Genting Singapore has a Management Problem and a Change In Direction Can Improve Share Prices by 60%

Genting Singapore has one of the strangest balance sheet structure for a Casino Operator. Casino operations is a capital expenditure heavy business with the need to build hotels and casino physically on a piece of land. Across the world, most casino operators employ leverage to ensure optimal shareholder return. 

Genting Berhad, Genting Singapore's Parent, employs leverage for its Malaysia operations as well for its Genting highlands casino and resort business. Similarly, in the recent expansion, Marina Bay Sands is using debt, borrowing at a low interest rate to fund its expansion.

Terrible Management of Genting Singapore is Hurting Shareholders

Too much cash (SGD$3.6 billion) is sitting on the balance sheet of Genting Singapore with reported interest income of 3% interest yield. On the other hand, Genting Singapore as a business makes about 7% in earnings yield based on current share prices. 

Genting Singapore only returns 60% of the cash it generates as dividends and keeps 40% for future expansion plans (about SGD$380 million). With a growing cash pile and only a few billion in expansion plans. It makes sense to use the excess cash in the balance sheet to conduct buybacks vis-a-vis parking the cash in the bank. 

Genting Singapore can conduct share buybacks up to $1 to $1.10 and it will still be value accretive to shareholders as compared to the option of letting the money sit in Singapore bank fixed deposits.

If the management of Genting Singapore argues the cash is set aside for future expansion plans, the question is why should the money be left sitting it down. Singapore is a country with easy access to capital and many companies including MBS has been able to obtain loans at 3+% interest. Temasek companies such as Seatrium are getting loans at the low 2% level, even Suntec and Fraser Hospitality utilises debt at a region of 4% interest. Furthermore with its cash generation ability, the amount borrowed will be repaid in a few years. The expansion plan will take 06 more years, Genting Singapore would have accumulated SGD$2 billion by then to fund. And the another 10 years to fully repay it. Again, other casino operators in the world employ leverage to fund and deliver optimal shareholder returns.

Genting Singapore shareholders should demand that the SGD$3 billion in cash be used for a stronger sharebuyback to buy back shares up to $1-1.10 level at next AGM as opposed to letting the money sit in fixed deposits. Such a move will benefit shareholders because the capital allocation will result in improved earnings per shares and asset value to all shareholders.

$6/monthly phone plan, probably the cheapest non-senior plan

For the past few months, Singaporeans might have seen the introduction of a new teleco called "eight telecom"

It has an $8/monthly plan which comes with 228gb data. To pay for the monthly plan, users have to top up credits into their eight telecom account.

Individuals can buy from shopee a $8 credit top up and 'hack' on shopee's fabulous 12 noon discount voucher to get $2 off from the purchase.

Steps

Step1: Collect a "50% coins max 200 coins Cashback" shopee voucher which is available 12 noon daily under daily vouchers.

Step2: Buy $8 credit from this shop (screenshot below). Then apply the voucher you had collected under 'platform voucher', next use/redeem any available shopee coins to offset the purchase. 

Step3: under 'message for seller', please insert the mobile number you wish to top up to (aka your mobile phone number)

So there you have it, shopee is helping us subsidize eight teleco mobile plan. I am definitely happy for their cash burning ways!

Outlook for 2025: Inflation has Tamed, Interest Rates Will be Lower, Sing Dollar is No Longer Attractive

Worldwide, central banks has started to cut interest rates. Main reason is that in Europe, the economic condition is not good. Firstly, european manufacturing is weak because they cannot compete against China, Second, Europe is suffering the same fate as USA where there is an oversupply of commercial real estate (and for them residential as well), construction has slowed. Two pillars of economy are down.

In Singapore, inflation has been tamed as well and MAS has announced no change of policy (which means no longer a gradual appreciation of the Sing Dollar). This means we will no longer see the strengthening of Sing Dollar.

How Should Singapore Investors Position

Firstly, I do not see any much strengthening of the Sing dollar moving forth. Putting my neck on the line, the USD/SGD will breach the 1.35 mark with US dollar starting to strengthen. The lowering of interest rates will benefit Malaysia as well and we could see the Sing Dollar/MYR going below 3.20. This is because Malaysia's borrowing cost will be reduced reflecting a stronger economy. Singapore is not a debt laden economy so global interest rates does not affect its financing cost much.

