Thai Beverage First Half Profits Increased Relative to Last Year But Share Price Plummet by 10%- Oversold?

Thai Beverage share price plummeted by almost 10% the following day after the release of their 2nd quarter financial performance (ending 31 March 2019) to as low as S$0.735 per share from S$0.825 per share. This seems to be a knee jerk reaction to the unfavourable results for 2nd quarter relative to the previous financial period. However, the fact of the matter is that if I recall correctly, Thai Beverage is coming off from an abnormally highly skewed profit base for Q2 2018 which was mainly before the additional excise tax came in for alcholic drinks hence agents and retail outlets were stocking up as much as possible before the new measurement and price increase in April 2018 by Thai Beverage.

A better gauge of their financial performance should be for at least 6mths. Thai Beverage 1st half results were still 11.3% better overall than prior financial period albeit the decline for the 2nd quarter. I think that it is too soon to write off the good performance and to decide that Thai Beverage will underperform for the 2nd half of its financial year. Revenue for Beer is still on a rising trend. 

2nd quarter results-Revenue still improving.

Normalised net profit due shareholders is still up by 11.3% for first 6 months (excluding non-recurring M&A expenses)

Even before the release of the results, I saw an increase in short selling activities. Looks like magically, some shareholders already glanced into their crystal ball and knew that the 2nd quarter results will show a decline relative to the prior year financial period and the market will react very negatively. Sometimes, I just can't help but wonder whether there are any leakages of key financial data before the announcement to the market despite SGX stringent rules governing such disclosure. As of the recent 2nd quarter results announcement, I  was still holding on to 41,000 shares at an average cost of S$0.630 per share. Since the beginning of this year, I have gradually sold off part of my original 81,000 shares in order to take profit after the recovery from the bearish market sentiment in Q4 2018.

During the 1 day plunge in the share price of Thai Beverage following the release of the results, I had taken profits off 10,000 units of Starhill Global REIT and used the proceeds to accumulate 10,000 shares of Thai Beverage at S$0.740 a piece. My view is that it is still too early to conclude that Thai Beverage results will deteriorate and a better benchmark would be to wait 1 more quarter. Based on the 1st half excellent financial performance, I think that the shares of Thai Beverage were oversold. In addition, due to the global economic uncertainty, Thai Beverage remains a good diversification of one's portfolio with exposure to the South East Asia wine/beer market as well as the F&B (KFC) fast food segment in Thailand.

Organisations Must Treat Employees As The Soul Of The Company

This week, I came across an interesting article on Channel News Asia by Sara-Ann Lee on “Always tired and worried about under-performing-when extreme meritocracy drives burnout.”  Sara-Ann Lee also mentioned that “Organizations must treat employees as the soul of their company, rather than as resources to be expended at their disposal.” While this is indeed true, it is always a two way street in terms of employer and employee relationship. Employees should also stop treating their organizations as a resource to exploit and be expended while pursuing their career and wealth accumulation. I list down some of the paradoxes in employer and employee relationship.

1. Time waits for no one. Every man for himself then?

Firstly, I find it strange that many young employees these days like to job hop. I have seen resumes of job candidates who change job every 1 or 2 years. I also have colleagues who jump ship every 1 or 2 years so that they can have a huge jump in salary increment. Their motto is “Every man for himself”. Show me the money first and fast. No use telling me to wait for year-end promotion and grow with the organization.

2. Strawberry generation

One of my colleagues remarked that the strawberry generation are easily bruised. I can remember during my first few years in the auditing profession, there were a number of “meanie” senior managers who like to scold their staff for not fulfilling their required standard. There were even files being thrown out of the office and into the rubbish bins right in front of the junior employee by the senior managers. Nowadays, the situation is entirely different. If a manager tells off a staff, chances are the employee would tender resignation the next day. If a manager throws a file into the dustbin, the employee may complain directly to MOM or raise a lawsuit for abuse and psychological harm.

3. Singaporeans are victims of our own success

It probably does not help that Singaporean parents are better to do relative to their parents or grandparents’ generation who in their earlier days were struggling to put food on the table. I had a colleague who told me that her parents asked her to quit the auditing profession as the hours were too long and the work too stressful. The parents even told my colleague that they would give her a monthly allowance/pocket money if she decided to quit the job while looking for an “easier” job.  Not sure whether this is the right way to educating young adults which is not exactly molding them into a value-adding employee in the workforce.

