Top 5 Dividend Stocks on SGX

On SGX, a stock screener function is avaliable and dividend stocks can be filtered. I will be weighing my thoughts on the 5 highest SGX dividend stocks and if it is sustainable. I have excluded PRIME US and KORE REIT which SGX listed as No 2 and No 3 because their dividends have been cut.

1) World Precision Machinery (Yield 19%), WPM

A china precision stock which focuses on metal stamping products. The company distributes a payout ratio of 30% of earnings as dividends. However, first quarter the company reported a loss and this has spooked the market. Looking to this year's results, it is likely dividends will be cut if company follows its 30% payout ratio policy.

WPM is a proxy to the Chinese Manufacturing health. China's manufacturing is declining.

However, if investors want to bet that Chinese manufacturing will recover, WPM is a good bet. The company's balance sheet is relatively healthy and I believe should China recover, WPM will resume dividends at 10+% at current cost price

2) Pacific Century Developments (Yield 14%), 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.

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.

3) Asian Pay TV Trust (Yield 13.2%), APTT

APTT is in the TV/Broadband business in North/Central Taiwan. Its annual dividend is 1.05 cents. 

With dividend forming only 15% of its free cashflow with the remaining used to pay down its large 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. 

4) HPH Trust USD (Yield 13%), HPHT

The trust pays a high and fixed payout ratio. It is in the business of Hong Kong Terminal Port operations. The port operations is currently in an upcycle with supply outstripping demand. This is why HPHT is earning good profits and in turn distributing it out as dividends. 

It is in a cyclical industry. Hence I do not view the current dividend as sustainble. It depends on the dynamics of Hong Kong's port supply/demand. 

5) ARA US Hospitality Trust (Yield 11.8%), ARAHT

The trust is in the 3 and 4 stars hotel business in USA, catering to the mid end business and tourists. While it sports brand names such as Marriott, Hilton and Hyatt, the tier of the brands ARAHT has is for consumers of the middle income level. Its hotel occupancy has been low, but churns out good profits because unlike office/malls, hotels occupancy do not need to be sky high to maintain profits.

To delever itself, the trust has been selling a few properites such as Hyatt House. The trust has a sightly high leverage and is facing an increasing cost of debt due to US Fed interest rate upcycle (now in the region of 5.7%). However, I feel the dividend is sustainable. The reason why its dividends places it in top 5 is because Mr Market is worried about its declining profits/earnings due to high interest expense and valuation decline due to the need to set higher discount rates. However, once the cost of debt falls due to the reduction in US Fed interest, its dividend can still be maintained.

Investors should expect a drop in annual dividends this year. This is because the trust has to conserve some cash. Secondly, there is a change in ownership from ARA to the Tang family of Chip Eng Seng. It is likely some cash will be saved so that when the upcycle in US hotels happens, the Tang Family will inject Chip Eng Seng US hotels into ARA portfolio to monetise it. The injection may mean ARAHT has to pay out via cash/borrowings/share placement

Summary

To me, no 2 and 3 will likely continue to dish out good dividends. No 5 is a mixed bag because there could be an undertone that ARAHT could be conserving cash and then using it to monetise the new owner's US hotel assets via an injection into the stapled trust.

No 1 and 4 are dependent on the industries they are in, so earnings/dividend are cyclical.

Mid July Update: Locked Profit on PRIME US Trade, LINK REIT Purchase

Following up from my previous update, I mentioned my latest PRIME US purchase was a short term punt on the news of debt renewal. It happened and the share price went up 30%.

Refinancing for PRIME (almost done)

PRIME US REIT's refinancing is almost done and I believe it can be successfully completed. Both PRIME and KORE REITs are financially stable for now. Unlike one financial blogger who terms this US REITs as "Sampan REITs", I do not think this is entirely true.

What has negatively affected these 2 US commercial REITs is the overall industry. Cashflow wise, they have been able to promptly pay their debt facilities' instalments. Therefore, I do not think they are as distressed as it seems. As a few of their properties are in US cities with stronger vacancy and Grade A status, they should be able to benefit much as US office vacancy stabilises.

Overall, I am still optimistic that these REITs can double in share price from here as they shift closer to their net asset value.

Li Auto was sold as well given the run up in prices.

Bought LINK REIT

Using the sale proceeds, I bought LINK REIT. The reasons are: largest REIT in Asia, one of the lowest leverage ratio, properties are diversified across East Asia/Australia, an internal REIT manager eliminating conflict of interest and 8% dividend yield. It surpasses all Singapore REITs and is definitely better than any Capitaland or Mapletree REIT. I would focus only on LINK REIT for Asia exposure.

With LINK REITs purchase, it does look like my portfolio is becoming a dividend portfolio; but that is because globally, the high risk free rate makes dividend stocks appealing while in Singapore our risk free rate is artifically suppressed.

Why this Stock Could Double and Pay you 10+% Dividend While You Wait

Asia Pay TV trust (APTT) is a trust which offers TV and broadband services in the Northern and Central regions of Taiwan. It was a spin off from the MIIF fund of Australia.

Beaten Down Stock

One reason the trust spots a high dividend yield is because its share prices have fallen 90% from its all time highs and market are fearful of further dividend declines; over the past 10 years, APTT's dividend has been slashed from 8 cents annually to now 1.05 cents. 

Time Have Changed

In the early years of its IPO, APTT had been funding its dividend by taking on more debts. This caused the APTT of today to be over leveraged, burdening the trust with a high interest expense. 

However, in the past 4 years, the new management has dramatically slashed dividends to its current 1.05 cents DPU and used the remaining cash to pay down its debts gradually. 

The current 1.05 cents DPU of $19.9 million cashflow is only 13% of its operating cashflow generation ability of $152 million. With CAPEX guided for $35-38 million, this highlights APTT's reduced dividend of 1.05 cents is sustainable for a long time.

