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.