Lower Interest Rates Overseas will Benefit Those who buy Overseas Assets

In all, investors should think of rotating to foreign currency and buying assets overseas. Relatively, overseas assets have been giving better returns and with the potential strengthening story, holding Sing Dollar may not be good. I have been saying that REIT assets overseas are giving close to two times what Singapore REITs give and they are of better balance sheet strength; just look at LINK REIT of HK and Utdhampshire US REIT on SGX. 

And now with interest rates lowering, the financing cost of overseas REITs will fall faster than that of local REITs. What happens is that overseas REIT will start to report much higher income and in turn dividends.

Personally, I believe United Hampshire US REIT will start to increase their dividends to about 4.4 US cents in future annual dividend. It is in the essential services sector and has quite a secure income inflow. It is a strong recommendation in my view and should be a stock in any Singapore dividend investor portfolio. Investment income for life have done a good analysis on it and I will not steal his thunder. Do read it up on here. 

No SGD Currency Appreciation makes Local Property Less Attractive

Singapore property wise, with the lack of currency appreciation and increasing taxes on properties in Singapore, to foreign investors, owning a Singapore property may not be attractive at all. Expect prices not to go as high as previous times.

In short, Singapore investors should look towards owning foreign currency denominated assets. Firstly, their returns are better and secondly, they face the benefit of a currency upside. 

Walk the Talk

With my outlook of 2025, I am no longer holding much Sing Dollar, until USD/SGD reaches 1.38, I will be holding my money in US dollar. The added benefit is that the US dollar deposits here are 3-4 %, higher than T bills. If one opens a multi currency account, keep money in USD and then place USD Fixed deposit. More interest is earned. There is an arbitage opportunity now to earn more yield overseas with an added benefit of currency appreciation.

Portfolio for Dec 2024- Fruits of High Dividend for 2025

The portfolio saw no additions or selling down of entire stakes. 

With the changes in Singapore's REIT regulations, I had added PRIME US REIT (due to the larger buffer it has now), YZJFH was another addition.

Dividend Are Coming In From US and HK REITs

As I have said often, yields provided by overseas REITs are excellent. Utdhampshire and LINK REIT provides 8.5% and 7.5% dividend return respectively. The upside is that with inbuilt rental escalations for their leases and a low leverage ratio, both REITs are likely to increase their dividend over the next few years. Superb investments which will best any property investment in Singapore.  

PRIME US REIT (an addition this week) is a prime candidate to increase its dividend. This is due to the larger buffer it has gained and with Washington Building regaining rental income, its ICR should be large enough to reinstate some dividend.

Asia Pay TV Trust while it does give a 13% dividend yield; in my view will not increase its dividend due to a crushing debt and slowing business. The key is the status of its debt renewal in June 2025.

Given the above though, my likely next addition should be Asia Pay TV Trust because it has a major financial event, the renewal of the debt in 2025. A renewal would boost share prices and a failure means the inverse. However, I am optimistic a renewal in debt would be completed due to its cashflow ability.

Expected Dividend for 2025- $35,000

Forecast of an annual $35,000 dividend still remains. Starting from next year, each quarter I will be logging the dividends received. 

The portfolio composition is unlikely to change because I do not see any REIT which has a better risk/reward ratio out there.

Business Times Just Published that REITs are Good Investments Well It is True but No One Dares to Say....

Business Times (Singapore) has published an opinion piece that choosing REITs over an investment home may be better

*Article requires subscription so might be hard to read in full.

Well as I had covered investing in REITs, REIT give much better returns than owning a property. I have done the maths here

In short, choosing the right REIT will yield good returns. In fact for my favourite REIT (United Hampshire US REIT), without leverage it is giving 8% dividend yield and on equity.

A Challenge to A Property Agent

I am willing to challenge an agent out there based on a condo project which has: 

(i) more than 100 residential units in the project, 

(ii) pricing based on latest URA pricing for condo sold (for capital gains), 

(iii) rental income based on URA rental for a transaction in the condo project; and deducting (a) annual IRAS non owner occupied property tax rate from effective 1 Jan 2025 based on annual value=Rental multiply 12 months; (b) 0.5 months agent commission annually and (c) loan expense of 4% annual interest on the 50% leverage) based on a 50% cash/50% leverage model for the condo. 

To give any property agent the advantage, I will not use a 50% cash/50% leverage model for Unitedhampshire US REIT (Phillips Securities provide loan of only 4.5% interest) but I am confident with this model, I will trash any property agent, hence I will make it nice and peg it to a 100% cash only model for buying United Hampshire US REIT (over a 5 year period), where UnitedHampshire US REIT purchased share price is 45.5 US cents based on today's pricing. Returns for Utdhampshire US REIT will be based on any capital gains + dividend over 05 years.

