Monday 28 August 2023

Country Garden Saving Itself From Bankruptcy, Still Trying to Get out of the Woods.

On Saturday, Country Garden announced the sale of a stake in a development for $1.3 billion yuan. The amount is significant because it is more than the cash it was required to pay for an offshore bond it had to redeem this month.

With this the company has saved itself from bankruptcy for now.

How Risky is Country Garden?

According to the communist 3 red line policy, as of end 2022, Country Garden is one of the lowest risk private developer (this according to the communist)

The Communist Ain't Joking!, Supposedly ranked 8th in safety

For China lovers and communist believers, this is one of the real estate developer to buy if you are interested in the industry

China's Economic Plan for the Real Estate

The government has planned for real estate to form a smaller segment of the economy. As of now, it contributes about 30% of the GDP. Therefore, as investors, do not expect the real estate market to grow; instead expect developers to breakeven with slightly positive profits as they seek to clear their landbank. For Country Garden, this means clearing its existing unsold units at breakeven levels. Revenue will not be in the heydays of a few hundred billions but only 10% of it (which mean profits of a billion RMB or two).

Country Garden has a net book value of about RMB$240 billion (after accounting for 1H2023 results). Using the experience of evergrande, it can be expected that losses are expected for the next full financial year too. Therefore, it would be wise to impair half of Country Garden's book value for losses and difficulty in realisation its land bank.

At RMB$120 billion, it means Country Garden is worth HKD$125 billion if it pulls through this crisis. At current value of HKD$20 billion, it is a 6 times bagger where share price can go to HKD$4.50-$4.60 once it is out of the woods

The post is not to encourage the purchase of the share price but merely a thought of the value of the developer should it be able to totally save itself from creditors.

Saturday 26 August 2023

MariBank Account Sign Up for $100 Shopee Voucher: Is it any Good?

Shopee users should have received notification on the app of a bank account promotion with MariBank.

For context, MariBank is the sister company of Shopee under the Sea Group.

Opening Promotion

From 23 August 2023 to 31 October 2023, the first 25,000 new MariBank Account Holders who sign up and make a $1,000 in fresh funds in a single transaction to the newly opened Mari Bank Account will get a $100 Shopee Voucher Pack. 

Please note to qualify for the shopee voucher pack, the account has to (i) remain open for 6 months and (ii) users have to link their shopee account to Mari Savings Account via the app.

Below are the vouchers you will get:

Is the Mari Account Safe and With Good Interest Rate?

As Mari is a Singapore bank, the first $75,000 deposited is protected and you will get back 100%.

Secondly, MariBank offers a 2.5% interest with no lock in period. While it is a decent deposit with no strings attached, there is GXS bank which offers the same mechanism at 2.68% with one addiitonal step of putting it into pockets. Hence Mari's 2.5% fares slightly worse.


To avoid disappointment of not getting the shopee voucher pack, it is strongly adviced for account holders to only sign up on 1 September 2023 or 1 October 2023 to be the first 25,000 new account holders in the calendar month.


Sadly, Mari's Interest Rate is low. Unless it increases to 2.7% interest, the account is not a long term hold for me. It is a "Sign up and then later close" verdict as of now.

The shopee voucher sign up gift is the only attraction for depositing $1,000 as fresh funds in a single transaction, link their shopee account to the Mari Bank account. After which, it is a sign up for 7-12 months and then closing it off (unless Mari Bank can offer a better interest rate).

(This is not a sponsored post)

What can Manulife REIT Do to Right the Sinking Ship? Is it Too Late?

As narrated in my latest post, the US office (commercial space) is grossly oversupplied with vacancy rates at 20% for the large cities. 

For places like Atlanta, Washington and Los Angeles, the office vacancy rate is slightly above 20% and he worst hit in the office glut. Unfortunately for Manulife, 44% of its current portfolio are based in these 3 cities. These were the properties which experienced the largest drop in valuation in the recent exercise as well:

What's Next for ManuLife REIT

As said in its Q&A, while Manulife REIT is considering a rights issue, it is constrained by the 9.8% ownership limit. If Manulife is unable to participate in the rights, it is unlikely many shareholders will participate in it as well and the rights raising will raise insufficient cash to bring its debt

Offloading Assets

In my view, this is now the more probable scenario where the REIT will offload its assets to the sponsor. However time is running out. Its debt is of US$1 billion and the proeprty is valued at US$1.633 billion. 

It is likely the REIT will be forced to sell off about US$400-$500 million in properties to meet debt convenants. In all likelihood, it will be the sponsor, Manulife, who will be the buyer. As Manulife is a listed company, it has its own fudiciary duties to ensure that its own shareholders get the best value. Therefore, there is no chance that Manulife will pay amounts much higher than what valuers of the REIT have valued as of end June 2023.

This means shareholders of Manulife REIT will need to realise the valuation losses of the properties. In addition, it is definitely not good to delay the sales further to the end of the year because another round of downward valuation is on the cards which will again affect the value. More properties will need to be offloaded as it drags on. Unitholders of the REIT may end up having only half of their portfolio when the upturn of the US office market occurs.

