USA, Utd Hampshire REIT will continue to have a high occupancy rate. Self storage business has remained strong as well.

Yesterday, the REIT sold one of its property at 8% above valuation which indicates its real book value of its properties is indeed above the 72 US cents listed. Given how cash generative its assets are and that it is in an undersupplied USA property sector, it is likely the real NAV is US 75 cents

Interest Expense

Interest cost for the REIT is now at 4.93%. In my view, if interest costs starts to go down from now, UtdHampshire REIT will be reporting stronger results. There is no refinancing risk until 2026.

9.5% Dividend now, 11% Dividend Next Year

On the tail wind of falling interest rates and rising rental revenue, I expect Utdhampshire REIT to report a 5% increase in net profits this year. This means dividends will grow. All in all, this is a very good result. I will not be surprised if its share prices will move up 50-70% over the next few months on the basis of re-rating due to its sustainable business model and riding on the tailwind of falling interest rates in USA which makes its cost of debt much cheaper.

Leverage is expected to fall as well post sale of it's asset yesterday 

At expected dividend of US 4 cents per year, this stock is at least worth US 72 cents

Overall, this REIT is a good buy for any investor.

Changi Airport Group Earns $430 Million in Annual Profit, Revenue Up 44% year on year

Changi Airport Group has reported its full year results end March 2024. And it is a very good result (click here for full year results).

Profit to Shareholders $430 Million, Revenue up 44%

As per the headline, awesome profits with much of the profits coming from Airport operations. 

Page 64 shows Airport operations revenue rose 46% and all of its profits came from airport side. Jewel shopping mall continues to make losses at about $20 million but its operations is improving. Do note airport operations do not just cover Singapore because Changi Airport has stakes in other airports as well.

Cashflow

The group turned in a free cash generation ability of $100 million and it is worth noting in Page 14, Changi Airport Group received $464 million in government grants under "Cashflow from financing activities". Without the grants given by the government, it could be possible that Changi Airport Group will be loss making.

Shareholders will be receiving about $141 million in dividends (~30% dividend payout)

Valuation

Its a bit dicey to talk about valuation. 

If Changi Airport Group (CAG) was listed, the Singapore government would not be justified to give the group approx $464 million in grants in a year. This is because public funds would have been used to help a private listed company. CAG is currently a company under the Ministry of Trade and Industry. In this sense, if Changi Airport was really listed, it could be a net zero profit entity.

However, given the monopoly position the airport holds, that it is an aviation hub, with growing passenger traffic and T5 expansion, I do think a $200 million profit can be eked out even without government grants. Overseas listed airports have been going at 30-40 times price earnings. The company could be worth a $7 billion valuation if it is ever listed. 

This market cap will also enable it to qualify to be part of the FTSE ST Index. It will be an interesting scenario if Changi Airport is ever listed.

PRIME US REIT: Financing Completed, Safe for 02 Years

PRIME US REIT has made an announcement it has completed refinancing of its July 2024 debt due. The new debt facility will run until July 2026, with the option (which likely will be exercised) until July 2027

Effects of Loan Renewal

With the conclusion of its debt and sale of Florida property, the REIT's leverage ratio will fall and the amount of loan it has to service is reduced.

In my view, the REIT is now of a much safer profile, even safer than Keppel Pacific Oak's

Dividend?

In terms of distributable income, I believe the REIT will have US$38 million for the full year and can sustain a 2 US cents dividends, even with 10% retained. However, given the need to conserve cash, dividend should be lower than 2 US cents. An indication is during the AGM where the CFO said if the REIT pays 90% of its taxable income, it will get tax benefits from USA.

The loss in the sale of the Florida property might be recognised to ensure taxable income for 2024 is low.

I think dividend will still be higher than what unitholders received in 2H2023. The REIT could be re-rated to 20 US cents in the upcoming months.

The debt renewal removes the event of doing a force sale during the trough of a commercial real estate oversupply. 

Dividend Stocks - Better than Insurance or Housing Investments Out There

Its unfortunate the topic of dividend investing is not touch more these days. Among markets like SGX and overseas, many REITs/Business Trust with sustainable cashflow are giving above 7% yields annually, this far outperforms any insurance or housing investments our local advisory has been touting. 