Financing Expenses

Due to the legacy trust manager incurring a huge amount of debt, APTT now has $1.2 billion in debts. Fortunately the financing expense amounts to $44 million a year and when its hedge expires, should rise to $46 million per year based on current interest rate environment.

1.05 cents dividend per unit is Sustainable

Looking at its current cashflow ability of $145-$152 million ($38 million as of latest quarter), its definite APTT can continue paying 1.05 cents DPU which translates to a cash outlay of $19.9 million. 

This is why I am confident despite the declining business in 1 segment, APTT will maintain a DPU of 1.05 cents. Until market appreciates the stability of its current dividend and erases the fear of further dividend cuts, investors are now owning a 13% dividend yielder. 

With SORA now at 3.6%, I view APTT can be equivalent to the higher dividend yielder SG Reits which commands a 7% dividend yield. With that, I will be owning this stock until it reachs the 15 cents range. This means a doubling in returns for owning APTT now.

<Vested in APTT>

July 2024 Portfolio Update: Sale of YZJ Finance and Alibaba to buy REITs

I have given up on YZJ Finance as it moves back to its maritime fund. The company does not seem to be able to move beyond its core. Its foray into the property shadow lending has led to mis adventures and till now, the company is taking time to redeem it. The cost of capital stuck in China's property segment is poor. I still own YZJ Finance in my CPF OA account.

A portion of Alibaba and Hang Lung were sold, with rotation to safer China/HK property of Link REIT and buying more of Utdhampshire REIT. A new addition is seen in Li Auto that has seen a growth in EV car delivery. It is a top 10 EV producer in the world.

Lastly, I bought more PRIME US Reit, this is a short term bet because the outcome of its debt renewal is due between 15-19 July. If it is successful, it is a good short term purchase. With more REITs being purchased, this is now a 20k dividend portfolio with a good mix of growth stocks 

Get Relatively Rich by Investing Overseas

Besides the recent hype where Nvidia has more than doubled in share price, overseas assets are sporting higher returns and dividend yield as compared to our local companies.

Why is this so? Singapore has a low Risk Free Rate

A reason behind this special observation is due to the difference in risk free rate.

Singapore has a risk-free rate (SORA) of 3.7%. USA's risk free rate (SOFR) is 5.25%. SORA and SOFR are the terminology for the secured overnight fund rates in respective countries. For investors investing in any country, the returns they demand would definitely be higher than the risk free rate. However, across countries, for the same type of asset class, the extra % over the risk freer rate will be the same.

For example an investor investing in a premium grade office building, he would want say a 1% return above the country’s risk free rate. In Singapore, this means he has 4.7% annual expected returns; while investing in USA, he will demand 6.25% annual expected returns.

Do We See This in Real Life?

HK has one of the best REIT I have seen - "LINK REIT". It owns an array of properties including Jurong Point and AMK hub in Singapore. It is the largest REIT by market cap in Asia at SGD 14 billion, larger than any Singapore REIT. Compared to any Singapore REIT, Link REIT has a lower leverage ratio at 21%. However, LINK REIT trades at an 8.3% dividend yield; on the other hand, Capland Integrated Trust, trades at a 4.6% dividend yield at a market cap of SGD13.2 billion. At 8.3% yield, it has a higher yield than most of the REITs in Singapore (Singapore 4%-8%).

Besides the risk profile, where people are adverse to China and Hong Kong (HK) due to the poor sentiments created by the communist government; HK and Singapore has a risk free rate difference, where HK is higher by about 1.25%.

This applies in many other areas of investment such as bank stocks, telecoms, retail REIT etc. Even in USA business listed in SGX, Utdhampshire REIT a grade A diversified retail REIT, albeit with a higher-than-average leverage ratio, trades at 10%.

Can Ordinary Investors Capitalize on this?

Yes, both traditional and new tech brokers (such as Webull/Moo) offer the ability for us in Singapore to invest in overseas assets. All we have to do is either sign up to invest in overseas market of Hong Kong Exchange or if we are lucky invest in SGX listed companies with overseas business. After which, we can just convert our Sing Dollar to the relevant foreign currency.

In terms of the commission for changing currencies, the new tech brokers have a slightly lower rate than our traditional brokerages.

Exchange Rate Risk

No doubt there is exchange rate risk if the Sing Dollar depreciates or appreciates. This is something we must tolerate when investing overseas.

To summarize, it is better to invest overseas. This is patly due to the lower risk-free rate in Singapore. As investors and living in Singapore which allows the ease of moving money, investing overseas is easy. For starters, investors can consider LINK REIT mentioned above, in my view, it is better than any Singapore REIT. Due to the risk-free rate in Hong Kong, has dividends higher than any SG REIT including OUE Commercial REIT.

HSBC Revolution Credit Card: End of the Title as Best Cashback or Miles

In May 2023, I said how the HSBC revolution was the card of choice for general expenditure which had 2.5% cashback or 4 miles for almost all categories of spending. 

What Has Changed

Since the start of 2024, HSBC revolution has reduced the categories eligible for 2.5% cashback or 4 miles per dollar. The latest exclusion was the removal of contactless spending which relegated the usual restuarants expenditure, since most use the paywave to tap and pay bills.

From 15 July 2024, contactless expenditure will not be eligible; and from 01 Jan 2025, online spending on air tickets, car rental, cruise tickets (importantly royal carribean) will not be eligible for bonus HSBC points.

That means from 01 Jan 2025, the HSBC Revolution Card becomes a specialist miles/cashback card which targets only online shopping. The card no longer has the versatility of being able to earn outsized rewards in almost any category.

How Will It Change My Expenditure

It does change a lot. As a consumer which has the most expenditure in dining and due to the amount i spend (less than $200 is spent contactlessly), I will need to switch cards. Fortunately, I have the UOB lady's card which is a specialist miles card for dining. However, if I wish to enjoy cashback, I do not have many options left, only the UOB One Card comes to mind.

However as I am still accumulating miles under my UOB cards, UOB lady's card will be my interim expenditure card.

Will I keep the HSBC Revolution Card?