Final Thoughts

The comfort for unitholders is that unlike Eagle Hospitality Trust, Manulife REIT is not in some iffy contracts, the REIT has propoerties that are legally generating income. However, due to the ongoing office oversupply in USA, the REIT has been hit. What made matters worse was that Manulife, the sponsor, geared up the REIT in 2018/2019 to a high of US$2.1 billion on 42% leverage. The sponsor took too much risk offloading its own into the REIT as monetisation. This has caused the rest of the 90% of the shareholders to suffer. The sponsor of the REIT failed to act propertly for its investors.

This shows the ugliness of the current REIT regime where the sponsor can be the REIT manager as well, own a maximum of 9.8% and easily offload its assets into investment vehicles. This is akin to realising property gains and then having only 10% of your capital at risk instead of 100%. 

This to me has some conflict in interest. Singapore has to throughly review its REIT regime because this can be subjected to abuse where if gone unchecked, developers/sponsors may abuse the trust and profit among themselves. The REITs will end up in the same situation as Manulife.

Sabana REIT was a recent example where unitholders were upset with the antics of the sponsors offloading assets and an EGM occured resulting in the formation of their own REIT manager, independent from the sponsor. The ex-sponsor/maager got worried of this and threatened voters that they will be worse off if the former was voted out, which does not seem to be the case.

Checks and balances have to be in place where the manager is an independent party with no affliations to the developers/sponsor when managing the assets and reserves. Otherwise, a repeat of Manulife US REIT will occur. As the party with full control and left unchecked, the sponsor/manager could easily offload assets realising the gains to themselves while the unitholders are left to foot the bill.

US Office REITs: High Dividends, Low Price Book, WIth High Risk

While focus has been on China's real estate debt; across the Pacific Ocean, USA is facing a real estate debt crisis in its commercial space due to an oversupply of office, this has caused the Singapore listed US REITs of Manulife, Prime and KeppelPacificoak (KeppacOak) to bet trading at insanely low valuation of 19% yield. Yes, putting in $1 million (except Manulife) will nett you a $190,000 annual dividends. 

US Commercial Space- Falling Occupancy Rate

Post pandemic, CNN has reported only 49.7% of US office workers have returned to work. Companies in US are realising that they do not need that much office space and plan to downsize over the next 3 years. Office vacancy rates are currently at 22.4% in New York and 31.8% in San Francisco while overall vacancy rate in the country stands at 12%. Over the next 3 years, the vacancy rates are expected to go higher.

These 3 REITs have seen a fall in their properties' occupancy. Below is snapshot of a few of their metrics:

Given the prolonged crisis, one can reasonably expect further declines in occupancy rate until end 2024. Both PRIME and Manulife runs the risk of seeing their occupancy drop to 80%. This will mean a downward pressure on the valuation of their properties year end. Due to a decline in asset value, their leverage ratios will increase.

It is reasonable to expect a decline of 10% in property valuation given the fall in occupancy rates coupled with higher risk free rates. This will put PRIME at 48%. Keppac at 42.5% while Manulife will be mired in a higher risk of breaching its US$1 billion loan conditions and need refinancing.

US Debt Defaults

A Brookfield fund has defaulted on over US$1bn in debt on properties in Downtown Los Angeles, and is at risk of default on another US$763m coming due in October, while Pimco's Columbia Property Trust has defaulted on US$1.7bn in debt. Closer to home,  Manulife REIT is another candidate.

When it comes to default, the name of Wework cannot be ignored as it lurches closer to bankruptcy on the back of a billion dollar debt. It faced the same problem- a declining occupancy rate among its US offices with tenants no longer subleasing, falling property valuations that has impeded its debt financing.

For Us, Singapore Investors

The US Office REIT no doubt has a mouth watering dividend yield. However, the crisis in USA is the explanation for it. A lot hinges on how well the REIT managers can manage its leverage ratio and prevent it from breaching conditions and defaulting. 

Despite the attractive High dividend/ Low price book ratio, I am neutral on the sector with a slight upwards bias towards Keppel. The manager has shown that it has good execution and its properties are not in the major cities such as New York and Silicon Valley but in sun belt cities which are less impacted by the US real estate crisis. I am of the view while Keppel may reduce its dividends slightly, equity raising is unlikely to happen for it due to its low leverage ratio.

On the other hand, Manulife is definitely a REIT I will not bottom fish. The REIT is currently rather far from its debt covenant ratios and with its market cap, a rights issue will badly dilute existing minority shareholders. The alternative and more plausible outcome is that Manulife REIT will be taken private by the parent (Manulife) between 0.2-0.3 price book value or have most of its properties sold to them. This suggests a small upside of only 20% but with a need to own its shares for a long time as the debt saga continues to draw out and the parent Manulife decides on the best course of action.

Friday 25 August 2023

How E Commerce has Altered Shopping Malls Operations and Consumers Spending

If the past 4 years were an indication of the future, the role of retailing in shopping mall is nearly gone. Ecommerce sites such as Taobao, Shopee, Lazada, Amazon has enabled consumers with a click of their handphone or laptop purchase items from bespoke shops locally or even from merchants overseas

The development of a strong logistics chain has shaved off the time deliveries happen (2 days for local merchants and a week plus for overseas merchants).

Shopping Malls Suffer

Tenants mix for shopping malls has changed. F&B and services such as enrichment centres and leisure/amusement have taken over the vacated spaces left by retail tenants. A simple visit to any Capitamall and one would notice that more and more stalls are of the F&B nature.