Buying these dividend companies are simple and in my view, definitely more rewarding than the investment fads peddled. WIth a cashflow of 7-10% yields to support; they are definitely better than property and insurance products. Even pairing a simple term insurance plan with these dividend stocks will outperform many insurance-linked (ILPs).

SGX Dividend Giants

SGX has a few worthy to mention REITs. While they are not household names, the business they are in are stable and tenants leased to are strong.

Elite UK REIT (10% Dividend)

The REIT has a concentration of only 01 major tenant and that is the United Kingdom government. Two ministries of the government rent office space from Elite UK. Having such a strong tenant, the risk of default is low and the UK has signed leases with the REIT that runs to year 2028 with no early termination. The rental contracts has annual increase in rent, in line with UK inflation rate.

The REIT carries a 10% dividend yield and leverage ratio is healthy in the low 40%. In terms of property, this is a good investment. 

UtdHampshire US REIT (9.5% Dividend)

The REIT is in the staple essentials of USA and operates strip malls countrywide. This is where residents in the community go to buy their groceries, buy medical products and neccessities. Tenants of Utdhampshire are Walmart, Home Depot etc. Putting it in the local context, it is like to going to your town centre or HDB shopping mall to make a weekly grocery purchase. Essentially, the REIT is in the essential retail business for USA (no pun intended)

Leverge wise, the REIT is not running afoul of MAS's current leverage requirements. Balancing its capital requirements and only distributing 90% of its earnings as dividend, the REIT gives 9.5% dividend and uses the remaining capital for CAPEX. This is commendable.

Overseas Dividend Masters

LINK REIT (8% Dividend)

Similar to UtdHampshire REIT, Link REIT operates neighbourhood malls in Hong Kong and Singapore. LINK REIT model is that it operates malls where residents in the commmunity make frequent commutes to buy neccessities and grocery.

Because LINK REIT employs a very low leverage (19.5% as compared to others of 35-45% leverage), the REIT's dividend is not as much. However, an 8% dividend while employing a low leverage ratio of 19.5% is commendable. LINK REIT is well known in the investment community and is a "role model" REIT that Businesstimes looks at and had considered for Singapore REITs to follow.

China State Owned Companies (SOE) (7% - 9% Dividend)

Unloved but delivering consistent strong earnings, many of these Chinese SOEs have given comparably high dividends. As these are majority owned by the Chinese government, the risk of them defaulting is remote given their economic importance to China.

Many of these companies are traded on the Hong Kong market and can be bought by us Singapore investors via Hong Kong market. After factoring the dividend taxes, their yields are 7-9%. My picks among these SOEs are Agricultural Bank of China, ICBC, Petrochina, Sinopec. They are the market leaders in their industry and have economic importance to China.

Portfolio Purchase: More Dividend Companies!

Utilising the market sell down, I did a purchase of a few China Stocks- Li Auto and Petrochina. Secondly bought more Utdhampshire US REIT. There was a partial sell in Alibaba.

My expected annual dividend is now $25,200 or $2,100 per month.

Dividends

I have been saying time and time- overseas companies are giving outsized high returns. As compared to Singapore stocks and even properties, the risk/reward ratio is too skewed in favour of overseas company. I would buy overseas companies anytime.

As Singaporeans, we too have the advantage of a strong Singapore Dollar currency to buy these overseas assets at a cheaper price relatively. 

I will continue to buy stakes in overseas company. Utdhampshire, Link REIT and china SOE are my targets.

What I Bought

Petrochina- the largest upstream oil producer in China. It gives a 7.2% dividend yield after  accounting for China's dividend tax.

United Hampshire US REIT- I expect the REIT to report a decent result next week and be a 9% dividend yielder. From next year, dividend will start to increase because of its built in annual rental escalation contracts, coupled with the fall in expectations of SOFR rates arising from the Fed decision.

Li Auto- Speculative play on China's EV market.

Elite UK Trust: Good 1H Results, 10% Dividend Yielder

Elite Commercial UK REIT has released its results and it is a positive one. Market responded with a 8% jump in share price

Summary

• Upside surprise with dividend of 1.40 DPU for 1st Half, translating to 10.5% dividend
• Total Occupancy Increase
• Deleveraging Exercise has reduced leverage ratio to below 45%

Elite's REIT tenant is largely the UK's Department for Pension and Work so the rental collections have been prompt. There is no news of the UK government vacating any of its leases.