4. My way or the highway modern employees

Some employees cannot be criticized. If you bring up that their reports can be further improved on for presentation, they immediately felt very defensive and offended. These particular employees think that they are the best of the best after graduation. They will then decide to quit as they feel that their “professionalism” is being insulted.

Parting thoughts

My personal thought is that there is no doubt that some organisations- in its pursuit of business excellence via uncompromising effectiveness and adopting a paradigm of no-nonsense- appears devoid of heart, soul and spirit in its interaction and dealing with employees. But at the same time, there are also heartless employees who treated their employers as nothing but a mere stepping stone to cater to their own individual whims that are clearly not in the interest as well as out of sync with that of their organization’s businesses as well as the greater good of our whole society.

Developer SPH and Kajima Slashed Woodleigh Residences Price by 10%-13% from $2000psf to starting from $1733psf For Relaunch in May 2019.

Interestingly today, my property agent messaged me that Singapore Press Holdings ("SPH") and its partner Kajima had slashed the price of Woodleigh Residences by 10% to 13% from S$2,000psf to as low as S$1,733psf. This was despite their initial assertion that the VVIP launch in October 2018 was a resounding success with over 60% of the launched units sold at an average price of 2,000psf. However, for the re-launch of Woodleigh Residences in May 2019, the developer SPH and Kajima must have decided that the risk of the market downturn may not be worth it and started slashing prices drastically in order to move more units. After all, the developer was only able to sell 30 units on the first weekend of its initial launch albeit declaring that 60% were sold by proclaiming that they only launched 50 units.  

For a 958sqft 3 bedder unit, prices would have dropped from S$1.92Mil to S$1.66Mil which translates to substantial savings of +S$256K for potential buyers relative to the first batch of VVIP. This does not seem fair to those first batch of buyers who had supported this integrated mixed commercial and residential project of SPH and Kajima during launch. I hope that SPH and Kajima would have given some goodwill renovation packages to compensate these initial buyers. 

On the property market front, I am not sure whether other developers will also take the lead in slashing prices but I hope so for the benefit of consumers. Once the music stops, property developers holding on to the most unsold inventories would need a very strong balance sheet to wait out the economic downturn. 

From the stock investing perspective, I have previously highlighted the lingering impairment risk of the Bidadari project, that is, Woodleigh Residences, due to the potential property market downturn and uncleared inventories.  I am glad that SPH has decided to slash the price in order to move their inventory of unsold units. Coupled with the bad news from the US/China trade war today, SPH price has dropped to S$2.40 per share and it may be worthwhile to re-look into their newly transformed property business from the previous media giant model. The new UK student accommodation segment acquisition should prove invaluable in the event of an economic downturn due to earnings resiliency.  

Note: Please refer to my previous SPH post "Singapore Press Holdings Transformation Into Property Giant Almost Completed".

Undervalued Stock- Global Investment Limited and Recent Share Buy-Back Activities

The share price of Global Investment Limited ("GIL") has risen over 30% to S$0.136 per share since its lowest point on 7th December 2018 of S$0.103 per share. The main reason was due to the January 2019 market rally against the bear market sentiment that plagued the market during the last quarter of 2018. The other reason for the strong showing was due to the management of GIL exercising the share buy-back mandate. Ever since 8th January 2019, GIL has been pretty busy buying back shares almost daily. The last share buyback announcement was just as recent as 26 April 2019. 

Nevertheless, I am not entirely convinced by the effectiveness of the share buyback initiative given the significant difference to its fair value. GIL is still severely undervalued by the market. In the longer term, the share buyback is no use as a tool to prop up share price as the mandate for purchase has a limit imposed on it. Using a quick and dirty method to derive the valuation, we can use the NAV to approximate the fair value given that most of its assets are repriced to the market during the book closing. The fair value per share thus worked out to be around S$0.187 per share (S$322Mil of Net Assets over S$1,723 Mil number of ordinary shares). The current share price of S$0.136 per share is still at a very steep discount of 37.4% discount to the estimated fair value. 