China has had it worse where China consumers sidestepped the stage of retail malls and went straight into e-commerce adoption. The many malls built around China are now experiencing declining vacancies with Alibaba and JD prospering as part of growing consumer spending instead.

While capitaland has continued posting growth in occupancy, I doubt this will be the case going forward. Its 98.7% high occupancy will likely see a fall as more and more retail outlets leave/reduce its physical footprint and move online. There is a limit to how much F&B outlets can be in Singapore unless Singapore rapidly expands its population to meet the growth in F&B store supply.

Trend is Now E-Commerce

The ease of e commerce knows no boundary. Besides earning a fee off each sale, e commerce platforms earn its keep as a marketing platform - elevating stores who pay more for advertising to more consumers by pushing it down as top search results. 

Think of it as a shopping mall where the first floor always has the highest footfall. E-commerce platforms can quickly rotate a "store" from say the higher floors to the first floor, and vice versa according to how much retailers pay these platforms for advertising.

In a sense, the flexibility to rent to be prominent when the brand needs to grow and then quickly move down the "rental pricing" when a brand stabilises can be done in days, unlike the physical malls where retailers are traped with leases and retrofitting costs.

Supermarkets are moving online now where the quick delivery of food items can be achieved such as what is observed in China - Freshippo working with cainiao has ensured same day delivery. Lazada in Singapore has achieved this in collaboration with Singpost.

I have no doubt South East Asia will be like this given the proximity to China and how Alibaba has expanded its presence here. If Alibaba does not achieve this, there is Sea Group, Bytedance and Go-to conglomerate waiting in the wings. 

In short e-commerce will supersede shopping malls as the place for retail and even within the e-commerce space, there are a variety of companies fighting to establish themselves and in the meantime are improving their last mile delivery as differentiation. This helps to improve the attractiveness of e-commerce and diminish that of the shopping malls.

No doubt shopping malls will re-invent themselves as experiential places and that of F&B draw, but the truth is that their pie has shrunk. E-commerce will grow exponentially to meet retail demand and eat into more areas that shopping malls once held control over. If i were to venture a thought, I forsee vacancy rates in south east asia (especially Singapore) to climb. On the e commerce sides, their revenue will keep increasing with growing adoption by the populus. 

F&B will be the last frontier for shopping malls to defend and when the day comes that e- commerce usurps it, it may spell the end of malls.

Thursday 24 August 2023

Strong Earning is Not that Important when considering to Invest

While it is true that Alibaba earnings have grown 20%, its share prices have fallen by 12% since then.

One must be wondering if the age old adage of "Earnings are what matters most for a company"

In Truth

To us small investors, sadly, earnings may not be the most important determinant for us when investing in a company.

For Alibaba, it is in an unfortunate scenario where the country it operates is managed by an incompetent communist government whose minute policy reaction to its growing credit crisis has spooked international investors away from China. China citizens are unable to redeem their unit trusts and companies (even outside of Real Estate) are on the brink of default.

Perception of a Country Economy is a factor and will affect a company shares

Structure of a Company

This problem is localised and tends to be for Singapore companies. Due to the lack of morals of businessman (who seem to be learning from our ruling politicians as well) and weak investor laws for minority interests, there have been numerous cases of businessman who use their controlling stake to oppress the minority shareholders by:

(i) Giving little dividends while paying themselves a high annual salary as executives with a controlling stake; the most recent example is Best World who pays themselves as the third and fourth highest executives in Singapore with 20% of the company net profits, which is disproportionately higher than the rest of other SGX listed companies. Best World trades at a single digit price earnings but with 0% dividends.

(ii) Delisting companies at low price book value and extending the offer for an unreasonably long time while throwing in exceptional financial losses to scare investors to acceptance

(iii) When their undervalued land are about to be sold, they will mount a delist in order to realise the value. And surprisingly, the independent hired financial advisor will adjudge the delisting as a fair offer.

Unfortunately in Singapore, being devoid of morals and ethics is common among businessmen. This results in undervalued shares

Structure of a Company that is formed not in the favour of minority interest favour is a factor

Monday 21 August 2023

Yangzijiang Financial: Throwing More Money Into China's Real Estate Debt

After a delay, Yangzijiang Financial (YZJFH) has released the slides about how they have been investing.

Doubling Down on China's Real Estate

YZJFH shows how the breakdown of their debt investments. One thing that stood out for me was how the company has increased its exposure in real estate debts. This has increased from 29% in Dec 2022 to 35% in June 2023.

This was despite a decrease in the debt portfolio from SGD$2.4 billion to SGD$2.33 billion. This shows the company has deployed more cash into the distressed China Real Estate Sector. Given YZJFH is charging high single to double digit interest on their debt investments. We can safely infer that the China property developers YZJFH lends to are not the State Owned Tier 1, but Tier 2 private developers in distress. This is because these state own Tier 1 developers publish their cost of borrowing to be only 3-4% interest.

Figure 1: YZJFH Debt Investments Breakdown (Dec 2022)

Figure 2: YZJFH Debt Investments Breakdown (Dec 2022)

Situation of Tier 2 Private Chinese Developers

The situation of China's private developers is not good. The amount of new sales they have secured is declining (4%) currently. With the inability to secure sales for their land bank, these developers are struggling to finance their existing projects under construction. Based on recent reports, 40% of projects under construction in China are facing liquidity distress and this is a large amount, for Singapore this amount is in the low single digit percentage. 