Borrowing cost has stayed the same at 5.2% interest, indicating that interest cost has peaked.

Future Dividend

With annual rentals increase tied to UK inflation rate, Elite REIT should start to report higher revenue/NPI especially with UK interest rates falling too. The REIT is already declaring dividends at 90%; hence the payout ratio is unlikely to be reduced and dividends will start growing

All in, this is a decent REIT to own. 

As per my view, overseas REITs are giving superb returns in comparison to local ones, and for a few REITs like Elite they have a safe leverage ratio and strong tenants. Many foreign REITs are better than Singapore stocks and I will recommend investors to start investing overseas with our strong currency. 

Close to double digit dividends are aplenty outside of Singapore.

<Not vested in Elite UK>

China SOEs and HK Listed Companies Give Good Return for Investors

While the world had been griped by fear of a market sell down arising to the unwinding of the Japanese Yen Carry trade, one market has stood resilient. That is the Hong Kong market and in particular companies who are of the China National Company ("SOE" status).

They are equivalent to the Temasek Linked companies we know of in Singapore.

Stable Earnings and High Dividends

While many express distrust at these group of companies, the fact is year to date they have delivered an impressive double digit returns for shareholders on top of their above 6% dividends.

Benefits

Firstly, many of these China SOEs are listed in the Hong Kong Market and can be bought by us investors with no legal implications as of now. 

Below is a snapshot of their current yield after dividend taxes; they are providing 7-8% dividend yield.

I am not kidding by the amount of dividends they provide and these are the largest companies in the world as well as proxy to the health of China consumers. 

In this list, there is ICBC: the largest bank in China/the world and Sinopec- the national oil refiner and proxy to China's consumer demands in lieu of its oil refining capacity and concentration to China.

All give higher dividends than even Singapore REITs.

In the area of earnings, these SOEs are not making losses and have continued to be profitable. But due to poor sentiments, the market has priced them to be single digit P/E companies with a high dividend yield. 

Comparing ICBC vs Singapore's DBS, ICBC is only valued at a quarter of DBS's current valuation. If i had to choose, I would buy ICBC instead of DBS anytime.

HKD is Cheap Now

Due to the Hong Kong Dollar (HKD) Peg to USD, HKD is at an all time low relative to Sing Dollar, investors can use the strong Sing dollar now to buy the cheap assets of these SOE to earn high dividend.

The benefit of owning China's SOE are many folds. In addition, there are top notch private run companies such as LINK REIT and Ping An Insurance. LINK REIT is one of the largest REIT in Asia, have presence of shopping malls everywhere including Singapore and is one of the longest running REIT with the strongest balance sheet. 

Unfortunately due to the negative sentiments people have to China, on a whole Hong Kong stocks have been beaten down to the troughs of negativeness. My judgement is that this is an opportune time to invest in these companies. 

Recommendation wise, below are a few companies an individual can get good returns owning a stake:

Real Estate: Link REIT, 00823.HK (8% Dividend and Increasing Dividend)

Oil Refining and Production: Petrochina, 00857.HK & Sinopec/China Petroleum, 00386.HK [7% dividend yielders and the largest refining and production capacity even in the Worlds)

Banking: ICBC, 01398.HK & Ping An Insurance, 02318.HK (7% Dividend Yielder and Largest Bank and Insurer)

Telecom: China Mobile, 00941.HK (6% dividend yielder and growing, entered the cloud services segment of China and endorsed as the Government No 2 backed company behind Huawei, likely will be the third largest player after Huawei and Alibaba)

Portfolio Update August 2024: $2,000 Monthly Dividend and Growing

With the run up in US Office REITs, I took some profits on PRIME US and KORE REIT. I bought shares in Asia Pay TV Trust (APTT) and United Hampshire REIT.

Expected Annual Dividend is $24,000

APTT and Utd Hampshire are among the top 10 highest dividend yielder on SGX. Utd Hampshire has an added advantage that with the potential Fed interest cuts, the REIT's interest expense will reduce and net profits will increase. Utd Hampshire has a dividend policy of distributing 90% of its earnings. I am expecting a DPU of US 3.8 cents for 2024, and US 4.0 cents from 2025.Give it is in the resilient retail essentials side in USA, I am valuing it at 6% dividend yield on forward 2025 dividend. My target price is 67 US Cents. 

