Sunday, 9 December 2018

Jui Residences Review- Inspired by Heritage, Designed for Quality Living

Jui Residences is a freehold development that sits on the former National Aerated Water Company site. I used to study in a school at Geylang Bahru and as I walked to the bus stop home along Serangoon Road, it became a daily ritual to always do a stopover at National Aerated Plant and buy Kickapoo from a vending machine near its main gate. It dispensed Kickapoo cheaply at a mere 10 cents per cup and was very popular with a lot of school kids then. As a result, this development held very fond memories for me.  

Strangely, the show flat of Jui Residences is right next to Woodleigh Residences. I had applied for annual leave to visit Woodleigh Residences as I was rather fascinated by staying in an apartment that is right above a shopping mall just like Punggol Watertown Residences and Sengkang Compass Heights. I harbored hope that maybe there will be special star buys around in Woodleigh Residences given the current feeble state of our global economy. When my property agent who was showing me around told me that prices are around S$2,000++ psf,  I nearly fainted as I gasp for breath. Then the agent whispered into my ear: "Yes, I also think the prices here are crazy.....why don't I recommend you a freehold development near the area that is way cheaper than this?" So, my agent then brought me next door to the Jui Residences show flat.   

In December 2016, National Aerated Water Company sold the freehold industrial site for S$47Mil to Selangor Dredging Berhad ("SDB"). SDB paid an additional S$22.66Mil to the local authorities for intensification of usage to a residential site. The total land cost thus translates to an acquisition cost of S$785psf per plot ratio for the land area of 31,705sqft with permissible built up of 88,775sqft of gross floor area based on plot ratio of 2.8. Also, the National Aerated Water building will be partially conserved as stipulated by Urban Redevelopment Authority and integrated into the new development and kept fenceless along Serangoon Road and the river.

This is a city fringe located freehold property. Coupled with it being just next to Kallang River, residents gets to enjoy river view. Not many properties can boast being near to reservoir or waterbody and I considered it an unique gem that is away from the hustle and bustle of City life. Coming back home to this development thus allows one to enter into a mini resort ambience and at the same time enjoy the convenient location.  
Good size Infinity Lap Pool albeit small landsize.

Amenities and Facilities
There will be 117 units for one tower in this development. Carpark lot is 1 for 1 as well as an additional 5 parking lots for visitors. There will be adequate parking space from B1 to level 4 multistorey carpark. There will not be big fights over parking relative to other developments which has cut down to less than 1 for 1 ratio.

The infinity pool is the main highlight for this development. It looks very impressive and is decent sized considering the small landsize.

However, I was quite disappointed that there was no gymnasium at all. This is good in the sense that this will reduce the yearly maintenance cost. In addition, the developer will link up Jui Residences to the Kallang Park Connector hence probably they make do away with the need for treadmills since residents can just go jogging along the track. 

Units and Finishing
Overall, the layout of the apartments here is quite small. The master bedroom based on my standard are tiny. This seems to be the trending these days. If one wants to buy a 3 bedder unit, please avoid type C1, C2 and C3 which have long entrances that wasted the use of space efficiently. The best will be type C4 as illustrated in the picture above which represented the best 3 bedder layout. Type C4 is also the biggest unit in the entire development.

I do have a serious problem with the finishing given, that is, the tiles for the kitchen wall and bathrooms which I find too "Retro" and does not exude a modern contemporary feel. This maybe due to the integration with the conservation of the older industrial facade for National Aerated Water Company. But one can always choose to change the finishing during the renovation to fit one's desired theme. Rather, it is the location that cannot be altered at will.

Pricing is around S$1,700psf and there is still some discount available from the developer. This is a freehold status development. For home buyers who wanted more value for money and do not mind buying 2nd handed projects, one can look for other older developments located closer to Boon Keng MRT direction and also Potong Pasir direction. 