While YZJFH is able to extract double digit interest, there is an inherent risk that capital deployed to these Tier 2 developers is permanently lost when they go under and restructure. Even if there is an offer to pay back the full capital, what happens is that the maturity is extended years later. China evergrande and Shimao are recent examples. This reduces the efficiency of the capital deployed by YZJFH.

Other Observations of YZJFH Debt Investments

Another point that caught my attention was how the maturity of debt investments for more than 2 years grew from 5% to 18%. This shows YZJFH capital is now locked up for a longer term in the troubled Chinese debt markets.

Deployment of Capital to Singapore is Very Slow

The proportion of portfolio into Singapore is still very slow and only rose from 12.9% to 14.5%. YZJFH has a goal of allocating 25% of its portfolio in SIngapore by end 2023. This is now a pipe dream.

All in all, the 1HFY2023 presentation is not rosy and shows the company has doubled down on the troubled China real estate sector. A lot of the company's fortune will now hinge on how swift and resolute the Chinese government will be in resolving its debt crisis.

Sunday 20 August 2023

Starhub: Turnaround in Sight

Starhub reported a good 1H set of Financial results which demonstrated a turnaround.


  • 4% increase in revenue due to increase in mobile plans, broadband and TV
  • 22% increase in net profits
  • No change in Dividends of 0.025 cents, which means full year forecast of 0.05 cents dividends
Revenue Growth

Starhub experienced growth in its mobile plans (+12%), broadband (+7.6%) and TV (+18.2%), see page 4. This was driven by higher average revenue per user, a reversal from the continuos declines Starhub had been experiencing for years. This suggests the trend of consumers moving to SIM only plans.

Secondly, the acquisition of Myrepublic's broadband side seems to have reduced the competition and is benefitting Starhub.

One thing to note is that the sale of equipments such as mobile phones have declined. This again shows how consumers are now moving to SIM only plans from telecos while purchasing their phones.

However, the stability in a few segments shows that the worse is over and the effects in the trend of consumers moving away from bundled plans have ceased. Hence it can be expected for Starhub's profits to stabilise and remain at full year EPS of 8-9 cents for a few years.

Strong Margins

Through a series of operational optimisation, Starhub has been able to grow its net profits faster than revenue growth.

However the expenses in its cybersecurity division seems to be a drag as the costs (+12.5%) is outgrowing revenue growth (+7%), see Page 2 and 4 of the PDF. Starhub's acquisition in the cybersecurity segment is still questionable.

Share Buyback

A positive is that Strahub has been continuing its share buybacks ath this prices which suggests management do feel there is some value to pick up. A reducing share base will help in dividends.

Stable and Sustainable Dividends

With the new CEO on board, the sustainability of its dividends were one of their key concerns which resulted in the continuous slashing of dividends. Dividend investors had been spooked out with share prices falling 65% since then. 

Starhub now has a dividend policy of a 80% payout ratio or a 5 cents dividend each year. Given how Starhub is now regrowing and optimising itself, an annual 6 cents dividends can be expected soon.

All in all, Starhub has right the boat and rode off the storm of the past 7 years. Its acquisition of MyRepublic broadband has paid dividends but its purchase in the cybersecurity segment is still questionable.

What is important now is for the company to slowly repay off its debt. The repayment of its debt will help reduce finance expenses. 

At $1.02 and expectations of a 6 cents dividends, Starhub does seem fairly valued.

Why are US Office REITs still giving above 10% dividends

In the past 2 weeks, 2 of my larger holdings - KepPacOak and PRIME recorded their ex-dividends.

For background, KepPacOak gave out 2.5 US cents in Dividends while PRIME gave out 2.4 US cents in dividends. This translated to 15% and 20% in dividend yield based on their share prices.

From 30.5 US cents, KepPacOak has dropped 3 US cents to 27 US cents. While PRIME fell from 18.5 US cents to about 16 US cents. Both declines matched their dividend amount, with KepPacOak having a slightly larger decline. Of course I would have been happy if their decline after ex dividend would have been less than the dividend amount.

Fear in the US Office Commercial Space

Besides the China property downturn, US commercial space is facing a falling vacancy as well. This is why US commercial REITs are now yielding double digits.

Personally, I think Pacific Oak as the manager for the KepPacOak REIT should be doing fine. Their leverage ratio is still in the high 30s range, with no downward revaluation done. However, there is a need to keep watch for the developments in USA. The amount of US office vacancy is the guage we have to look at because it is signalling that US is in fact going towards a recession. The trend to return to work at office seems not to have bucked the falling vacancy rate.

As a result, the glut in office real estate supply issue is an explanation to why US reits are now giving double digit dividend yields in the global investing climate. 

Friday 18 August 2023

This Week's Economic News Is All About China

The week has been marked by news of defaults by China companies- Country Garden and China Zhongzhi.

To summarise, Country Garden has suspended 11 of its bonds, is facing a liquidity crunch and have not paid up on 2 bonds. China Zhizong, one of the largest mutual fund and Unit Trust has been unable to pay back its investors resulting in 2 protests in Beijing from Chinese Citizens.