Time period: Ends on 31 Dec 2029

I am quite confident my pick of the REIT will surpass the returns of Singapore condo property

Top Dividend Stocks For 2025: Singapore SGX Stocks

While I would have recommended Hong Kong stocks such as LINK REIT due to its low leverage and yet high dividend yield; same as what i did in my for August 2024, this article is written for individuals who only invest within the Singapore Market. Below are a few companies which I view should garner good dividends for 2025.

The proof is in the pudding and a caveat that I own 2 of the 3 below stocks; I will not be putting them into my portfolio if they are not dividend giants.

Most of them are REITs and with the recent change in regulatory limits, these REITs are now very safe (higher ICR and lower leverage than regulatory requirements)

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. For context, stripe malls are essential malls in neighbourhoods. They are built more for neccessity than luxury needs like the malls we have. If we think of it in a Singapore context, Unitedhampshire operates malls which houses NTUC/Sheng Shiong or kopitiam and less on shops such as Godiva or Zara. Similar to what we see in HDB heartlands.

The REIT contracts has built in rental growth annually. Its cost of debt has now stabilised. With property revenue having built in annual escalations, I forsee the REIT will increase in yield to about 10% based on its current share price.

The REIT has been actively divesting assets at above book value and buying new ones. This shows they are doing positive asset recycling. The REIT's leverage ratio is below 40% with the recent sale of a retail mall at above book valuation. With MAS increasing the leverage limit to 50%, Utdhampshire REIT is relatively safe. Dividend yields can be assured and it should be a 9% yielder for any would be investor.

At NAV of 72 US cents vs share price of 45 US cents, it is attractively priced.

2) Yangzijiang Financial (Listed in Singapore)

Its earnings has been consistent and therefore dividends given is around 6% yield at current price of 40 sg cents.

In recent times, the company has been deploying its spare cash to do share buybacks at 40 sg cents. It shows some degree of undervalue.

It is a fund management company with debt investments in China and Singapore. With 30% net cash and NAV of 111 cents, at 40 cents this company is a steal. An icing on the cake is that it does not use debt to do investments.

Hence an unlevered 6% yield is world beating.

3) ELITE UK REIT (Listed in Singapore)

Due to decreasing UK borrowing cost, the REIT has reported an increase in distribution putting it in the 9% yield category as well.

Its main tenant is the UK government which ensures revenue stability. In terms of gearing, the REIT is at 43%. Elite has an interest coverage ratio of 3 times. It passes up all MAS's regulatory requirements. The REIT has a few vacant buildings where one it is planning to do AEI to re purpose it for data centre purposes. When successful, the company should earn extra property income. I do expect the REIT to be a 10% dividend yielder as time progresses.

Notable Mention

Due to the relaxation in MAS's regulatory rules, I forsee PRIME US REIT would restart their dividend. The REIT could be another 8-9% dividend yielder at its current price of 16.4 US cents.

MAS Latest Changes For REITs: 50% Leverage and 1.5 times ICR (which includes Hybrid Securities Distribution)

The latest MAS rules for REITs is simple and helps to ease some of the pressure on leverage.

Summary

Basically, MAS has simplified the limits and can be understood simply as:

(i) REIT leverage should not exceed 50%;

(ii) Interest Coverage Ratio, ICR, (including distribution from hybrid securities) should not be lower than 1.5 times, a decrease from the previous 2.5 times. And sensitivity analysis to be reported under situations of drop in property income or interest rate rises

My Thoughts

These changes help investors understand the regime much better because previously there was a 45% leverage limit and a 50% leverage limit with an "if" condition. Everything is now simplified and even for what is defined under the ICR, it is clear. No more wriggling their way out (for the Mapletree REITs).

Higher Leverage Limit

It is definite good news for all REITs since their regulated leverage limit has been raised and it is now cap at 50%. Suntec REIT is a definite beneficiary as they were hovering near the 45% limit and had a very low interest coverage ratio.

The US REITs are another group of beneficiary with 2 out of the 3 REITs having exceeded the 45% leverage limit and walking on thin ice for their ICR. It is worth noting for both PRIME and Manulife (MUST), their ICR are at 2 times range but due to their revaluation of properties they were close to breaching/have breached the regulatory limit for leverage. So in a way, the new rules help ease pressure off and for MUST it gives a boost to their deleveraging strategy.

