Wednesday, 16 December 2020
UOB KayHian Calculation Mistakes may be an Investment Opportunity into Sembcorp Marine
Sunday, 20 September 2020
New Purchase: ISDN Holdings
Came across a company that was highlighted by "Squirrel" in valuebuddies. Pretty decent company which has reorganized itself to a profitable entity. As most of the thoughts below are his and i do find them valid. I will be summarizing the value proposition of ISDN. Here is the link to his full excerpt on valubuddies.
Improving Profit Margins
ISDN's major business segment is a solution provider (think consultants) in the Industrial Automation control industry. The company has seen its profit margins in the business improving, demonstrating its efficiency in executing contracts. In addition, the segment revenue has been growing in its main country of business of China. ISDN provides its services to a myriad of customers including the Chinese GLC tech companies. With the recent push by China to being self sufficient in chip technologies etc and US sanctions, this will mean the creation of automation lines of production in China.
Improving profit margins and increasing revenue bodes well for ISDN
JV for Disinfectant Business
ISDN have made announcement that it is the supplier of disinfectant for one of our public transport company. With the fear of COVID and increasing need to sanitize everything, ISDN JVs is positioned to earn more revenue and profits in the disinfectant business in Singapore.
Hence it is my new purchase
To me, the points above are valid and proven by facts/global events. Hence I have initiated a position.
If the company can continue its path of growing its business and remain efficient in executing contracts, at 39 cents, it will be a single digit PE stock which makes it undervalued when compared against industry comparable.
Thursday, 17 September 2020
Increasing my Stake in China Everbright Water
Wednesday, 9 September 2020
Why Borrowing at Current Low Interest Rate Works (just be Smart)
Recently, Singapore's favorite oppa, Jamus Lim, has been receiving flaks for his suggestion of the government employing leverage during this recession time. While it may be true, it is not ideal for government; for us ordinary people, in the realm of personal finance it makes sense.
Its just that we have to be wise about it.
Low Interest Rates and Strong Dividends
Many Singaporeans have been using the low interest rate environment to make their bucket of gold in Singapore's property market. Borrowing at 2.0% interest and below, they have purchased apartments and rented them out to foreigners, expats and even to our own countryman at rental yields of 2-3% on the condo price.
They have earned the differential between rental yields and interest yields as well as having earned their pot of gold from the appreciation of Singapore property prices through the decade.
In my view, it is definitely wise and even prudent to borrow at low interest rates works.... BUT only borrow a small amount. This is because of the loan-to-value ratio.
Leveraging on Stocks (aka Borrowing)
Right now, in the stock market, margin rates are going at low interest rate of 3-4%. On the contrary, many stocks are providing 3-5% dividends yields despite having reducing their dividends. So perhaps when the good times returns, they can be 6-8% dividend yielders. Borrowing at 3% interest helps a lot.
The reduced dividends now will cover partially some, if not all your interest expense for leveraging; and when the good times return, you will earn from the differential of increased dividends or be able to keep up with the increase in margin rates.
The best part is that during such a good economic period, stock prices tend to rise because it is not dependent on factors such as having more foreigners to maintain the property demand.
Do it Safely
But we need to focus on the margin (leverage) level you take. In my opinion, leveraging on blue chips at a 10% leverage ratio (10% debt, 90% cash) works. This is because you will only get margin called if your stock portfolio falls by 85% (in today's context, this means DBS stock has to fall to below $4).
Secondly, do note, I mentioned the words "leveraging on blue chips". These are stocks who have been stood the test of many crisis or are the "Temasek stalwarts" that Temasek owns substantially (heck even Temasek is leveraged at about 20% ratio based on its financial filings).
So yes, I do feel borrowing on our low interest rate environment now is good- but do it in small amounts (10% borrowing, 90% cash), invest in blue chips and diversify across them. It might be wise to employ a little leverage now during this Covid times.
Sunday, 9 August 2020
How I am Positioning Myself for a Reopen of Singapore's Borders
Saturday, 8 August 2020
Starhub Woes in the Teleco Space
Sunday, 26 July 2020
How a Lack of Domestic Tourism affects Singapore based businesses
Sunday, 19 July 2020
How to earn a Higher than Bank Interest for Retirement
Saturday, 23 May 2020
What I'm doing now that the STI has fallen to lows of 2,500
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.
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
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
The aim is to pay off an offshore debts which is charging at a high interest rate.
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?
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)
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
Sunday, 26 April 2020
APAC Realty: Better known as ERA
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
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.
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
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?
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
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