Confidence by The Investing Community is Shaken

Investors are worried about the overleveraged and liquidity crunch among China companies. The indebtedness is no longer within the property sector only and has taken the second order effect on insurance/finance/construction companies. Investments has soured and defaults are rampant.

JP Morgan is now expecting a high default rate among high yield bonds across the world of which China is expected to contribute to 40% of the volume or approximately US$17 billion.

While China's debt news has been centered around the indebtedness of the private companies, little is revealed where even the state owned high speed rail companies are in fact struggling to repay the interest incurred on their debts.

The Chinese Yuan has now plunged to its lowest in 16 years, a sharp contrast to the period of Hu jintao where China grew at good economic pace and is seen as a powerhouse. The irony is China is now the sick man of Asia

The Hang Seng Index is now in a bear market

China Citizens are not Confident of China Real Estate and Unhappy with their Situation

In the housing market where China uses a housing sampling to show report its property index and show only a -5% decline year on year. Property transactions across major cities like Shanghai has pointed to a 15% decline in home prices within a year, suggesting that the communist party has been cherry picking data to disguise its economic malaise.

What is backing the latter observation is that the real estate purchase of new build has fallen off the cliff suggesting that Chinese consumers are not buying properties with expectations that home prices are going to fall further. 

It is worth noting the slowdown in property purchase is not attributed to Chinese consumers being poor or losing their jobs in mass drove. Both retail and entertainment sales in China has seen double digit growth; instead it is just that Chinese Citizens are deferring their property purchase because they know the real estate market is going lower. They are no longer confident in the upward trajectory of China home prices. Private developers are now stuck with unsold proeprty units and heavy debts as a result.

To make it worse, the constant news and protests relating to the sour of financial products and unit trusts that are not repaying the citizens of their money shows the Chinese unhappiness and lack of confidence in their economic reality

Manulife US REIT sell down: Don't Buy this Falling Knife

The 1-year chart of Manulife US REIT has fallen 85% from 53.5 cent to 7.8 cents as of writing. 

Price to book ratio is now 0.2 times. It's market capitalization is now US$138 million. However, there is a warning sign which explains why share prices is at an all time low. 

Rights Raising 

Manulife US REIT is in breach of its debt convenants. Discussion with its bankers seems tough and equity raising to raise cash is the only solution. Below is the current balance sheet of the REIT:

Debt: US$1.03 Billion

Cash: US$133 million, Half year earnings: US$38 million

Property Value: US$1.633 Billion

Given that there is likely a further downward valuation of its properties at year end, ManuLife's property value should be US$1.55 billion. To reach a safety of 45% leverage ratio, this means debt have to be reduced to approximately US$700 million. A reduction of US$300 million.

Given the situation and its cash pile, ManuLife will have to do an equity raising of US$200 million at the current share price of US$0.078, price book ratio of 0.2 times.

Thos who are still invested in Manulife will have to prepare for a heavy dilution in shareholdings. It is likely an exercise of 3 rights for every 2 shares to save the REIT.

Manulife REIT's property are still profitable, the issue now is that it is in breach of its debt limits placed as well as those of MAS; unless there is a waiver of their debt limits, shareholders will be painfully diluted out of their current shareholdings. 

The alternative to raise the needed cash is to sell the properties in its portfolio now at the current low point of the USA commercial property cycle. To sell at such low prices of its office building means there will be a permanent loss in value to shareholders.

This is why it is still not a good time to buy Manulife US REIT.

<Not long nor short on the REIT> 

Wednesday 16 August 2023

Sea Group Share Price Collapse: Is it Worth it Now?

Sea Group's business did not grow as what investors had expected and took a beating. It share price collapsed 28% in a single day. So the question now is with the beat down, is the company now undervalued fundamentally. Below is my valuation:


The centrepiece of Sea is its fast growing E commerce segment, Shopee. Overall revenue growth was strong at 24.4%, while market transactions grew at 37.6%. However, its value added services in customer relation and advertising grew only 11.3% which shows advertisiers are now not so keen in marketting due to the weakening strength of the South East Asia market. For example in Singapore, due to Singaporeans struggling with the country's cost of living where inflation has remained record high, business are not optimisitc of Singapore's demand

Looking at profitability,  Shopee is impressive logging in another profitable quarter at US$330 million. It is now similar to Taobao and follows the trend in South East Asia of online shopping. I expect the e commerce segment to be profitable forever now, logging in US$1 billion this year. Further growth is expected as a US$2 billion proftable segment. Hence the e commerce segment can be abscribed a 25 times P/E on its current profits- US$25 billion


Nothing much, game has plateaued with not much growth. I expect a US$1 billion profit and the segment is worth US$10 billion due to declining growth.

Digital Financial Services

This is a segment which surprised me, however, what pushed it up was that its net non operating income recognised was US$100 million due to the rising interest rate environment which benefits bank. Strip it out, I do not think the Digital Financial Services is still immensely profitable. My expectation is that it will be a digital wholesale bank like which will earn US$80 million per year. However, it is growing exponentially due to the large amount of underbanked and being able to rely on Shopeepay and Shopee Network.

My value of this segment is US$10 billion

Final Thoughts

Using a sum of parts, my value of Sea Group is a US$45 billion valuation conglomerate.