Currently, I am on track for $24,000 dividends per year. With the expected Fed Rate cuts, interest expense on many of these companies will fall; and with it potentially higher dividends. 

I am expecting LINK REIT, Utd Hampshire & Alibaba to report higher dividend as the years pass. APTT will be a consistent 1.05 cents yielder and a cornerstone of my portfolio. To me, it is currently the best dividend provider among all asset classes (including properties) based on risk-reward profiling, do hope the 1H2024 results validate my view.

How can MAS Boost The Attractiveness of the Singapore Stock Market?

MAS is now finding ways to boost the development and attractiveness of the stock market. I do hope MAS is reading this because in my view, the main reason why SGX has lacked in development is due to the poor reputation created by current listed CEOs especially in how they have treated shareholders. Often, it is how minority shareholders are paid a small portion of the company earnings as dividends while the owners take a large stake as salary. This unfairness causes many shareholders to avoid SGX.

Many Listed CEOs treat Minority Shareholders like Shit

An often used term is "Minority Shareholders", many companies on SGX are structured in a way that minority shareholders do not have much influence and have to leave it to the management power in sharing the wealth/earnings with the minority shareholders. Independent directors do not have much power or incentivised to help the minority and are friends of the controlling shareholder.

Many listed CEOs take this as an opportunity to disproportionally treat minority shareholder poorly. Activists have tried but due to the families having controlling stake, nothing can be done. Here are a few companies out of the many who has treated shareholders poorly.

Best World International

Profitable company that is cashflow generative. However, in recent times, it withheld dividends paid to shareholders and increased the pay of its top 2 chairwomen (who own significant stake). 

If one do the maths, their increase in salary matches the dividends they would have received if Best World continued its dividend. In a way, Best World was trying to force minority shareholders to give up owning a profitable company. End state, the company is now going for a delisting after an attempt was done to vote out all its independent directors who have done nothing for minroity shareholders. Many shareholders who have not received dividends for years are now giving in, realising how poor in attitude the 2 chairwomen are.

Great Eastern

There has been a conflict of interest where even Great Eastern Directors are paid in OCBC shares, who is the majority and controlling shareholder of Great Eastern. Great Eastern has been giving paltry dividend to shareholders and now even in the current delisting, has been trying to strangle shareholders to give up by offering an "unfair" two pricing strategy. This speaks how poorly OCBC treats shareholders of its subsidary.

Sing Holdings

A cash rich property developer who is now sitting on a pile of cash. It has not much property development and is paying its controlling family a high salary in proportion to the company's net profit while giving a small amount of dividend to minority shareholders. Shareholders tried to mount a challenge in 2016 but failed

Hong Fok Holdings

Profitable hotel operations and yet gives little dividend to shareholders while paying a high salary to its family members

Lion Teck Chiang

Sat on valuable freehold land in Paya Lebar. Despite the profitable operations, LTC paid paltry dividends to shareholders and then did a delisting to buy off shareholders who grew tired waiting for asset monetisation plans. Asset monetisation only happened when LTC was delisted and the controlling family reaped the full gains.

Conclusion

To sum up, the poor investor sentiment and reputation of SGX is due to the poor attitude of company CEOs. They do not want to share the wealth fairly with shareholders. The listed companies I have mentioned above are not within 1 industry but is across many Singapore industries.

Until SGX and MAS understand the problem and starts to allow Independent directors to be more vocal and not allow the friends/families of the controlling shareholders to be independent directors, the problem will not be solved. 

How Things Can be Solved

It does not take a Minister of the State to look into the problem to realise what is wrong, it just takes an individual to understand the problem statement, the conflict of interest happening in Singapore and then thinking of the legislative power to balance the fairness. The role of an independent director is going to be very important and they have to be neutral individuals who will work for the interest of minority shareholders and be paid like how a minority shareholder.

Alternatively, one idea is to have independent directors who are part of the MAS headcount. They will be civil servants who are required to act in the interest of minority shareholders and can be terminated by MAS if found not acting in good faith for minorities. If the companies they are sitting on are difficult, these MAS staff can raise it to MAS's chairman on the unfairness. Their pay will be funded by the independent director fees and listing fees.