Despite the no annual fee and no fee for converting to Krisflyer miles (until end Jan 2025), I do not have much grounds to keep the card. This is because I do not shop much online, hence accumulation of miles or 2.5% cashback on the Revolution card will be slow.

The credit card now only has value as a "enjoy the sign up gift after going through the loop of spending a certain threshold".

From an awesome general spend card, the HSBC revolution is now a specialist card which targets online spending and large purchase on dining. So if you are a massive online spender who spends $1k per month, HSBC revolution is still a card of choice. Outside of this expenditure, it is time to move on.

Portfolio Purchase: Utdhampshire REIT & Hang Lung Properties

02 purchases have been made and with that conclude my bout of new companies addition.

Utdhampshire REIT:  I have covered this REIT before. It is in the US suburban retail business. My analysis can be found here here 

The REIT has sought to manage the risk of its balance sheet by reducing its payout ratio to 90%. I am expecting a 3.8 US cents annual dividend. 

Secondly, what surprised me was how valuation at year end was not a negative which would have breached MAS leverage limits. Given the 2 positives, the new dividend is sustainable and I am expecting Utdhampshire REIT to be a 10% dividend yielder. The interest coverage and leverage ratios should be within MAS limits.

Hang Lung Properties (HK): The second addition is Hang Lung Properties. It is in the retail mall segment and small part office in China and Hong Kong. The consumer segment it targets are the wealthy and upper middle income, relatively stable. The company owns malls and leases it to tenants. Similar to how Capland China Retail Trust operates.

While its payout ratio stands at 90% and at 78 HK cents, it is sustainable given how its mall rents have been increasing. It is a 11% dividend yielder. Its leverage ratio is much lower than many of Singapore local REITs. Hence for a less leveraged balance sheet than SG reits and its dividends, it is a worthy addition.

Asset Sale: 50,000 shares of Keppacoak was sold to finance the purchase of Utdhampshire. This was due to the limited cash I have and Utdhampshire went slightly down today to warrant a buy.

Dividend Portfolio

My portfolio should now provide approximately SGD$20,000 in annual dividend. Overseas REITs and blue chip HK shares are giving extremely good dividends because the risk free rates are much higher, therefore, dividend stocks with business in these countries have to offer a yield higher than risk free (in the region of 5.25%). 

In addition, due to the negative sentiments surrounding China companies, the sell down has made them double digit div yielder with its business not as adversely hit. They are companies worth owning.

The other advantage I am sitting on is that as global interest rates starts to be cut, the distributable income avaliable from REITs I own will be higher because interest expense is lower. This will naturally lead to a growth of dividends. For the US Commercial REITs, another hurdle to clear is that they survive their loan refinancing. Hopefully this comes to pass in the next 2 months.

Nanofilm: 70% Down From Its 2020 IPO Price, What Will Make It Recover?

Nanofilm is part of my portfolio and since the start of the year, I have started purchasing it at its 70 cent pricing. To be exact, I bought Nanofilm in Dec 2022 and then divested it at $1.50 which was my target price.

Anything Has Changed?

China manufacturing has shrank considerably. Nanofilm is a proxy of the China manufacturing story. With the recent decline in China's manufacturing over the past 2 years, Nanofilm's revenue has fallen. In all honesty, it is very difficult to value Nanofilm without thinking of the China story.

The other improvement seen is that Nanofilm is now in a low CAPEX cycle and started to efficiense its operations.

Nanofilm Growth in Net Profits

In FY23, Nanofilm experienced another decline in revenue along with it gross profits and net profits fell. It is very hard to predict how much will Nanofilm earn in FY24. If revenue rises, operating leverage naturally kicks in and the gross profits and net profits will improve substantially.

However, there is one aspect I can be certain of

China Manufacturing Will Recover

From a low base, China's PMI has started to recover posting "above 50" figures which indicates manufacturing growth in the country. As said Nanofilm is a proxy. 

Secondly, the company has expanded into Vietnam. So taking this 1+1, revenue should grow in FY24. 

Target Price for Nanofilm

I do not know the exact amount Nanofilm will be worth, however, with knowledge that revenue will grow and assuming profit margins recover, my bet is $2.56 (2020 IPO Price) could be seen again. However, it will take not just profit growth but also the sharing of dividends to achieve this.

A $2.56 share price means Nanofilm has a $1.7 billion market cap. I will abscribe a 20 times P/E for Nanofilm. So the question is if Nanofilm can earn $85 million net profit annually.

Since its IPO, the max Nanofilm has earned is $62 million profits on the back of $246 milllion revenue (25% net profit margin). $85 million net profit is in the realm of possibility. I do feel a $300 million revenue is possible and that should take the company to a $85 million net profit figure. 

Secondly, as long as the company starts sharing dividends, the overall effect will be a return of $2.56. This is where I am valuing the company now. Lots of Arts and no Science because how much will Nanofilm regain its profits is just too difficult to forecast.

As to if Nanofilm will return to its all time high of $6 (Market cap $3.98 billion). The question is if it can reach $200 million in net profits. For now, I do not forsee it will happen, but who knows!

Portfolio Transactions: Suntec, PRIME REIT Additions

It was difficult to search for a single candidate to add. But I finally settled on one.

Suntec REIT: While Suntec REIT has a relatively low dividend yield of 5.6%, it has a monetisation story. For every strata office unit it sells or even an office building, it is DPU positive for unitholders. 

I personally prefer if Suntec sells off its entire Singapore office portfolio. I believe if it happens Suntec REIT share price will go up by 50%. However, the REIT manager is unlikely to do it because of the fee structure where the manager is paid by the amount of asset value in the REIT and the total net property income (which excludes interest expense). So with more buildings, the Suntec REIT manager ARA/ESR gets a higher fee and it does not need to worry of interest expense. Currently, the REIT is better off selling off the buildings to save on interest to benefit Unitholders, but this will lower the fees ARA/ESR collects.