Market Movements

While there was not much price movement in the REITs space post the news on 29 November 2024, I do take the news as a positive. With a higher and clearer definition of leverage, it gives assurance to the distribution of REITs (of course the distribution of REITs will still be affected by the property income, which affects ICR too). 

This is a plus and I will evaluate increasing my portfolio to REITs knowing there is a less stringent regulatory limit in place giving more headroom for (i) troubled REITs to breathe and in turn resume dividend or (ii) REITs with stronger balance sheet can now take on more AEI or smaller buildings to increase income.

Manulife US REIT: Expect Lower Occupancy and Expectations of Its Divestment Plans (Nov 2024)

As expected, the office building in Capitol of Manulife US REIT (MUST) portfolio was sold. One of the main reason why I thought Capitol would go was because it is a good asset with a high occupancy rate relative to other offices in MUST's portfolio.

2024 Divestment Target (108/230)

Based on its 2023 restructuring plan. MUST has to sell US$122 million more in property valuation. While its Tranche 1 buildings are placed on the market, I do feel 02 buildings (which coincides to how many they had placed for sale) would be negotiated for sale close to the agreement deadline; just over the line to achieve US$122 million

Tranche 1 Assets are Weak

Figueroa- Expected sale but a big downward valuation. Figueroa is currently valued at US$139 million for end 2023. However, in its submarket, the sales of its comparables are at US$137-$140 psf. Realistically, Figueroa is worth about US$100 million.

Diablo- Majority of its tenants are vacating end 2024, it is likely occupancy will drop to 30% level. Being an old office building of Class B status, I think further downward revaluation will happen. The building looks like a US$30 million value and likely NPI will turn negative in 2025 Letting it sit on MUST book will be a big negative. Likely this building will be demolished by either MUST or a new buyer.

Penn- Another old building in MUST portfolio. Questions will be raised if the US Treasury will downsize its office space in Penn, which I believe is likely. No doubt refurbishment was done but it is an old building that regularly needs maintenance CAPEX to ensure its lifespan. I  expect it to be worth about US$80 million.

Centrepoint- Has the lowest amount of expiring leases among the 4. In terms of value, it is likely the most resilient and can fetch US$65 million range.

Overall Lower Occupancy, Likely Lower Valuations

Expect another downward valuation come end 2024. "Green shoots" of recovery is not here. It is unlikely the re-valuation will result in a convenant breach of leverage ratio of 80%.

I do not expect the submarkets MUST are in to recover until end 2026. However, the REIT has to complete its divestment plan by mid 2025. It has to sell about US$200 million more in properties.

The need to raise liquidity is putting the REIT in a weak position for sales negotiation. Buyers know it has to sell and during a time when office spaces are still weak.

PRIME US REIT Thoughts: Future Plans in 3Q results and what CEO has to do to Improve Sentiments

Exactly 02 months ago, PRIME REIT's CEO Rahul Rana went for an interview and in the article he explained about how PRIME US REIT plans to convey to investors of where the REIT is today and where it is heading. All these to improve sentiments and bring share prices back.

3Q results came out and in this section of PRIME US REIT's slides, they did tell us the 03 year plans of the REIT:

In it, PRIME REIT listed 06 steps it will take. Step 1 to 4 are indeed sound and what the REIT has been doing. At a leverage ratio of 45.4%, it is indeed sound for PRIME to improve property valuations so that the amount of debt remains the same but leverage will fall mathematically.

Step 6 is something I am definitely looking forward to because, as investors, we are buying a REIT for dividend and for a REIT to resume its dividend, this mean business as usual.

Step 5 is something I have views about.

How to Improve Sentiments and Share Prices

To address the elephant in the room, PRIME US REIT share prices are indeed low. At current 0.3 times of price to book value, investors are indeed pricing the REIT in distress despite the successful refinancing. To me, there could be 02 reasons behind it

High Leverage

PRIME's leverage stands at 45.4%, it is probably too high for many investors liking, If PRIME is able to drive occupancy and in turn improve valuations, pushing the leverage to 40.X% and below, it would do wonders to sentiments. This can be achieved by two ways. 

Firstly, improvement in property values and secondly paying down the debt. What is interesting is that PRIME drew down on its revolving credit this quarter, this intrigues me and I though it was not financially wise to do so. Personally for this half of the year, I feel PRIME should keep to distributing only 90% of taxable income with the rest dedicated to paying down the loans.

