Valuation of Grab
Based on the above, on a sum of parts valuation, Grab's value should be US$9 billion.
A Diary on Personal Finance and Investing
Valuation of Grab
Based on the above, on a sum of parts valuation, Grab's value should be US$9 billion.
Following from my thoughts about my write up on the SGX Listed US office REITs and the subsequent drop in share price of PRIME, I have increased my stake in US PRIME.
Alibaba is a core position in my portfoilo forming a 56% weightage. Given this, I thought it would be good to explain why I continue to invest in Alibaba for the year of 2023 and my expectations for it.
Positive Core Earnings Growth Year on Year
Alibaba's core operations profitability grew by 10% from RMB 45 billion to RMB 50 billion using comparison of 1HFY2023 vs 1HFy2022 (Source: see Page 9, Line item 'Income from Operations'); thanks to the improved profitability from the international commerce business, local consumer services and cloud computing segments. Extrapolating from Alibaba's previous FY2022 core profits of RMB 69.6 billion, it is definitely possible that this year's profits will be RMB 77 billion or USD$11 billion.
Beyond this FY, it is likely Alibaba will continue to see earnings growth of 10% annually, a decrease from its annual 40-50% growth before COVID/Clamp down by China's government. At current P/E of 21.1, Alibaba is cheap.
China Reopening Theme
Unlike Pinduoduo which is an e commerce platform mainly for consumer staples and groceries, Alibaba positions itself as an e commerce that caters to all types of goods. Hence, it has a higher income senstiviety than Pinduoduo. With China reopening, I expect an improvement in economic conditions and in turn the affluence of the chinese consumer. Hence, Alibaba will be a beneficary.
Target Price for 2023
In my view, a P/E of 40 times for Alibaba based on this year's profits is definitely reasonable. Margins across its business segments are going to improve with an expectation of 10% annual growth in profits.
Hence, I expect to see Alibaba at around US$166 this year. However, should Alibaba outperform and clock in a larger than 10% profit growth in May 2023, a re-rating should happen (also applicable if the eventual "Income from operations" growth is less than 10%).
Shortly after I had posted my previous write up, ManuLife announced a dreaded news that it has written down 10.9% of its asset value and is now at 49% leverage ratio, just shy of breaching the MAS regulatory limit of 50%.
The other 2 who has not announced the dreaded news are PRIME and Keppel (KORE). On context, the gearing for PRIME and KORE are 38.7% and 37.5% respectively. In my view, KORE is likely to report the larger of the writedowns and PRIME will become the least leveraged (and probably the safest US office REIT). Below is the main reason
Keppel has higher concentration risk in one city that is not doing well
Source: KORE AR (see page 65)
49% of KORE's asset value are concentrated in the city of Seattle. Among the cities, Seattle is not part of the sunbelt cities witnessing a resumption of return to office and increase in demand of office space (see Keppel Slides's page 17). What Keppel has omitted to present is that due to its property concentration in Seattle, their overall property valuation is affected adversely and probably to a larger extent than PRIME's.
Source: PRIME AR (see page 15)
Prime's portfoilo is more geographically diversified across USA with no city having a concentration of more than 20%.
Hence I expect in the rounds of revaluation to come, barring any equity raising or private placement, PRIME REIT will become the lowest leveraged among the 3 US office REITs. All 3 REITs including ManuLife will be at the 43-50% leverage limit. As long as they don't buy more properties, PRIME and KORE unitholders should not see further equity raising. I reiterate among the 3, the risk of unitholders needing to fork out cash is as follows (from highest to lowest):
ManuLife > Keppel (KORE) > PRIME
What is Keppel's Advantage?
One thing advantegous to KORE is that its earliest debt maturity is end 2024 with only 13% of loans to renew by end 2024. PRIME on the other hand has 67% due in July 2024. Hence PRIME will have to pay a higher interest financing about 3 year earlier than KORE, assuming interest rates stay elevated in end July 2024
This would affect the dividends unitholders receive but does not affect the event of requiring equity raising or private placement, which would dilute unitholders
<Author is vested in PRIME REIT>
Currently, the SGX listed US REITs have been sold down terribly. In terms of dividends and price book, they are trading at very low valuations. Just look at the dividends and price to book ratio of PRIME and Manulife as of today (28 Dec 2022), these are distressed level pricing:
Prime REIT- P/B 0.47, Dividend Yield 17%
ManuLife REIT- P/B 0.43, Dividend Yield 15%
In the US exchange listed REITs, many are trading at price to book ratios of 0.9-1 times. This makes it baffling for the above 2 to be selling at such low values.... unless we retail investors are kept in the dark about some things.
Potential Red Flag of the REIT Managers
One thing that worries me is how both managements are not doing a share buyback when they are valued at a 50% discount to their property valuations. The REITs are afterall a portfoilo of properties and at such a discount, REIT managers would have deemed it attractive to be a good buy.
The lack of action by the management shows that either the REITs are short on cash or that they are anticipating a large writedown in property value of a magnitude greater than 20%. These would be terrible situations that the managers are not revealing. For context, a smilar US REIT called Digital Core is buying back its shares during this sell down at the 0.6-0.7 Price book value. Hence, it is no surprise this particular REIT has outperformed the other 2.
REITs are generally asset-heavy, financially engineered and pay out most of their earnings, leaving little cash on the balance sheet. So it is interesting to see a REIT using precious cash to start a share buyback. It demonstrates the capbility of Digital Core REIT manager unlike PRIME and ManuLife who have been silent on the scene.
I am particularly worried about the actions of both PRIME and ManuLife. The US REIT space was recently hit by a bad egg in 'Eagle Hospitality Trust' and people are afraid to invest in the space; yet these 2 REIT managers are not doing constructive actions to improve the sentiments, despite having better reputation and experience than the demised REIT manager.
While we hear about an environment of increasing interest rate, the surprise is that the Singapore Savings Bond (SSB) and pherhaps, T-bills interest are falling!
Just look at this month's SSB yield offer (3.26%) vs the previous month's (3.47%):
December SSB
November SSB
The magnitude of decrease is similar to what we saw in T bills in which it has fallen from 4% to 3.9%. For those who are still cash rich and have not been successful in T bills application, my personal feel is that we can try applying for the upcoming December T bills application; if bidding under the competitive allocation, the advice is to bid at about 3.5% (my gut feel is that the cut off rate for the December tranche of T bills will be at 3.8%)
After which whatever amount it fails, the fall back plan is to apply for December's SSB.
Will SSB and T bills rate continue to fall?
My suspicion is that most of the application we are observing for T bills are from CPF OA balance. As long as CPF OA maintains at 2.5%-3.0% interest, CPF members will continue to apply T bills. Due to the abritage, I suspect T bills rate will eventually be at 0.6% above the CPF OA rate (hence if CPF OA = 2.5%, T bills will be at 3.1%)
For SSB, as they are not CPF OA eligible, their rates are dependent on the excess cash that people have. Hence I suppose we will not see a much further decline in SSB rate. The Dec SSB rate is probably the equilibrium.