Parting Thoughts
The "Jui" in the name of this project actually means "Water". This is a good city fringe located property that is beside the beautiful Kallang River. The integration with a part of Singapore history that is being earmarked for conservation further enhances the uniqueness of this freehold development.

Saturday, 17 November 2018

Asian Pay TV Trust Meltdown- Is It A Good Buy At Current Price And Is It A Good Business?

Asian Pay TV Trust (APTT) unit price plummeted this week upon the announcement by their management team that they will be cutting dividends by 80%. This was a rude shock to many of their investors who were anticipating the dividend to be cut by half only. As a result, the unit price had a meltdown and dropped to S$0.15 during an all-time low on 14 November 2018 from the previous day closing price of S$0.315. Obviously, a lot of dividend yield-seeking investors are cursing and swearing at APTT. I also know of a case of an investor who bought 100,000 shares of APTT at around $0.47 a few months back and in total held over 300,000 shares of APTT. This represented a loss of at least S$100K in the capital value of the stocks on hand due to higher acquisition price over the prior years.

Why Do Some Investors Use Net Asset Per Unit To State That APTT Is Undervalued hence keep buying non-stop?
I would also like to add on that using purely Net Asset per unit to value APTT is not a good yardstick which some investors had relied on. This is because a huge chunk of the "asset" is tied up with an intangible asset in the form of a license to operate its business in Taiwan. The valuation of an intangible asset is fraught with lots of subjectivity depending on your beliefs. For my own sensitivity analysis, I would have impaired and discounted it severely based on the ever-weakening future cash flow generation from the entire business.

Is The Worst Over For APTT?
The million dollar question that everyone keeps asking now is whether the worst is over. Most importantly, is it a good time to buy undervalued units for APTT and also whether it is still a good business to invest in?
First and foremost, my personal view is that APTT has been massively oversold. There are no significant changes in the current business environment. The results show 9mths ended 30 September 2018 revenue declining by <6.3%> and EBITDA decreasing by <6%> whereas unit prices had plunged by 50%.  I think that the fair value should be a lot higher. Also, the dividend payout after the cut is actually more sustainable. For those who dare goes in now will definitely have a higher probability of making profits. Generally, it is the entry price relative to the fair value of any type of business that determines whether the investment will turn out to be profitable.

Also, the extremely low price is actually making it an attractive offer for buy-out by existing shareholders such as Terry Gou (Hon Hai Group Chairman) or other big corporations. 

BUT personally, I need to point out that while the unit prices are currently undervalued, there are unstable elements that are shaking the fundamentals of APTT and one may not be able to sleep well at night holding on to this counter.

3 Reasons Why Low Risk Tolerance Investor Should Stay FAR Far Away From APTT:

(1) Intense Competition from Pirates and Mobile unlimited Data Plans from Taiwanese Telecoms.
Consumers today are buying lots of TV boxes with free pirated TV shows. OTT such as Netflix, Viu, Youtube Premium etc are rising in popularity. Pay TV services is a declining market. For fibre broadband, they are also facing intense competition from Taiwanese Telecom companies which are offering unlimited Data Plans on the mobile network for connection. While the services are not obsolete, the revenue APTT can generate will continue to decline gradually due to a change in consumer demand. 

(2) APTT Management Team is either exhibiting excessive optimism from previously announced results or they are unsure of their own business and industry outlook. 
I have previously pointed out in my other posts that the management keeps repeating that the ARPU decline is stabilizing. Apparently, their perception and definition of stabilization are very different from my own definition. Quarter by quarter it has been declining. I do not see anything stabilising about that aspect. 
Extract from previous QFY2018 Q2 Results Presentation
In addition, during the 2nd quarter announcement, the APTT management team mentioned that they believed the unit prices are undervalued and that they are contemplating a share-buy back. But for the recent 3rd quarter announcement, it turns out that they have cashflow issue to fund future CAPEX without incurring more debts. Hence why talk about share-buy back when they do not even have sufficient funds to maintain the previous dividends and future CAPEX? I personally find such presentation contradictory to the ground situation and have sold off all my APTT units immediately after my last post in September'18 and hence was lucky to have avoided the recent crash in the unit price.