In my view, the manager is in a bind between doing good for unitholders and earning a higher management fee. ESR was the REIT manager voted out by Sabana REIT due to their supposedly value destructive ways in managing the REIT. It seems the same is happening in Suntec where the REIT manager is not acting in good faith for unitholders. 

Every sale is a positive to Suntec REIT. If the non core assets JVs in MBFC and One Raffles Quay are sold, it will boost Suntec to be a top dividend REIT master in Singapore with the safest balance sheet.

I bought a few shares in PRIME REIT and sold my shares in Yanlord Land.

Below is the portfolio composition. I still have about 1+% of cash deployable. All in all, it has started to become a REIT profile because REITs are providing good dividends now due to the higher risk free rates demanded:

Suntec REIT: Potential Ability to Increase DPU by 15.7% with Sale of JVs and a Dividend Master REIT

As readers would know, I am looking for new companies to add to my portfolio. Today after scouring the SGX listed companies, another has come to my list and that is Suntec REIT. Suntec REIT is not due to its dividend but because of the potential positive DPU increase if it delverages. Let's see the maths below:

Suntec's SGD Debt

Suntec has SGD$3.486 billion debt at an average weighted debt cost of 4.6% interest rates. Annually Suntec REIT is paying $160.35 million in interest.

Suntec Valuer Valuation of its 33% JVs

Suntec's 33% JV has an overall valuation of SGD$3.142 billion and earns $109 million. All data is found in its annual report and valuation was done by reputable valuers.

Sale of JV and DPU accredition

A sale of its JV at say SGD$3.1 billion (nett of 1% divestment fee) and using its proceeds to pay down its Singapore SGD loan will result in an interest savings of $142.6 million and an income loss of $109 million; however, this means Suntec unitholders will see a SGD$32.6 million increase in distributable income annually.

Currently Suntec Unitholders enjoy $206.8 million in distributable income. With the divestment of its 33% JV stakes, this means there is a 15.7% increase in DPU a year. From 7.1 SGD cents, Suntec Unitholders can enjoy 8.2 SGD cents. (7.5% dividend yielder)

A sale of Singapore Assets will reduce leverage ratio as well.

Suntec has a leverage ratio of 42.2% on SGD $4.24 billion loan. This means asset value is SGD $10.04 billion. A sale of $3.142 billion JV will result in a hypothetical debt of SGD$1.14 billion debt and asset value of $6.898 billion. Its new leverage ratio will be reduced from 42.2% to 16.52%

Summary

A sale of Suntec's 33% JV can increase DPU by 15.7% making it a 7.5% dividend yielder, in addition, its leverage ratio will be reduced to 16.52% making it the least leveraged REIT in Singapore and cementing it as a blue chip status. It will help deliver long term value to shareholders and put the REIT on a much stronger financial footing.

It is weird why Suntec's REIT manager has not thought of this and I beseech the REIT manager to act in the interest of unitholders. Its Singapore valuers has provided a good valuation of the property and Suntec REIT should be able to find buyers at this price unless its valuers have been providing fraud information to the REIT manager and unitholders.

IREIT GLobal REIT: Exposure to Europe Office/Retail, 7% Expected Yield

 Ireit Global REIT is another SGX listed REIT, it has exposure is only to 03 Europe Countries: Germany, Spain [both office] & France [Retail Space].

Portfolio Composition

Ireit recently expanded into to the French Retail space to diversify into the Europe Retail Space. I will not be able to comment on the intelligence of this diversification since the results are still not apparent. But it is a sound diversification into a discount store outlets which is defensive (similar to Utdhampshire US REIT)

IREIT Risk- German Office/Commercial

Ireit suffered a hit when the tenant at Darmstadt Campus did not continue the lease. Occupancy  is now at 25% and truth be told, the REIT is struggling to find tenants to backfill the office space. I suspect a further downward valuation will happen in end 2024. The submarket within Darmstadt has an ongoing issue of high vacancy rates. Think what is happening to PRIME/Manulife/keppel US.

The next risk is its Berlin Campus office buidling. With a few tenants' lease running up, I forsee downsizing will happen. It is a relatively old building and I think the REIT will have to do CAPEX to refurbish, pherhaps a demolition and rebuilding of a Grade A building could help improve the status of the REIT. It should end up like One Washington Centre of PRIME REIT where an extensive refurbishment will be announced.

Similar to the US Office space, I do think the Europe Office space will struggle. This will hurt Ireit global revenue and for 2024 and 2025, Ireit office space revenue will decline. There should be a Euro 30 million downward valuation, which will push Ireit leverage to 38.5%.

01 Lucky- Diversifying into the French Retail

Its French Retail segment experienced a valuation gain and with the share placment of forcing existing Ireit investors to pump in money at 40.8 cents per share, the REIT now sports a 37.0% leverage. If the REIT was still a standalone office REIT, Ireit could have followed the US commercial REITs with drastic cuts in the dividend. 

Regardless, the past is past and the purchase of French Retail assets has rescued the REIT. In my view, this is now a much safer REIT. Even with a slight downward valuation of its office portfolios due to my view of further tenants downsizing, I do not think the REIT will breach the 45% leverage limit.

02. Lucky Hedging

Ireit has done almost perfectly in its hedging strategy. With a 96.5% hedging, it has enabled its effective interest rate in Europe to be at 1.9% when currently, many property loans in Europe are going at 1.5% + 3-mth Euribor of 3.75%; this means interest rates at 5% to 5.25% 

As investors, we have to be aware of it. As Ireit interest swaps expire, its effective interest rate will increase. This is because its old Euribor hedges were at very low rates and will not be renewed at such levels again.

So it's a definite its weighted average interest rates will go up. Most of its hedges expire in 2026. At that moment of 2026, I do expect the Europe central bank will announce about 4 rate cuts. So I will not be surprised Ireit's effective interest rate then could be about 4.25%. This means something....

DPU Stagnant

While revenue would grow over time, the increasing pace of Ireit's interest expense would eclipse; mainly due to its interest rate swap expiring. 