The management of GIL should seriously conduct a strategic review as soon as possible and assess options such as selling off the entire company to other industry players such as banks, fund management companies or even government institutions (Temasek Holdings). This would then unlock the huge discount in its current languid share price. The market is apparently demanding a substantial risk premium for GIL over the meltdown of GIL during the previous Global Financial Crisis in 2008 that has scarred too many souls and did not re-price in the current restructured investment assets adequately.  

For now, the good thing is that GIL is paying out dividends and not hoarding excessive cash, unlike other companies. The Company's mission statement is to invest in a socially responsible way to generate steady income and capital appreciation so as to deliver regular dividends and achieve capital growth for shareholders.

Note: Please refer to my other postings with regard to the assets held by GIL. 
1. Global Investment Limited- Financial review. Is it really a "Hidden Gem"?
2. Global Investment Limited- Excess cash from FY2017 deployed into China Domestic Bonds
3.Global Investment Limited (Attempt To Unlock Intrinsic Discounted Value)- Wiping off Accumulated Losses from the Global Financial Crisis

Will Recession in Italy Spread to Rest of Europe And Crash the Global Economy?

It is widely reported that Italy is currently stuck in an economic recession and there is a growing risk of a financial crisis emerging from there. Being on austerity drive also means their government cannot spend their way out of the economic slump. The country's debt to GDP has reached an astounding 130%. We may be staring at a repeat of the Greek financial crisis soon. The only difference is that as Italy economy is so many times bigger than that of Greece (around 10 times) and any banking collapse is going to be contagious and spread to the rest of Europe. From there, it may lead to a worldwide financial crisis.

Looks like I have to make some changes to my portfolio while keeping a close watch on the latest development. However, I will still be keeping most of my assets in income generating stocks but re-look into my other assets to prepare to raise cash on hand for further equity investment should there be a downturn. I believe that a lot of countries in Europe, China, and the US are taking up too much debt. It takes only a slight change in consumer and business sentiment that will spark off the collapse of the domino.  

Investment Portfolio Updates- 18 April 2019 (Allocation of New Funds To More Defensive Investments)

Due to the US Federal Reserve keeping a dovish inflation outlook, interest rates have been maintained at the current level and no further interest rate hike is expected for 2019. This is actually a sign that the US macroeconomic condition is weak. But strangely, the stock market, in particularly, REITS rallied in valuation.

However, my thoughts are that if one is investing mainly for income generation, then short term fluctuation does not have much meaning unless one is doing frequent buying and selling of stocks for allocation of funds to the most undervalued assets. One would need to overcome the issue of lack of diversification too. In addition, timing the market is actually very challenging unless one has a crystal ball that can peek into the future.

Key Highlights since my last updates on my portfolio

I have injected additional funds of approximately S$10K into Netlink Trust (S$5K) and Keppel DC REIT (S$5.2K) which are slightly more defensive in nature in view of my pessimistic economic outlook. Being in the supply chain industry, I am seeing a contraction in the volume of shipments moving in and out of Singapore. Oil and Gas business segment is in particularly bad shape and in doldrums in spite of the recovering oil prices to USD70 to USD 80 per barrel range which were way higher than the USD40 a few years back in 2016.

Also sold off Singtel and Parkway Life REIT and did a bit of asset re-allocation to First REIT, Mapletree Industrial Trust as well as Mapletree NAC Trust.

1. Netlink Trust

I actually do not like Netlink Trust due to the uncertainty over its future cash-generating ability over the threat of 5G technology implementation in Singapore. The key issue here is the effect of the gain in 5G base stations connecting fees over the loss in consumer/corporation subscription upon the switch to 5G. Have parked some funds into Netlink Trust for now due to the short term stability offered while waiting for more details on the charging mechanism.

Please refer to my previous post on "Upcoming 5G Network Technology and Imminent Threat to Netlink Trust Business".

2. Keppel DC REIT

The WALE is 8 years. This is a high technology business support segment on data hosting. Also, once tenant shifted in, much setting up cost would have been incurred. Any exit or migration to other DC requires very detailed planning and extensive resources. Overall low yield but relatively stable based on its historical performance.  