I hope that the major institutional investors will demand for at least 1 new senior management personnel to join the current APTT management team. It is time to do a global search or look in Taiwan for someone who can effect change by bringing in new perspective to the current business. Look at Starhub Singapore, it has done well with a new CEO who has brilliantly executed a cost-cutting exercise and a joint venture for cybersecurity.

I hold a view that a solid management team is a core to sustaining and developing a business and to continue to make it relevant.

(3) Massive Debts and Rising Interest Rate Environment
S$1.4 billion debt is actually a high risk to APTT as alluded to Reason 1 above. The old perception by everybody that APTT is a defensive stock and has stable cashfllow is actually no longer valid due to the declining customer demand. Banks are known to be fair weather friends. Once the marco economic environment sours or there are further decline in operating results that lead to banker's re-assessment, there is no guarantee in the loan agreements that the bankers are obligated to continue extending the borrowings indefinitely. The billion dollar debt is not a small amount.

I am also not confident that APTT will be able to get a lower financing charge upon renewal in the face of a rising interest environment and also declining business albeit gradually, that leads to worsening risk profile. Again, I do not share the same excessive optimism of the management team of APTT. Leverage is always a double-edged sword that cuts both ways.

Parting Thoughts
The current price of S$0.167 per unit includes dividend declared. Stripped off the Q3 dividend of S$0.016 per unit and ex-dividend effect will be S$ 0.151 per unit. From the revised dividends projection of S$0.012 per unit for FY2019 and FY2020, the dividend yield thus becomes 7.95% which is fairly decent as historical excessive dividends payout will be re-deployed back into the business as CAPEX investment.

For more conservative and low-risk tolerance investors, it may be better to give APTT a miss in order to sleep better at night.  

Saturday, 10 November 2018

Singtel 1st Half 2018 Results Review And Interim Dividends Payout (6.8cents per share)

Singtel just announced its first-half results ended 30 September 2018. I actually think that it is a fairly good results being announced considering the intense competition faced by its overseas associate companies and Optus. Operating revenue surprisingly remained resilient and even grow 3% to S$8.4 billion. Margin eroded by over 21% (after normalisation from one-off gain from disposal of Netlink Trust in the previous year) mainly due to lower contributions from Airtel and Telkomsel as well as foreign currency translation losses from the effects of stronger Sing dollars against other currencies.

The only concern I have is that Singtel still has not stemmed the bleeding from Group Digital Life business. It continued with  a widening of losses of <S$84Mil> based on the first half results. While I understand the importance of investing in this business segment which management seems to believe that there are perceived synergy to exploit on the Group's service offerings, the results have been depressing for years. They just can't seem to breakeven despite growth in revenue.

I have previously disposed all my Singtel stocks at prices of S$3.78 level as I do not like the intense competition with TPG jumping into the Singapore market by year-end. With the sharp decline in the prices of Singtel and which I think have been oversold, I have been accumulating new Singtel shares at prices ranging from S$3.060 to S$3.180 recently. The current business model from telecom business is still relevant and Singtel has proven to be defensive in nature over these past few months with lesser trading volatility relative to other blue chips. 

An interim dividend of S$0.068 per share has been declared which represented a 2.19% yield based on the last traded price of S$3.10 per share and in line with expectation. Hence Singtel is still on track for its dividend guidance over the next 2 years of S$0.175 per share. This represents an annual yield of 5.65% which is fairly attractive while waiting for the share price to recover.  

Tuesday, 6 November 2018

Risk of Higher Interest Rates Effect On Stocks and Properties Amidst Trade War Between US And China

The stock market has been going on a see-saw ride for many months now. Just a few days ago, stock market worldwide rallied thinking that Trump will end the standoff in trade spat with China. But then on Monday, Asian markets tumbled immediately after White House economic advisor Larry Kudlow gave a clarification that the US is not likely to deal. 