I forsee DPU will be 1.6 Euro cents on an annual basis and it will remain as such. The REIT was fortunate that it went into the French Retail segment, otherwise it would have struggled. Germany Office Space revenue is in a decline.

1.6 Euro cents equates to 2.3 SG cents. At a share price of 33 SGD cents, Ireit should be a 7% yielder. But this should be the level investors have to expect moving forth. In Singapore, the savings bond and T bills are yielding at 3.3% to 3.6% rates. IREIT is only at a 3.5% premium. Not much to fancy about, but I do think the market has valued IREIT just about fair value. Until Singapore interest rates fall, potential investors should not expect share appreciation.

But given how lucky IREIT was in diversifying and with a leverage ratio that is far away from MAS's regulatory limit, I do not think this REIT will go under. For investors, the question is: Is the 7% yield is justifable? I am not vested in Ireit but it is 1 of my candidates to evaluate under the 7%-9% yielder. Hang Lung Properties, Capitaland China Trust and ICBC are others I am considering.

UiPath has Fallen 40% in a Week, Is it a Buy?

UiPath is a software company which aims to provide business automation to automate mundane processes and repetitive work for companies.

Due to its lowered forward guidance in the latest financial results, the company's share price has taken a beating. It is worth noting till now, the company is not profitable on a full year basis. 

It has the largest market share in the software automation business, ahead of the likes of Microsoft, with many SME susing its software to automate work or even to carry out simple tasks such as sending hourly temperature readings of their server rooms or inventory management.

So is it a good business to invest now with low share price?

Business Model of Uipath

The company provides a software package where (i) subscribers pay a monthly fee to have access to the full suites of its function, (ii) free model where subscribers can get it for free but with limited function and there is an entrpise model which is a large package where 100 users get access to everything for a fee

Its software is applicable to almost all industries... which brings us to....

How Large is the Addressable Market and How will Uipath monetise users

These are the 2 questions we have to address to know the worth of Uipath.

In all honesty I do not know how large the addressable market is. Given how widespread and applicable UiPath's software is, I could say the addressable market is in the trillions of revenue. However, there are many competitors with Microsoft, IBM trying to catch up. So I would say the trillion dollar pie is split up among many companies.

The second question is monetisation. Uipath charges a fee for the access to its automation features. However, if it sets too high a price as fee, its customers may decide to switch companies. No doubt, there is a switching cost because if a company changes software, it has to re-write its codes. So there are some barriers but not too high as what Microsoft has in the operating systems segment.

What are My Personal Projections

While there is a hype going around how AI will replace human jobs and Uipath is indeed in such a business line, I do not think its revenue growth will be exciting. UiPath has been doing this for many years, so it's reach has likely reached close to maturity. Revenue wise, I forsee only a growth of 15% per annum for the next few years before plateauing to the 5% range.

The importance for UiPath is to manage its own cost as it grows, i.e. using its own software for roles to reduce manpower cost. One gripe I have about software companies is that they have to pay their software engineers a good package with stock based compensation to keep them with you.

Profits

With the continous growth in revenue, I do think UiPath can grow into profits. I personally forsee that the company will become a US$2.5 billion revenue company in 5 years time with its cost base increasing at most 40%, after all it has a business automating software which is a force mulipler. AI will replace human jobs!

In conclusion, I see UiPath as a future company which can clock US$700 million in pre-tax profits. Including US corporate taxes, it should be a US$500 million company. Setting it at a 20 times earning multiple, that means it is a US$10 billion market cap.

I do not think the software hype will warrant UiPath to be a 30 time or 50 times P/E company. This is because the business automation space has many competitors, it is not a niche industry where UiPath is the sole provider. UiPath is only worth as much as what its IP can carve for it. At US$10 billion, it means Uipath has only about 60% upside ( $18 target price)

Unless the company is able to cut its cost by automating more of its own functions or by cutting the pay of its software engineers, I do not see the company having too much of an upside.

Creating a High Dividend Yield Portfolio of Overseas Companies - Increase APTT Stake, Partial Sale of Yanlord

While many are focusing on the historical 10-year high dividend yield of local REITs; looking beyond Singapore, overseas companies are giving even higher yields. While a few are indeed distressed stocks, majority are of strong fundamentals status.

Hong Kong Exchange - 7 to 10% Dividend Yielders

As said previously, blue chip status Hong Kong Index companies are yielding 7-10% in dividends. A few of these companies have market caps larger than Singapore companies. Examples are China Construction Bank, LINK REIT, Sinopec, Hang Lung properties, ICBC. These aint micro caps.

Payout wise, they are giving sustainable dividend payouts (less than 100% of earnings). For those with Moo moo, Webull, Tiger broker etc, one can consider using the currency conversion within the app to change Singapore Dollar to Hong Kong Dollar to buy these companies that are fundamentally sound.

Overseas Companies Listed on SGX

There are overseas companies listed on SGX that provides a high dividend yield such as Asia Pay TV Trust, Capitaland China Trust and Riverstone. I have covered APTT previously and do think its 1.05 cent annual dividend (13% dividend yield) is sustainable but unlikely to grow higher. It is in a declining business and needs to delever, thus explaining why the dividend is only approximately 25% of its cash generation ability; conservative but there is a need with its own cashflow reducing. I have sold a few of my Yanlord shares to accumulate a larger position in APTT.

Investing Overseas

With overseas yields being high because of (i) a higher risk free rate overseas as compared to Singapore, (ii) the ease of moving cash and (iii) we have cheap and useful brokers such as Moo Moo, Webull and Tiger, it is extremely easy to change currency from Singapore dollar to other currencies.

As such I will be moving in the direction of accumulating high yielding foreign companies. While Alibaba sports a 3% dividend yield, I will not add to it given the large composition it has in my portfolio. Neither will APTT. 

My likely additions are the 7-10% dividend yielder on the Hang Seng Index. This will be done by changing Singapore Dollar to Hong Kong Dollar to take advantage of Singapore's strong currency.