3. Singtel

Have sold off my stakes in Singtel. I do not like the recent rights issue which Singtel took part in for its India market Bharti Airtel associate. Singtel is also fighting a bruising battle with its competitors in Singapore market and Australian market. These are 3 key markets where Singtel derive most of its profits. I do not see how the profit margin will improve in view of the tight competition in this 2-3 years. Fundamentals of Singtel is good but my preference right now is to sell off and re-deploy to other stocks.

4.  Mapletree NAC Trust
The property management team has been diligent and disciplined in growing the asset under management.

5. Mapletree Industrial Trust
The reasons I bought into Mapletree Industrial Trust are listed in my previous posts here. Mapletree Industrial Trust has demonstrated earnings resiliency over the years and I like its new strategy of going into high tech data centre segment to exploit on cloud and internet of things. Please also refer to Pt 2 Keppel DC REIT with regard to the defensive attributes of a data centre business.

6. Parkway Life REIT
Sold off and took profits. Reinvested most of the proceeds into First REIT.

7. First REIT
Added more units for First REIT. First REIT is currently trading below its NAV. It has fallen more than 40% from its peak of S$1.42 per unit. Institutional investors and other retail investors have been busy selling of First REIT. 

The key risk in holding on to First REIT is that Lippo Karawaci will default. However, this is unlikely given that Lippo Karawaci has won approval from shareholders at the recent AGM held on 18th April 2019 to proceed with the rights issue. USD730Mil will be raised. Also sales of asset expected to bring total fundraising to USD1 billion dollars which will shore up its balance sheet and improve credit ratings.

Please refer to my previous post on "First REIT- 5 Key Risk Factors".

If one believes in the long term prospects of healthcare services given the aging population, then I believe First REIT has a rather good growth storyline in place.

8. Thai Beverage
Took profit by selling additional units in view of the surge in stock price. Will wait for the announcement of the recent quarter performance in May'19 to decide on further action. Jan'19 to Mar'19 quarter results are expected to be even better than the preceding quarter due to the general election in Thailand.

"Winter is coming."
~House Stark

First REIT- 5 Key Risk Factors

First REIT is currently trading below its NAV. It has fallen more than 40% from its peak of S$1.42 per unit. Even now, institutional investors and other retail investors have been busy selling of First REIT. From my analysis, the 5 key risk factors are as below:

(i) The default risk for rental payment due to a liquidity crisis faced by its sponsor and main tenant, Lippo Karawaci;

(ii) Non-renewal of master tenancy for some of the hospitals due in 2021;

(iii) As alluded to (ii), even if master tenancy were renewed, it maybe on less favourable terms such as being pegged to Indonesia Rupiah instead of Singapore dollars and subject First REIT to forex losses and

(iv) the new owner OUE Lippo might force upon First REIT to take up non-yield accretive asset healthcare assets. The track record isn't pretty given the outcry over what had happened to the REITS under OUE. As a matter of fact, when the Riady family are on a war path for fund raising, bad things may befall shareholders....look at Lippo Mall Indonesia Retail Trust.

(v) shareholders need to keep significant spare cash on hand for upcoming rights issue for M&A. The management has set a target to acquire OUE Lippo healthcare assets to diversify its Indonesia asset base. If the rights are set at a huge discount and one does not have the sufficent fund to subscribe, then the holdings in First REIT will be severely diluted.

The key risk in holding on to First REIT is that Lippo Karawaci will default. However, this is unlikely given that Lippo Karawaci has won approval from shareholders at the recent AGM held on 18th April 2019 to proceed with the rights issue. USD730Mil will be raised. Also sales of asset expected to bring total fundraising to USD1 billion dollars which will shore up its balance sheet and improve credit ratings.

Extract of Press Release of AGM of Lippo Karawaci

I also believed that the Riady family has invested a lot in the medical equipment and doctors staffing the hospital healthcare segment for them to give it up easily. Renewal of the upcoming expiring master lease in 2021 should not be an issue.

This leaves us with issue (iii), (iv) and (v) to worry about. Victor Tan (CEO of  Manager of First REIT) had shared some of his invaluable insights on a radio talk show before on some of the above-mentioned issues.

Anyway, if one believes in the long term prospects of healthcare services given the aging population, then I believe First REIT has a rather good growth storyline in place.