At its current market cap of US$23 billion (US$40.50 share price), it is indeed undervalued. However we must also factor in that Sea Group has been giving a tremendous amount of share based compensation to its employees (approx 5% annual increase in shares). This has greatly eroded the value of the group. Until Sea Group stops paying its employees with large amount of shares, I will not value it at the share price of US$79 (US$45 billion market cap). 

To factor in dilution, i will take a 30% discount, this puts my expected price range at US$56 share price. Hence, the upside from here is only about 40%. Hence while the upside is decent, there is nothing much to shout about as compared to other companies.

Thursday 10 August 2023

Alibaba 1QFY2023 Quarterly Results: Strong Profit Growth and Improving Margins

Alibaba just reported its quarterly results .

Restructuring Reaping Fruits

One important point is that despite revenue only rising by 14%, the company's net profit has grown by 46%. 

In addition, Alibaba's headcount has reduced 235,216 to 228,675 employes. This is sign that Alibaba's restructuring is bearing fruit with improving margins. As quoted by Alibaba: "Without the effect of share-based compensation expense, cost of revenue as a percentage of revenue would have decreased from 62% in the quarter ended June 30, 2022 to 61% in the quarter ended June 30, 2023.". This shows the group has been able to bring down cost and improve margins which is very good as China is not growing strongly as it is to be.

Improvements in Cainiao and Lazada

"Lazada recorded double-digit order growth year-over-year during the quarter. As a result of improving monetization and operating efficiency, Lazada’s unit economics continued to improve compared to the same period last year" & Cainiao revenue increased by 34% compared to RMB17,292 million in the same quarter of 2022, primarily contributed by the increase in revenue from international fulfillment solution services and domestic consumer logistics services.

Cainiao is now a profitable segment and I would expect strong valuations for its IPO. It's high revenue growth shows Cainiao is still in the late start up stage, justifying a high valuation. This is benefical to shareholders.

Lazada too is commendable with its high growth. I will not be surprised that Lazada will turn profitable soon similar to what Sea Group has done to Shopee.


Overall this is a very strong financial result put forth by Alibaba. With Cainiao being profitable and still having double digits revenue growth due to its worldwide market, I expect IPO valuations for Cainiao to be very strong.

This is a positive to shareholders and I still expect US$160 to be seen this year.

Wednesday 9 August 2023

China's Largest Property Developer Misses Coupon Payment: Signs of China Communist Mismanagement

Country Garden has not paid up its coupon payment of US$22.5 billion. For those who do not follow the Chinese market, Country Garden is the largest private property developer. Before, it was no 2 with the largest China Evergrande starting to default on its debts and winded itself up as it couldn't pay all its bills in time.

It now seems the new no 1 is on the brink of collapse as well.

China Communist Party's Poor Response

2 weeks prior, the communist party responded with a policy statement that it will support the property sector. However, unlike the swift policy actions that followed previous statements, there has been no policy announcements made by the communist.

8 August: Country Garden Announces first non-repayment

While it is technically not a default yet, Country Garden has 30 days until 5 September to pay up its US$22 billion in repayments. However on its own, the developer is citing liquidity stress. As of end 2022, the company has RMB $140 billion in cash (USD $19.4 billion) on balance sheet.

On balance sheet, it does seem Country Garden does not have the cash to make payment and is facing liquidity issues.

Potential Second Crisis in China Property Market in 2 Years

Due to the balance sheet weakness of Country Garden and the poor execution by China Communist Government, we are looking at a second season of a China property credit crisis.

What we are witnessing today is the effects of a mismanagement by President Xi Jinping who urgently requires a policy response, otherwise he will be crashing China's economy.

Tuesday 8 August 2023

PRIME REIT: No Surprises, with a Dividend Yield of more than 20%

As posted previously, PRIME released a set of first half financial results which had no negative surprises.


  • Expected Positive Rental Escalations and Revenue Growth
  • Leverage Ratio Grew at 42.8%
  • Dividends at 2.4 US cents, expected second half 2.0 US cents (Dividend Yield of 23% at current price of 18.8 US Cents)
What the Financial Reports Said

PRIME's Largest tenant has extended its lease in July 2023. There is no negative downward revaluation, instead there is a slight upward revaluation of US$10 million which is not significant.

Positive rental of +9.5% was achieved which negated declining occupancy and hence revenue only fell by 2%. Revenue is expected to grow from 2H2023 as occupancy will start to improve and with less tenants vacating

Buffer in Leverage Ratio

That said, PRIME's leverage ratio of 42.8% is not far off from the regulatory limit of 50%. Personally, I expected PRIME to start setting aside some cash and not distribute all as dividends. This is because with more cash, the REIT will be able to pay down its debts which helps to reduce the leverage ratio.


With an expected one more rate hikes for 2H2023 and the full effects of an elevated interest rate environment, for the second half of the year, we can expect dividends of 2.0 US cents.

At 23% expected dividend yield, PRIME is undervalued.

ARA US Hospitality Trust: 1H2023 Update

ARA US Hospitality Trust has announced its 1H  results without any major surprise.


  • Downward Revaluation of US$6.7million (approx -1%)
  • Revenue Growth due to Higher Occupancy Rates in its Hotels
  • Leverage Ratio Grew to 39.7%
  • Dividends grew by 2% and now stands at 1.5 US cents per half a year (Dividend Yield of 8.5% at current price of 36.5 US Cents)

The business of ARA US Hospitality is that it runs the hotel chains of the lower priced ranged hotels for the luxury brands of Hyatt, Mariott and Hilton in USA.