Below is my current portfolio holding. More additions are coming up.

Asian Pay TV Trust: A Dividend Bagger

Similar to the US Office REITs, Asian Pay TV Trust (APTT) is suffering from a period of high interest and high leverage (but as it is not a REIT, it is not constrained by the 50% leverage limit, so not force selling is happening but has to pay corporate taxes).

The trust has a disastrously high debt load to equivalent of SGD$1.22 billion or 58% debt ratio. For now the trust is first using its cashflow to pay down its SGD debt which has a higher interest rate

Cashflow Generation Ability

APTT is in the Television and Broadband industry within North and Central Taiwan. It is in a highly regulated industry where new entrants find it difficult to enter unless Taiwan issues them the license. 

No doubt it has a utility-like trait but in recent times, APTT's TV customer number has been falling. And with that, so has its revenue in the TV segment.

As evident, revenue has declined due to its shrinking Cable TV business. EBITDA, a measurement of its cashflow has thus shrank. While the trust generated $153 million in cash from its operations last year, I am forecasting APTT's revenue and cashflow are going to shrink 3% annually. This is because its rise in broadband business has not been able to offset the cable TV segment.

For this full year, APTT could generate $149 million in cash from its operations. Its CAPEX should remain at $35 million outflow. Factoring annual interest expense of $44 million and income taxes of $20 million, APTT should generate free cash of $50 million. As of now, the trust is distributing $19 million as dividends to unitholders. The trust has guided for $46 million to be used to pay down debts, so I expect a decrease in 3% of loan/interest expense.

However, let's not forget its revenue is shrinking as well at forecasted 3% annually. With CAPEX unable to be cut and interest expense shrinking in line.

Expectation of Future Cashflow

I expect APTT to face shrinking cashflow of about SGD$3 million per year. This means $47 million cash generated next year after factoring all cash outflows. 

Can the Dividend Be Sustained?

APTT has guided for 1.05 cents annual dividend. This amount to SGD$19 million in cash outflow. In my view, this dividend can be sustained for at least a decade. With interest rates expected to decline and APTT paying down 2-3% of its debts annually, the trust should be able to generate the free cash to support the dividend. 

Future Interest Rates Should Drop and Leverage Ratio

In the latest AGM, the CEO has conceded its current leverage is not ideal and the trust will be paying down debts. While no desired leverage ratio is mentioned, I sense a lot depends on its goodwill amount and a 50% debt limit. Due to APTT's declining business, its goodwill is likely to suffer another round of impairment in the next few years. Hence I do expect the current $2 billion asset base to decline to pherhaps a $1.5 billion base. This means a future debt load of about $750 million.

Fortunately with the expectation of a decline in global interest rates in the next few years, interest expense should reduce and debt repayment can be accelerated.

What Investors Should Expect

1.05 annual dividend is sustainable. However, I do not think APTT will increase it. At current price of 8 cents, this translates to a 13% yield.

No doubt, the risk is that APTT's business will decline faster than its current 3%+ annual rate. However, I feel given the information, a 13% yield is too generous. APTT could move to an 8% dividend yielder and should interest rates start to fall, it could compress into a 6% dividend yielder. Based on my thoughts, the target price range for APTT is 13-17 cents. Should APTT continue to annouce a 1.05 cent annual dividend, the market could appreciate the company to this price range.

Portfolio Update: Sale in HK Dividend Stocks, Purchase of Singapore Shares

This is an ad hoc update on my portfolio because of significant changes.

I have divested shares in Alibaba, China Construction Bank and Ping An. 

Due to PRIME's improvement in situation, I have added 100,000 shares. Yanlord and Nanofilm saw additions to ensure my exposure to China remains about the same.

Last a new company has been added call Asian Pay TV Trust (APTT). The company is highly leveraged but is gradually paying the debts down. It is guiding for 1.05 cents annual dividends which I think is attainable despite a declining TV business in Taiwan. It will form part of my dividends. 

Overview of my portfolio as follows:

PRIME US REIT: Sale of 01 Building Makes it Safe and Management Confident of Refinancing

Yesterday's announcement saw PRIME REIT divesting One Town Centre (OTC) at about 3% lower than its valued price at end 2023.

As said in my earlier post, PRIME US REIT needs to sell 1 to 2 buildings to ensure the financial safety of the REIT. This has happened and I am confident the REIT can stay afloat.

Refinancing Risk

A $478 million debt is due. During the latest AGM, the CEO said he is confident that the refinacing will be completed by the deadline of July 2024. With the sale of One Town Centre conciding with expiration of the current debt, what I am infering is that the new debt principal will likely be of a smaller amount (probably a $450 million loan).

However, with OTC sale and adequate cash balance, it is likely a refinancing can be completed in time.

Current Loan Profile

What many investors do not see is that the OTC loan is the most expensive loan on PRIME REIT's book at SOFR + 1.65%. In addition, with the leftover cash from One Town Centre's sale, PRIME REIT will use it to repay some of the due July 2024 loan principal.

For the refinanced loan, I do not expect a SOFR+1.15% margin. My expectation is that it will be a SOFR+ 1.7% loan similar to that of Sorrento Towers/One Town Centre. Furthermore $155 mil of PRIME's hedging will be lost  This mean despite the pay down in loan principal and cancellation of One Town Centre's loan, PRIME REIT's interest expense year on year will not fall. Instead I expect further rise in interest expense to about US$30 million per year.

Cashflow and Dividends

Interest expense is US$30million. Manager base fee is US$6.2 million, Trustee Fee is US$2 million.

The loss of OTC and decline in occupancy could place NPI at about US$82 million. CAPEX should remain at US$24 million.

This means the REIT is in a position of generating US$20 million of cash this year. With plans to strengthen the REIT's equity and pay down the loan, a significant portion of cash could be retained. I will not be surprised PRIME REIT pays out only a dividend of 0.5 cent per share for the full year. I do not want to see PRIME US doing another share bonus because it does nothing for shareholders. 