The first priority to PRIME is to target 40.X% and below leverage ratio, without the need of diluting existing shareholders via rights issue or share placement. This is very important. The REIT should focus on it and stop drawing down on too much loan from its credit facility.

Paying More Dividend

From 2025, PRIME should resume paying out good dividends. In my view, where the share price is now is because sentiments do not think PRIME will restart a good payout to investors. PRIME has to be forthcoming in its dividend plans for its upcoming year end financial report. It has to guide with a ratio for its dividends such as "90% of DI to be distributed". This is what Unitedhampshire US REIT has done.

If the management wants PRIME to be valued at say 0.6 times book value, it has to consider how much to pay. In my view, from 2025, the market will likely value PRIME at 7-8% dividend yield of what it pays out. Hopefully, the management gets my hint. 

If it wants PRIME to be at say 30 US cents, payout has to be 2.4 US cents. If it cannot achieve it due to its cashflow, management will know share prices will be much lower and their perceived undervaluation will remain.

However, the REIT has to be cognizant its leverage ratio should not be compromised like in the past where it was paying out 100% of distributable income and increasing its leverage to pay for CAPEX. THIS SHOULD NOT HAPPEN AGAIN!

What I am Concerned: "Resuming Acquistions"

While it is indeed true there are bargains out there in the US commercial space, I do not think the REIT should go on an acquistion. Of priority is that it should manage its balance sheet first. PRIME should not be buying US office buildings from its sponsors. Any purchase, utilising leverage without a rights/share placement, will only push the REIT's leverage up.

Shareholders are jaded from collecting little dividend and will not be willing to participate in a rights issue to fund an acquistion. I sincerely hope the management is aware of this. Priority should be given to lower the leverage on the balance sheet, then consider paying a good dividend to improve sentiments so that share prices can go up to 0.6 times book value like what Singapore office REITs have achieved.

Buying more US office commercial buildings should not be done. Yes, many quality US office buildings are now put for sale, but this should not be what PRIME goes after. Furthermore, it should not be a purchase from any of its sponsors. If it's sponsor wants to offload, it should just sell its properties to outside buyers. If it is Keppel Capital, it has its own REIT of KORE to sell to, KORE is holding old assets which is burning so much CAPEX, maybe KORE should just take it to rejuvenate its terrible assets.

Plight of the US Office Market

The amount of US office space vacant is tremendous, many blue democrat states are seeing high vacancy because businesses are leaving due to their high corporate taxes and high number of homelessness which affects security. What makes it worse is that the blue states have much better welfare benefits which are attracting homeless people from other states.

I seriously do not think California will return to its glory days until it cuts its welfare benefits and corporate state tax. If PRIME is successful in driving Tower I occupancy, it should do so and then sell it. One thing i notice in many US office REITs is that the vacancy rates for office buildings in many blue democrat states are higher than that of the Republician states. This is something PRIME should evaluate too. Valuers will be aware of this and abscribe lower values for office buildings in blue states. Sorrento Towers has so far bucked the trend and I think PRIME US REIT too should consider monetising this asset. 

If PRIME REIT starts to incur too much capital expenditures, I do think the REIT should start to offload such buildings as well such as Promende and Tower 909.

Thoughts on Latest BTO Ballotting Result: Singapore has a Severe Housing Problem for Genuine Flat Seekers

The ballotting for the latest BTO exercise and under new housing policy guidelines is almost ending. One prominent measure is the large clawback amount to deter HDB flippers for good BTO estates. For context, the clawback amount is based on the price of the flat sold which greatly hurts any profit motive of flat flippers. Below is an excrept:

"If a buyer purchases a four-room Prime flat at S$650,000 and resells it for S$1.2 million in the future, the 9 per cent subsidy clawback comes up to S$108,000, which is equivalent to gross gains of more than S$400,000"

The link to the BTO application rate can be viewed here. Hence what we are seeing from the application are demand from genuine home buyers. And for the standard sites, those pesky flat flippers who seek to profit from BTO lottery (after all for prime/plus flats, there are 6-9% clawbacks on the selling price and a long minimum occupation period which reduces their IRR returns)

Multiple Sites Across Singapore

As said 9 sites across Singapore to meet aspiring flat owners was put out in this mega exercise. This meant almost all who needed a flat genuinely could ballot because there are sites everywhere

HDB BTO Demand is a Lot

Based on current ratio, it shows Singapore has a severe housing problem. As recap, BTO is open to only the low and middle income Singaporeans. Let's look at it segment by segment. 