It has 37 hotels, at the 4 stars range and unitholders enjoy the dividends generated from these 37 hotels.


US tourism has not recovered to its pre-covid levels and the hotel occupancy is still trending higher to 68.9% now. Overall, the occupancy of the lodging industry in USA is still 2% lower than where it was in COVID. Hence, for ARA US, it shows there is still some room of growth in occupancy which leads to more revenue and dividends.

Personally, I think ARA US will be able to grow to 1.6 US cents per dividend per half a year. 

Debt Profile

ARA US trust's cost of debt has risen tremendously due to the rising interest rates (from 3.8% to 4.6%). I expect it to rise further to the 5.0% mark which will erase all Gaines made by its higher occupancy and improved hotel room charges. This means diviends will remain constant.

I am not worried about the short maturity of its debts because refinancing it now will yield a loan of about 5.5% which is not far from its current servicing interest rates. However, when the US Fed starts to lower interest rates, like all other US REITs, I expect dividends to grow fast which is good news for dividend investors.

All in all, ARA US Hospitality is a decent propect to own, a trust of a leverage ratio with sufficient buffer, 8% dividend yielder with prospects to grow its dividends further. Similar to other US REITs, there are definitely a league above the Singapore REITs and USA is now a good place to own investments for Singapore dividend investors.

Monday 7 August 2023

Will Sea Group Completely Turnaround a Profit?

This is a pre-post to Sea Group's Financial Results next week.

The question in a few people's mind will be if Sea Group is able to continue its turnaround and probably maintain a 400 million quarterly profit.

In my view, it is a yes. Here is my explanation:

E commerce platforms are like Tolls in Highways

E-commerce platforms are durable and profitable entities when scaled to a large enough size with traffic. The business model of e commerce platforms is that they take a cut for every sales transaction. They also earn from marketers/shops who try to advertise in it (Termed as Customer Management Segment). 

Alibaba is the best example where it is competing in a market of 1.4 billion chinese people. Despite having about 7 well known e-commerce platforms (of which alibaba owns 3 of these 7), there is sufficient scale for Alibaba to turn around a large amount of profit due to the homogeneity of the Chinese markets (US$20 billion per year).

Sea Group is also turning around now. As the largest of the 3 e-commerce platforms in South East Asia (home to a population of 687 million), Sea's Shopee seems to have turn around a positive margin and is now earning US$100 million per quarter via "tolls" on merchants who sell on their platform and advertising. That is a lot of money to be made.

With the growing scale and population size of South East Asia, I do feel Sea will be able to rake in about US$400 million per quarter, in proportion to how much Alibaba earns in China based on its reach and earning powers of the different regions factored in.

Downside- Free Fire Falls

In the start up stages of Shopee, Sea Group was able to capitalise on Free Fire's profit generation to shield the losses. However, this is starting to change with Free Fire (Garena) earning US$275 million vs Shopee's US$115 million based on the latest quarter.

I expect it to change where shopee will become the No 1 generator within this year and Garena becomes only a small time generator of US$50-US$100 million due to declining popularity.

Long Run- Definitely Profitable and a Cash Cow

In the long term, Sea Group (on its e commerce and gaming arm) is able to generate a billion in annual profits. Its a definite that Sea has grown into a group capable of delivering $1 billion in cash flow due to its success in branding; which I truly did not expect when asked about it 4 years ago. The company has proven me wrong and delivered. 

In terms of debt profile, with its cash cow of US$1 billion per year, Sea Group can comfortably pay off all its outstanding convertible bonds even if its share prices do not go above $100. Relying on its moat in being an e commerce toll machine which has become a durable branding with jingles most in South East Asia knows. 

The next step which I will not be surprised is the announcement of dividends which i believe would happen in 2024.

The digital services arm is a mixed bag and its next frontier. If Sea does well, it will create a digital bank that is the size of US$30 billion market cap. This is similar to the next step Alibaba took when it grew Ant Group by onboarding its merchants from Alibaba, knowing their sale profile and offering them financial services in factoring against their sales receivables; however with Grab/Singtel and Trust Bank being strong, I doubt reaching this goal is easy. However (again), Sea has proven me wrong once and therefore, they might indeed beat Grab and Trust Bank to be another no 1.

<Not Vested in Sea Group as the margin of Safety is still far>

Why I Will Continue to Buy Keppel Pacific Oak REIT

The post is to update my future direction of my growing my portfolio. To make it short, there will only be one stock I will accumulate until something changes and that is Keppel Pacific Oak REIT (KORE). Below are my explanations:

1. Strong DPU

KORE's portfolio occupancy has trended lower but on a small scale. Currently, it stands at 90.8%. While occupancy has slightly declined, overall revenue still grew as the increase in rents overcame the fall in occupancy. This shows KORE has the ability to maintain or slightly grow its revenue.

Secondly, KORE mentioned for every +50 basis points in the SOFR rate will lead to a decline of 0.066 US cents in dividends. The SOFR rate in US tracks the US Federal Reserve Rates very closely at a high correlation of almost 1. Therefore, I can assume that DPU will decline for about another 0.1 US cents. With 1H 2023 DPU at 2.5 US cents, we can expect 2H2023 DPU to be at 2.4 US cents. 