In view of the great uncertainty over the resolution of the ongoing trade row, economic activities will continue to slow down albeit the full impact not being felt in Singapore yet. We remain in a perilous situation. The relentless increase in interest rates by the Federal Reserve certainly does not help the current economies.

On the stock market front, it is a fallacy to think that banks will definitely benefit from a higher interest rate and that it is a good time to buy into banking stocks. Banks may not benefit at all from interest rates rise if the volume of transactions goes down drastically, in particular in an economic recession climate. All economies and companies follow the rule of going through ups and downs. Banks such as DBS and OCBC cannot be delivering gravity-defying higher and higher record profits for every quarter.

On the Singapore property market front, an increase in interest rates in the face of ever-increasing property prices may eventually lead to a decline soon. This is because once cheap money is removed and new buyers take up more expensive property loans, they will have to fork out a lot more in terms of monthly repayment. The below illustrative (using the recent hottest property on the block-Woodleigh Residences) depicts the effects of the monthly housing loan repayment based on varying interest rates over 30 years for those who dare to venture into the private property market at this point in time.

The Hong Kong market has already been seeing signs of a housing downturn amidst the rising interest rates. Application for mortgage applications have dropped and increasing properties being let go at lower asking prices. A similar fate awaits the Singapore property market if things do not improve soon. 

For investors, this represents an extremely rare opportunity to get stocks and properties at a good deal. The moral of the story is to wait for economic events to unfurl. Recession or not, I have learned a good lesson from the 2008 global financial crisis, that is, do not go into the market immediately. Be patient and spread out available cash and accumulate assets gradually over the coming 6 mths instead of pumping all available resources into the market at this juncture as if there is no tomorrow for fear of missing the boat.

Saturday, 27 October 2018

Dead Cat Bounce and Bear Coming Out? Are We In A Recession Already?

Recent turmoil and bloodbath in the stock market are giving me a Deja Vu feel to the 2008 pre-global financial crisis. The stock market will recover with many analysts chanting just a normal correction. Then stock prices will pick up as if poised for a major rally but within a few days commence tapering off again. This dead cat bounce will happen a few times but the market never seems to be able to break out.

Our government also warned of the effects of the US-China trade war beginning to hit our economy over the next few months. 

Keeping my fingers crossed that there will be an improvement when Trump and Xi next meetup in November 2018 during the G20 Summit. Business and consumer sentiment are very fragile objects which can be shattered easily by any external economic bad news. It may go quickly south in the blink of an eye or even worse, the beginning of an economic meltdown. Probably best to keep additional liquidity on hand instead of a full deployment of all available cash into stocks at this juncture. 

Please feel free to share your thoughts and comments on the economic outlook. Thanks!

Monday, 22 October 2018

Singapore Press Holdings- Review of FY2018 Results and Cut In Special Dividends

SPH had announced their full year results for FY2018 on 15 October 2018. The media segment had continued its decline. Good news here is that the rate of decline had slowed down. However, the decline is serious enough on its free cash flow to warrant SPH to cut down on their year-end special dividends. In its results announcement, SPH mentioned that the Media segment continued to be highly profitable. I actually think otherwise. Operating GP margin for Media segment is only at 14.1% based on annual revenue generated of S$655.8Mil and profit margin of S$92.3Mil. I would think that the real super profitable SPH business is in its current property business. The operating GP margin for property is highly profitable at 62.6% based on annual revenue generated of S$242.4Mil and profit margin of S$151.8Mil.