Give 0.5 cent dividend and explain it or otherwise...

Dividend of 90% of Taxable Income to Get Tax Breaks

During AGM, the CFO revealed in order for the REIT to continue achieving tax breaks from USA, they have to pay out 90% of the taxable income. In my view, PRIME might be able to earn US$25 million in taxable income this year. 

This means an approx US$22 million in dividends could be given to shareholders. If this holds true, this translates to a dividend of 1.6 cents per share for the full year.

This will be great news. But given the situation the REIT is in, I will not be surprised PRIME opts for a 0.5 cents dividend this year instead of 1.6 cents dividends. A 1.6 cents dividend may force PRIME to increase its borrowings due to cashflow. So I am expecting the worse case scenario where the REIT only announces 0.5 cents per share in dividend.

I do not agree with this but given the prudence the REIT has to be in, a 0.5 cents dividend look likely. I personally prefer the REIT to divest off another building and refrain from doing anymore office space acquisition forever to slowly delever 

First Quarter Portfolio Update: Purchase of Nanofilm and China Construction Bank, Sale of Few Companies

While Sea Group has run up in share prices, my holdings in Elite Commerical fell. So its both happiness and sadness. I have sold both of these companies and bought Nanofilm & China Construction Bank. A partial divestment was done for my long held Yangzijiang Financial to fund the nanofilm purchase because nanofilm seems to have better recovery prospects.

Nanofilm is a company that does coating using its unique technology and has factories across Asia with its largest factory in China. It is a proxy to the state of China's manufacturing and consumer activities. In my view, the lowest point in China's manufacturing has past and therefore, I have bought 27,000 shares in Nanofilm. 

China Construction Bank's (CCB) purchase is to maintain a good dividend yield and I do feel the bank's results is strong despite the real estate downturn. CCB has a large segment of its loan book portfolio in real estate and construction. 

Portfolio Valuation

Due to the surprise suspension of dividend by Keppacoak, my portfolio has taken a beating. However, I have not sold off any of my US REIT shares, reason being, I do feel we are at one the lowest end and therefore, holding it will be wiser.

Readers would notice my PRIME US Reit has increased by 30,000 shares. This was not due to a purchase but because these are bonus shares given by the company in its latest year end financial results at no cost.

What's the Progress of Manulife US Asset Sales? Brookfield Sales Shows It Might not be Smooth Sailing

I am not vested in Manulife US REIT (MUST), but am following it because it reflects the state of the US Office market which affects my other 2 investments.

Recently, MUST insiders have been buying up shares which is good news. However, a recent news of Brookfield asset sale in Figueroa might dampen news, it does not seem like its good news in the progress of Tranche 1 asset sales for Figueroa.

BrookField Asset Sale

Just 1 block away from MUST's Figueroa property, Brookfield has sold off its 777 South Figueroa street at US$145 million and with 15 offers. The office tower was only 50% occupied and sold at 25% of its 2020's valuation. The good thing is MUST's Figueroa property is 81% occupied, so it is on a better footing. Hence in my view, it is possible for MUST to start selling it at 35% of its 2020 valuation of US$337.6 million. This means about US$118 million.

For MUST, it is a definite it cannot sell its property at say 25% of its 2020 valuation. This is due to the Decemeber EGM circular which was approved by shareholders in its recap plan.

The Dec 2023 Recap Plan

Shareholders of MUST approved the share sale for Tranche 1 assets at the following parameters:

Pre-approved MUST can only sell its Figueroa asset at the lowest price of US$106.2 million, if it happens. Right now, at its current year end valuation, it can only be sold at US$132 million. However, with the recent comparable sale of Brookfield's asset one block away, I will not be surprised a further downward valuation happens for MUST's Figueroa, this should bring it near to the floor price of US$106.2 million. My baseline valuation is US$118 million. To why I think the value of MUST's Figueroa value would fall, this is because BrookField's Figueroa has a larger floor area by 40% and is 1 year younger than MUST's. The saving grace for MUST is its higher occupancy rate. Nett nett, I do think MUST should be able to fetch about US$118 million based on sales comparable approach. However, given that Centrepoint is below the circular agreed sale, the sale of Tranche 1 office assets seems to be increasingly hard.

Secondly, its worth noting in the recent devaluation, Centrepoint's value is now lower than the pre-approved price to sell its Tranche 1 asset. While MUST can still sell, the lenders approval to sell at the lower price has to be sought. This hinders the target goal of raising US$328.7 million from sale proceeds. 

I am not surprised the sale of a few Tranche 2 assets may occur. The sale of US$230 million target is important as well because failure to meet it results in a higher interest rate levied by lenders. And while Centrepoint can be excluded, it makes the required sale execution to be close to perfect. Diablo is already at the bottom price range of the circular.

The above are my opinions.

Progress of MUST's Tranche 1 Sale?

I hope MUST brings good news that it has sold at least 1 of its Tranche 1 property during the AGM or release of its Q1 results. The progress of the sales has been rather quiet thus far. A sale at its current end 2023's value would bring good news.

Yangzijiang Financial Holdings 2023 Results Review

 Yangzijiang Financial Holdings (YZJFH) delivered a result which was within expectations.

Summary

• Earnings per share of 5.5 cents
• Dividends of 2.2 cents
• Done slightly more than 10% of share buyback since spin off

Currently YZJFH trades at a share price of 32 cents or SGD$1.13 billion market cap.

$900 Million in Cash and Cash products in Singapore

One important point from the year end results is that YZJFH has transferred a significant amount of cash from China to Singapore. With the cash in Singapore, it can be easily verified and reduces the allegations that the cash items in its balance sheet is fake. 

The rest of its $340 million of Singapore funds are in investment funds, investments in other companies shares and funds. The total amount of funds in Singapore is now SGD$1.246 billion. This exceeds its current market cap. 

The market is currently valuing YZJFH at 10% discount to its Singapore assets and I find this rather undervalued. Currently, 80% of the market cap is in liquid cash in Singapore.