Singles Segment

In a nutshell, there are too many low/middle income singles desperately in need of a house in Singapore. Even in the hugely unpopular Taman Jurong estate, there is a sufficient amount of desperate singles such that the 2 room flats allocated to singles is oversubscribed that it can fill up other undersubscribed segments such as senior citizens.

All the pent up demand goes to show how much neglect the PAP government has given to the singles of Singapore, close to treating them as second class citizens in the country. 

First Timer Couples Segment

Ovsersubscription has happened as well with the median application rate for 4 and 5 rooms exceeding 1.5 ratio. It goes to show as well as the number of genuine low/middle income seeking for a home has outstripped the supply in this mega BTO exercise.

Thoughts

The government can give multiple reasons but under the new policy, flat flippers has been severely deterred and those who are ballotting for this exercise are genuine individuals who need a flat. The ballotted ratio is staggering especially in the singles group.

This shows the failure of the government to provide homes for its own citizens. The current problem has helped many developers chanced upon selling expensive housing units to desperate citizens of this country. The market for aspiring home owners in Singapore is utterly dire. 

My view is that either a large amount of housing units has to be put forth in the next 6 months to a year to solve Singapore's housing crisis. Alternatively another approach is to review the population policy. One contributing factor to the HDB demand is that the foreigner population has grown tremendously. Foreigners are only able to rent and their large number are eating up all the excess housing units going into the market; in turn contributing to the booming rental market and allowing flat flippers to profit by marketting HDB flats as rental dividend machines.

One solution is to restrict the foreigner population growth to only about 0.5% -1% similar to the citizenry growth. It will help Singapore citizens a lot but the trade off is that the wealthy of the country will see a slower growth of wealth via real estate.

Leverage in Stock Market is Better Than Singapore Property?

Just a thought process for now, but I am contemplating.

We have often heard about Singapore property agents who tell us to lever up to enjoy appreciation of Singapore stock property and using rental income to cover the property loan expense. For context, many Singapore properties are only selling at about 3% rental yield (after non owner occupied taxes by IRAS and agent commission). This gives me a "what the fuck" moment. Lets delve more into the maths, how property agents tell us this covers our loan bills.

Property Asset- $2 million, (Loan 50%/Equity 50%)

Rental Income- $7,000 per month for a $2 million condo based on property guru; agent expense of 0.5 months and IRAS taxes of $11,600 annually. This gives a net rental income of $68,900

Loan expense at 3.8% interest- $38,000

Therefore net income is $30,900.

Before the factor of capital gains, the property asset yields about 3% in equity.

How about Stocks?

Well in many SGX stocks, many companies such as United Hampshire REIT/Asian Pay TV and HK related stocks such as LINK REIT and Petrochina etc are yielding 8-10%. 

And with margin loans being low at 4.50-5.58% (see POEM margin financing promotion)

Using the same proportion of 50% equity and 50% loan, assuming one invests in a LINK REIT which yields 8% dividend and has a margin loan of 5.58%, an investor will yield about 8% returns in equity. To understand more about LINK REIT which owns Singapore and China/HK assets, do read here. 

In short, many dividend stocks can leverage on cheap loans in Singapore, with returns better than buying any Singapore property- doing a share financing loan on Asian Pay TV trust will yield a projected 21% annual returns on equity.

This brings me to the question of why should we leverage in singapore properties when so many SGX and even Hong Kong stocks are giving better returns. For context, below are the approximate returns for a few dividend stocks based on a 50% loan/ 50% equity and based on POEMS margin financing rates.

Asian Pay TV Trust (SGX-listed)- Annualised returns on equity (21%)

UtdHampshire REIT (SGX-listed)- Annualised returns on equity (11.5%)

Petrochina (HKEX-listed, which means interest is 5.58%)- Annualised return on equity (10.3%)

LINK REIT (HKEX-listed, which means interest is 5.58%)- Annualised return on equity (8.0%)

<Not doing a sponsored post for POEMS, just an idea that with leverage using Singapore loan on stocks, one could be hitting a gold mine>

60% of Portfolio in China, But I Am Still Holding

 China/the Hang Seng Index has rallied. As of now, the run up has resulted in my 60% of portfolio being in China. However, I still will not sell. There are a few reasons both Macro and Micro

Hang Seng Index is Undervalued relative to Other Indexes

Forward PE wise based on bloomberg - Hang Seng is still lower than the S&P 500 and at a significant difference. If things were to be the same, we are looking at an upside for a further 90% for the Hang Seng Index and China stocks; this despite the rally

Price Earnings of My China Stocks are Low

Alibaba and Petrochina are trading at 14 times and 7 times price earnings respectively. Their peers (Amazon and Exxon) are at 40 times and 14 times price earnings. The China companies are still relatively cheap.