Extract of operating revenue by business segments

Extract of profit before tax by business segments
In terms of the profitability driver, the contribution from property segment has far outstripped the contribution from the media business. It is only contributing a mere 26.7% of total profits before tax and this is expected to further decline to below 25% in future. The future growth engine for SPH thus comes from its up and coming Property segment which is expected to make up more than 50% of its profitability going forward since any further decline in revenue from Media segment translates only into less significant profit drop based on the operating profit margin of a mere 14.1%. For example, a drop in S$10Mil of Media segment revenue will only cause a decrease of <S$1.41Mil> in profits.  An increase of S$10 Mil in Property segment revenue will add on over S$6.26Mil to the bottom line.
Weightage of each business segment against total profits
The growth driver for SPH burgeoning property segment will come from the below business catalyst:
  1. Recently acquired student accommodation business in UK;
  2. Development of residential project Woodleigh Residences in Singapore Development and 
  3. Management of upcoming Woodleigh shopping mall for rental income
Thoughts on the Dividends Declared and Fair Valuation
The SPH Board has declared a final dividend of 7 cents per share comprising (i) 3 cents of ordinary dividend and (ii) 4 cents of special dividend. Coupled with the interim dividend of 6 cents per share, the total dividends for FY2018 is S$0.13. Based on closing price of S$2.62 on 19th October 2018 (Friday), this represented a dividend yield of 4.96%.

My personal thoughts are that the business of SPH has actually stabilized now that new growth engine has been put in place. The current dividend yield of approximately 5% is very attractive as it gives a payback annually while waiting for the business to continue growing and to realize its potential. The main risk now is whether SPH can maintain at least S$1,800psf in the average selling price of its units in the Woodleigh residential development project in view of the new cooling measures announced by the government this year. SPH and its partner Kajima had invested over S$1.132 billion to acquire the Bidadari commercial and residential site. Any severe economic downturn from the global effects of US China trade war and interest rate hikes will adversely impact the returns on this property development venture.  

Hence, I will say at S$2.62, SPH is fairly valued. If the price drop below S$2.60, it will be a good price to start accumulating some of its shares for a reasonable margin of safety while waiting for the new property projects to bear fruits. 

Sunday, 21 October 2018

Treating People With Respect- The World is Round (Survival Guide Pre-Financial Independence)

It always never fail to amaze me by how nasty some people can be when dealing with other people in the service line. These group of people have the notion that the old adage of "customer is king" gave them a superior right to be rude and to ill-treat others servicing them. Hence they are entitled to verbally abuse service staff serving them and make them feel like clowns. Such obnoxious behavior can also happen within the same company by a supervisor or senior manager against their own staff under them. The mentality here is that since they are paying their staff salary and decides the performance bonus via the interim/year end appraisals, their staff under them should subject themselves to their every whims and fancy. According people with basic dignity thus never cross the mind of these group of obnoxious folks. 

I always believe that the world is round and also the principle of karma. Economic conditions changes and there will be ups and downs for all companies along with the economic cycle. For some of the nasty clients that I known of, I have seen some of them being retrenched by their own company and ended up taking up jobs offered by the servicing vendor companies that used to serve them. Some of them thus ended up having to serve other people and faced the indignity of obnoxious behavior and the difference is that they themselves are now at the receiving end. 

For the other group of senior managers bullying their own staff, I have seen some of them being retrenched as their salaries are too high and their reputation inside the organisation are notorious enough for them to be listed on the "to go" list once the economic situation worsen and cost rationalization exercise has to be undertaken. It is thus no surprise that the staff that used to be under them actually rejoice and make no pretext to hide their celebratory mood. I have also known of instances whereby some of these long suffering staff making sneering remarks when they happen to bump into their ex-head of department outside work.

Some of the aforesaid factors are why people crave for financial independence. Unfortunately, some of these unpleasant situations cannot be avoided for most salaried workers. Adapting to the challenges in life thrown at us daily from clients and the manager from hell is thus key to survival while striving to save and invest as much as possible. Changes is the only constant in life. There will always be up and down. Also, in every crisis, there is always an opportunity. One can also always choose to exit in such unpleasant circumstances or alternatively, choose to outlast the evil doer (as Karma tend to catch up eventually).