China Investments

Based on current market prices, the stock market is valuing its China investments at zero value. One concern is that the allowance YZJFH has set aside for its debt investments have risen from 8.8% to 13.3%. This means the company sees an elevated risk of getting all its money back from China companies it has lent to. In my view, the concern is valid. Given that YZJFH gets about 10% returns from its debt investments, this means the individuals it is lending to are not of blue chip status but of lower credit ratings. 

In China, the prime lending rate is 4.35% and the blue chip companies in China are borrowing at 4-5% interest. For YZJFH to be earning 10% interests (PRIME + 5.5%), this means its borrowers are not of strong credit profile. To worsen the situation, China is in a credit crisis. However, I do not think a zero value is fair value of its debt investments. Its parent company Yangzijiang Shipbuilding sold all its debts at 56% value of principal. To me, in a worst case scenario, the debt investments held by YZJFH is at 50% of its principal value. It currently holds SGD1.92 billion of debts and I think the fair value of this debt is SGD$0.96 billion.

In addition, the company has SGD$0.72 billion of cash and short term cash investments in China. In total, I do think its China investments carry a worth of at least SGD$1.68 billion. Netting off the 10% tax for transferring the cash from China to Singapore as dividend. The China portfolio should be worth SGD$1.4 billion.

Fair Value of YZJFH

I would say $1.246 billion of YZJFH assets are real because it has been shifted to Singapore. With potentially another SGD$1.4 billion from China and netting off its $0.25 billion in liablities, the company is worth SGD$2.4 billion. This places it at 68 SG cents fair value.

US Office Commercial REITs- PRIME Pulls Positive Surprise With Its Young Property Age.

The full year results for the 3 US Office REITs are out. Downward valuations, as expected were reported with varying magnitudes.

Below are their current financial health:

CAPEX Shock

To me what came as a surprise is the CAPEX needs of KORE's property portfolio. KORE spends more CAPEX than the rest. This is due to KORE's portfolio being the oldest among the 3. While KORE claims the higher CAPEX is needed to retain tenants, the main (probable) reason is due to the need to refurbish its old buildings to match tenants needs.

As a result of the higher CAPEX needs as compared to PRIME US, KORE has decided to suspend dividends. PRIME US REIT on the other hand, due to its smaller CAPEX by virtue of having newer buildings, has slashed it to 10% payout ratio with a plan to delever wtih US$100 million. 

On the point on CAPEX, its interesting to note KORE puts in nearly twice the CAPEX expenses but still obtains the same ratio of "NPI to property revenue" or "Revenue to Valuation" as compared to PRIME. This clearly shows the main reason why KORE needs to pay so much for its CAPEX is because its properties are old and there is a need to spend more to maintain. This showed Keppel Capital had tried to fool public investors by IPO'ing older assets in a way to get rid of the looming cash needs then. Keppel seems to have pulled a fast one over Singapore investors.

PRIME- All eyes will be on debt Maturing on Jul 2024

PRIME carries a significant risk where a 600 million debt facility is due July 2024. This is a make or break segment, if it succeds, PRIME will have a very strong chance of an upside and rebound. A failure to renew and there will be a massive haircut to building valuation during the firesale. PRIME management has to present to the syndicate of bankers that its properties are of good balance sheet, the manager is committed to the REIT future and preferably the sale of 01 building should be done before this. 

ManuLife US REIT Has to Execute Well

MUST did a year-end valuation. With the revaluation, the expected sales from Tranche 1 assets are still within range of the announced sales proceed in their December circular for Tranche 1 sale.

However the resultant leverage places MUST very close to 50% (estimation is 49.7%). The sale to Diablo to me will be difficult because it is of a Class B asset (least desired) and it has not undergone refurbishment since its completion in the 1980s. Hence, there may not be many interested buyers. If the US Commercial office issue persists until 2025, MUST might need to sell off 01 additional building in Tranche 2 because the next revaluation in end 2024 would put it above 50% leverage again.

Sale of Buildings

In all likelihood, both PRIME and MUST could be selling buildings at the trough of the business cycle to delever to safety. It is a neccessary move but one that is forced due to the breach of leverage. 

Lesson from my US REIT Investing: Understanding CAPEX Requriments and Age Profile of Buildings

Investing in the US Office space taught me a lesson. Its not about the US real estate cycle but the need to understand the CAPEX requirement of the REITs and the building age profile. For these US office REITs, capital expenditure has to be spent to ensure the property is refreshed As a building ages, more capital expenditure is needed. And CAPEX is a cash expenditure.

It got me wondering why does Keppel Pacific Oak (KORE) require so much CAPEX as compared to Manulife US and PRIME US REITs. A further delve into the IPO prospectus reveals an area investors often not looked at.

KORE Building Age

 MUST Building Age

PRIME US Building Age

Different REIT, Different Age

If one looks at the age of the different buildings each REIT owns, one can notice KORE has a significant number of properties built in the early 80s, putting it as the oldest profile. This is followed by MUST and then PRIME US. For older buildings there is a need for more CAPEX to ensure its relevancy and for things to not fall into a state of disrepair. In fact, corresponding to the age profile, we can see the CAPEX spent by the 3 REITs follows closely to their age profile.

PRIME spends the least and that could be because its buildings are newer. 

How It Affects Us Investors?

For us investors, we have to know CAPEX is not added under the distributable income metrics. This means while the US REITs can give 100% of their income as dividends, they are adding more to their debt for the cash needs of CAPEX. In KORE's case, because its buildings are older, it has to increase its CAPEX, not just to attract tenants but to ensure their buildings do not go down. And the expense effects of CAPEX takes a delayed period of time and not one-off

Distributable Income is not a fair metric for us investors to guage. What we in fact need is to gauge the CAPEX requirements of each US Office REIT to know the sustainable dividend we can get. As shown in my previous article on KORE results, KORE's actual cash generation ability is only about 4.5 US cents and not 5.0 US cents due to the need for CAPEX.