Dividend Yield of My China Stocks are High

Link REIT and Yangzijiang Financial are at 6.5% yield and Petrochina is at 7% yield. Their next best alternative are far apart. It will take a much higher upside for these stocks to be 4% yield before I would consider divesting- that is because that's where their peers are at. Exxon is at 3% yield.

LINK REIT is the largest REIT in Asia with the lowest leverage ratio beating any Singapore REIT. Yet local REITs are at 4% dividend yield while supposedly the best REIT with the lowest leverage ratio is at 6.5% yield. The difference in yield is too stark.

So until a further upside 60% takes place for these stocks, I am not divesting. 

Conclusion

In my view Hong Kong/China stocks are still relatively attractive for investments. Hence, it is unlikely I will divest. Sentiments has changed and China stocks are now favoured.

What makes it ironic is that even at this levels, blue chips stocks of the Hang Seng Index are at 6.5-7% yield. That is better than any Singapore or USA stocks. 

Details of China Stimulus and Why It will Prop Up China Companies' Share Prices

This week, China's Central Bank (the PBOC) has announced a slew of measures. 02 policy measures are of significant importance to investors in China listed companies.

Quoting from the central bank's website, a summary of the policy measures are:

(i) 500 billion yuan swap facility being able to be usef for stocks ETF or China listed CSI300 shares as collateral and importantly;

(ii) the central bank lending to commercial banks 300 billion yuan of loans at 1.75% interest where china banks will then lend out at 2.25% for share buybacks or founders to increase their stake. This strategy mirrors what Japan has done in the past and this should boost China companies' share prices. 

The PBOC has said it will consider injecting more money for the above 02 measures if it is doing well by doubling the amount allocated.

Significance to the Market

Part (ii) to me is good. China companies are known to be high dividend yielders at 6-9% dividend. Now any company can borrow at a low rate of 2.25% and earn the differential from its own dividend. This possibly points to a boost to many China company share prices until they are of 4-5% dividend level. We could be seeing 50-60% upside in share prices for dividend yielders such as Petrochina/Sinopec/ICBC or even companies like Haidilao.

For (i), companies can now purchase financial and insurance companies can now buy companies or even those of high dividend and in the index as collateral with the PBOC. It helps funds and insurance companies to boost their returns and entices them to buy the blue chip companies of China.

The PBOC is doing what other central banks have done - using liquidity injecting approaches to boost sentiments. As investors, this could result in multi year highs for China companies if the trajectory follows what has happened in USA and Japan stock markets, the effects of their central banks injecting liquidity.

This explains why share prices of China companies have moved up 10-20% this week. In my view, if the PBOC continued support and then supplying more cash as a second tranche, China companies will be in a bullish mode. Companies we can put in our radar are the high dividend yielders especially when founders know they can leverage on the dividend differential to make money. I see 50-60% upside from here.

SBS Transit: Good Dividend Stock, Upside with Recent Public Transport Fare Hike

Most of us in Singapore knows SBS Transit (unless of course you are too rich that you drive a car or two in Singapore).

SBS Transit operates bus services, North East MRT Line, LRT Lines and Downtown Line in Singapore. Its revenue is tied to the fares collected. So with the expected 10 cents or 6% rise in fares, SBS transit is expected to report profits increase. What is the expected profit increase?

Expected Profit Increase in Public Transport Services Segment for SBS

In December last year, Singapore saw fare hikes of about an equal magnitude as what was announced a few days ago. As a result, SBS saw a rise of about SGD$8 million in pre-tax profits. Factoring in taxes, SBS Transit could be gaining an addition $6.8 million in profits (EPS 2.16 SG cents). On a full year basis, I am expecting SBS Transit to see an increase of 4.2 SG cents for next year.

Dividend Policy

SBS has a dividend policy of giving at least 50% of earnings ("EPS"). Based on this year's earnings ("EPS"), one can expect a EPS of 21 cents; after factoring the effects on SBS needing to pay more for for advertisement spaces at bus terminals and MRT stations. Adding an expected increase of 4.2 SG cents EPS from the fare hikes, this puts EPS at 25 cents and I expect next year dividend to be 12.5 SG cents.