This means the forward expected dividends for KORE is about 4.7-4.8 US cents on a full year basis. At 4.7 US cents and 30 US cents share price, KORE is wroth its price at 15.6% dividends

2. Resilient Portfolio Tenants

Unlike PRIME and ManuLife, KORE has not seen a vacancy of a large tenant. With a low tenant concentration, KORE does seem okay

3. Leverage Ratio has not Increased to Dangerous Levels.

KORE's Leverage ratio has remained at 38.4% and there was no sudden downward revaluation. With a huge buffer in leverage and history of no adverse portfolio revaluation, the odds of a cash call from KORE is low; unless it is purchasing a new property which is rather unwise in this climate

4. DPU Rise in the Future

Post 2023, the Fed is looking at reducing its interest rates from a 5.75% range to around 3% range. With SOFR rate (the loan peg that KORE takes) following closely to the Fed rates, we can expect about 250 basis points decline, which will lead to about US0.3 cents rise. This means KORE can become a 5 US cents dividend yielder for a full year. Such an investment can yield me a large accretive yield, if it pulls through the current US commercial office crisis.

5. Moving Away from China 

One will notice I have a large holding in Alibaba and China based busineses, the purchase of KORE will help dilute it. It is a way of diversifying away.

All in all, KORE will be my main accumulator in which I will continue to add shares with the prospects of yield and capital appreciation.

Sunday 6 August 2023

Why Singapore Banks Reported Profit Growth and Which Bank is the Best to place a Deposit

In the latest financial report given by our 3 local banks, they have reported a high growth in net profits. This is largely due to growth in net interest margin (NIM) banks are reporting. In layman term, it is the interest rate they are lending out as loans minus the interest rate they are paying for deposits.

Just look at the net interest margin growth across our 3 local banks

DBS: 1H2022 (1.52%), 1H2023 (2.14%), Growth in NIM of 0.62%

OCBC: 1H2022 (1.63%), 1H2023 (2.28%), Growth in NIM of 0.65%

UOB: 1H2022 (1.63%), 1H2023 (2.13%), Growth in NIM of 0.5%

Across all 3 banks, due to the rising SORA and global interest rates, the interest rates these banks charge to their customers, consumers and companies are higher; HOWEVER, the amount of interest they are giving depositors has not increased as fast. As a result, banks are announcing a large net interest margin

Which was the Stingiest Bank?

While all 3 banks have given a higher deposit rates to its depositors, the bank which gave the lowest increase to depositors was DBS bank, which likely explains why their net profits recorded the highest growth. Below is a snapshot of their increase in deposit rates:

Deposit Rates

DBS: 1H2022 (0.38%), 1H2023 (2.19%), Growth of 1.81%

OCBC: 1H2022 (0.52%), 1H2023 (2.64%), Growth of 2.12%

UOB: 1H2022 (0.55%), 1H2023 (2.70%), Growth of 2.15%

What it Means to Us Individuals?

From the above snapshot, we can infer that it is better to be a DBS and OCBC shareholders because they have been able to report a higher net interest margin and DBS in particular, gives the lowest rate to its depositors and yet seems to have a loyal fan base.

From the viewpoint of savers, UOB bank is the best bank to place your deposits. This to me is validated by the fact UOB has the best savings account called UOB one account which gives a realistic 4-5% interest for depositors who use their UOB one bank account, credit card and credit their salary into the UOB One account.

It is surprising till now, many Singaporeans have not maximised the benefits of UOB one account and there are a few parking large amount of cash in DBS which is giving them a low deposit rate. It is evident DBS is giving a lower deposit rate to depositors by about 0.5%. This is a lot of interest foregone by depositors.

<Not vested in any of the bank shares and this post is not sponsored by UOB>

Wednesday 2 August 2023

Invest in Foreign Assets which are Giving High Returns

Over the past few days, the Sing Dollar has weakened a bit. It has also made my purchase of an additional 20,000 shares in Keppel Pacific REIT slightly more expensive.

Overseas Assets are Providing Higher Returns

As mentioned due to the diverging interest rate environment between Singapore and the rest of most economies, the yields and expected returns from other countries' assets are double that of ours. Both China and US assets are providing double the expected returns against Singapore's (7%-15% vs Singapore's 3%-8%)

Japan an Example

Japan is an economy that has a 0% interest environment rate while other economies are going at 3-5% risk free rate. It is no surprise that this is one of the main factors that has made the yen depreciated about 20% against other currencies. I too am expecting the same thing with the Sing Dollar if our country's interest rate continues. This is an additional factor why holding foreign assets may be better

Weakening Interest, Time to Buy Foreign Assets

For context, the Singapore SORA rates are now falling which reflects a lower risk free rate. Personally, i think the high interest rate environment globally means the Sing Dollar will depreciate a bit more as our local interest rate is falling.

For Singapore investors, it is a good time for us to take advantage of the Sing Dollar strength to accumulate stronger yielding companies to supplement dividends. There is a whole long list of dividend companies for us to capitalise on such as the China state banks such as ICBC (HK:1398), ABC (HK:1288), CCB (HK:939) or the foreign REITS such as Ireit, Keppel Pacific, Elite Commercial, Utd Hampshire (all listed in SGX). Beside me, a few bloggers have good evaluations in Ireit and Keppel Pacific.