Cash Cow

Due to its public transport business, SBS is a cash generating business and due to its small 50% payout ratio for dividend, SBS has now amassed a cash balance of $320 million (43% of its market cap) and 4 months worth of its operating expenses. With such a large cash balance and cash generation ability, I would say the company is able to continue paying 50% in earnings as dividend. There is a small chance that a special dividend can be announced but that depends on if it needs to transfer cash to Comfortdelgro (its parent)

Are Shares Worth a Buy Now?

At $2.38 share price, I would say SBS Transit is fairly valued based on the dividend metric. A 5% dividend in current climate is acceptable where a large part of its revenue is dictated by the public transport council.

I view it on par with other strong name REITs. However, with about 12% of fare hikes still required to be adjusted; for next year, I expect another 10 cents increase in fares. So we could be seeing an end state where SBS becomes a 30 cents EPS, 15 cents dividend company at end 2026.

For investors who wishes to take a lower level of risk, SBS transit is a good buy with prospects of seeing growing profits at a faster clip than say Sheng Shiong. So between Sheng Siong (Current yield of 4.3%) vs SBS transit ( Current yield of 4.6%), I would pick SBS Transit.

Portfolio Update August 2024: Sale and Purchases, Increasing my Dividend Inflow

After some deliberation, I have sold off Li Auto because its share prices went up a bit and I do think there is cut throat pricing going on in the industry. So it is not worth being a participant in the EV market when these companies are suffering eroding margin. Partial divestment in Nanofilm was done with its run up in share price.

Purchases wise, I decided to buy back Yangzijiang Financial because there is nothing much left to buy in the market with spare cash. Going forth, I will be taking a more active role in trying to persuade the company to utilise its few hundred millions of cash for better investments instead of keeping in short term deposits with Singapore banks. 

I purchased a few shares in Petrochina because I believe the Chinese consumers strength is still strong and Petrochina is now a 8% dividend yield, that is too good for a dividend stock to pass. Petrochina is sold at such a low P/E of 6 and Dividends of 8%, that it has become a better value proposition than LINK REIT (7%) and Unitedhampshire US REIT (8%). So it was my second largest addition.

Asian Pay TV saw a few purchases because at 13% dividend and a 30% payout ratio, the trust is worth an investment. Alibaba HK was bought as well.

Dividend is now expected to hit $35,000 for next year (on a full year basis). Because this portfolio underwent additions throughout this year, I definitely will not be able to clock $35,000 dividend this year; but next year that could happen!

50 Basis Percentage Fed Cut: US REITs Benefit The Most

The US Fed has announced a rather big cut of 50 Basis Percentage points.

With that the SOFR (USA's interbank overnight rate) has decreased by 0.5% once the US Fed made the announcement

US REITs on SGX are Going Up

With the news the USA REITs listed on the SGX has gone up. This is mainly due to their debts being in USA and pegged to the SOFR. Today we have seen the 5 US REITs in the green (as of writing).

Who are the 5?

ARA Hospitality Trust, Keppel Pacific Oak, Manulife US REIT, PRIME US REIT and Unitedhampshire REIT are the well known US REITs listed on SGX. Among them most of their debts (with the exception of Manulife) interest rates are pegged to the SOFR.

A Buy Now?

This is up for debate because 4 of the 5 REITs are in distressed sectors where a large vacancy rate persists. Only UnitedHampshire US REIT is in the stripe retail mall which has a strong occupancy. It is definite as investors if we want to ride on the tailwind of the US Fed cut, Utddhampshire US REIT is the best bet because it does not have the overhang of distressed properties. In fact, from here, Utdhampshire would even benefit from lower capitlisation rates on its property which will result in increased property values and in turn lower leverage rates.

Utdhampshire US reit to me is the best bet to be on because it is well leveraged (with leverage primed to move even lower), strong occupancy rates. You can read my review of Utdhampshire US REIT here.

While Utdhampshire US REIT has risen 25% since my last post, I do feel there is more upside. It is in a much stronger property sector of USA and will be able to benefit from rate cuts directly. Hence among the 5 US REITs, Utdhampshire US REIT investors should be able to experience the full benefits of a rate cut. Dividend of 8-9% is assured too. Hence it is my top pick to benefit the rate cut. Even at 50 US Cents, it is still worth an investment and I have not sold off any of my holdings yet (my own target price is 72 US cents)

In second place, it is up for grabs, but my sense is either ARA US Hospitality Trust or PRIME US REIT.

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.