Wednesday, 25 April 2018

Will Asian Paid TV Trust tumble further downwards to less than 40 cents again?

Things are not good with Asian Paid TV Trust ("APTT") market price again. It tumbled down below the 50 cents support level this week. Strange thing is that there were no major news announced by APTT and there were huge volume that involved millions of units being sold off. This probably represented some selling by institutional investors.



I have previously mentioned in my other post that APTT is a risky stock due to its current business fundamentals. The share drop this week is a reflection of the volatility and investor risk perspective of this business trust. Please see Asian Pay TV Trust Review (Part 2) -Future Business Outlook  

Thursday, 19 April 2018

Steady Pom Pi Pi - First REIT DPU Q1 2018 Up 1 Cent



First Real Estate Investment Trust ('"First REIT") announced a good set of Q1 2018 financial results. It has an excellent management team and Sponsor.  

Property revenue increased 5.8% to S$28.7 million while coming off the recent acquisition exercise in Q4 2017. There were additional financial contributions from Siloam Hospitals Buton & Lippo Plaza Buton and Siloam Hospitals Yogyakarta. In addition, there were also improvements in rental income from existing properties of First REIT in Indonesia and Singapore.

I have always love First REIT management team for their long-term strategy of making yield accretive acquisitions which has allowed First REIT to grow its returns steadily over the years. 

Steady Pom Pi Pi First REIT! Way to go for 2018! 

Monday, 16 April 2018

Asian Pay TV Trust Review (Part 2) -Future Business Outlook



I actually have a love and hate relationship with Asian Pay TV Trust (“APTT”).
For those of you who have been with this business before its maiden spin off from the Macquire Infrastructure Fund days, you will know that this has long been a cash cow that has over the years been delivering and bringing in lots of cash for the unit holders as well as the banks which provided the financial leverages via borrowings.

I have made close to 46% return from capital gain and dividends back in 2012. But have since lost most of it after accumulating new units from the spin off. Its IPO price debuted at S$0.97. I even accumulated more units when its price drop after IPO. But eventually, I was forced to cut loss and sell off at various prices ranging from S$0.60 to S$0.80 due to the worsening cashflow position and declining earnings with the exception of 20,000 units. I figured out that as long as the business does not collapsed within 10 years, the high dividend yield will still compensate for any further decline in unit price and also to retain the opportunity to participate in any business development upsides in future. Ok, enough said, let’s go back to do some financial assessment based on the latest published 2017 Annual Report.   

Before we dwell into mental acrobatics on the financial statements interpretations, let us recap on key developments for previous financial year 2017:
  • TBC first large cable TV Operator in Taiwan to complete the digitalization of its subscriber base and switch off analogue TV broadcasting in 2017.
  • Management of APTT did mention that for 2018, they will be offering discount TV packages to grab market shares as well as to  continue to build on the business strategy of up-sell and cross sell of services across Taiwan Broadband Communication’s (“TBC”)  subscriber base to drive growth in future cash flows.
  • Management has re-affirmed in February 2018 that the distribution guidance remains at 6.5cents per unit for the year ending 31 December 2018, unchanged from 2017, subject to no material changes in planning assumptions.
Key questions that we need to ask ourselves will be:
1    1. Can the dividend going forward be maintained?

2. What are the risks associated with holding units in this Business Trust? Is it not a stable business that will continue to generate stable cashflow for unit holders?

3. Is the current price of S$0.510 (after the plunge over last 2 weeks) the right time to go in? Will it go down even further?

Key Financial Concepts- Why APTT management keep using EBITDA instead of Net Income when reporting on its financial performance?
EBITDA refers to the Earning Before Interest, Tax, Depreciation and Amortisation. The cash generation prowess is what APTT business represents due to the nature of its business.

Taxation refers to corporate taxation as well as the accounting concept of deferred taxation which is a very abstract concept. I do agree that taxation is irrelevant in measuring the performance of the management. Hence when the Taiwanese government announced that going forward, they are going to increase Corporate Tax Rate from 17% to 20%, the EBITA if ceteris paribus, will mean that nothing in terms of the business has changed fundamentally albeit the drop in distributable free cash flow.

Interest refers to financing cost of borrowings. This is arguably not within the management control as rates can fluctuate even if the borrowing quantum remain the same. However, there is still a cashflow impact for this item similar to Corporate Taxation.

Depreciation and Amortisation represents cash paid up-front for acquisition of Property, Plant and Equipment and Intangible assets. Intangible assets here refer to Cable TV Licenses, Software, Programming rights and goodwill from acquisition of an acquiree’s business. Out of S$2,391Mil, Cable TV licenses to operate in Taiwan from government forms the bulk of this item with value of S$2,372 Mil. Interesting thing is that this license does not have any expiry hence the cost will never be amortized as it grants APTT perpetual rights to be in the business in Taiwan. Rest of the items such as Programming rights will be amortized according to their useful lives.  There is no cashflow impact from effect of depreciation and amortization.
 
Extraction of the breakdown of Intangibles that made up the bulk of the Assets of APTT
Borrowings Risk to finance CAPEX
A key point to take note of over here is that the management team is relying heavily on bank borrowings to finance any major CAPEX such as the rolling out of digital TV broadcast. Since equipment do get worn out eventually, there should by right, be cash set aside yearly for future CAPEX. Hence a significant problem resulted from the current business operations is that it will run out of cash at one point in time when such need arises.

A business cannot be borrowing indefinitely and then just keep paying financing cost. This unplanned CAPEX depending on its urgency and also quantum will eat into the distributable free cashflow or even worse, it can lead to rights issue if the quantum is significant.

The second point is that the management team has always been using leverage on bank loans to pay out high dividends to unit holders. Also, the banks do not grant indefinite borrowing. Business is all about sentiment. If market condition worsen, there is risk that APTT cannot get the S$1.4 billion of onshore loan facility renewed. Good thing is that APTT had concluded a re-financing agreement with its banker in October 2016 which extend the loan facility for 7 years expiring on 26 October 2023. But do take note that the loan taken from this facility needs to be repaid in various tranches over the years and not just at the end of the facility term.

There is still another S$125Mil offshore multi-currency term loan facility due in 2019. However, APTT as of 31 December 2017 only have S$80 Mil of cash and trade receivables. Since it paid out most of its free cashflow as dividends, it will run the risk of default should the bank decided not to renew this facility. Even if it does not pay out any dividend for 2018 and reserve the cash for the off shore loan repayment, this may still not be adequate in view of uncertainty over the ability to sustain the current level of cashflow in view of competition. Of course, APTT can still tap on its other onshore loan facility to draw down more cash to tide them over but you folks get the gist of what I am saying here: APTT is running heavily on leverages for its survival.  It has a very weak statement of financial position in terms of actual cash on hand.

But it does have cashflow to pay out dividends if management is successful in the execution of the strategy to at least stabilize the current level of earnings coupled with the assumption that there are no future change in Macroeconomics conditions that will force bankers to withdraw and stop debt renewal. Although past financial performance does not equate to future performance, it does give us some insights into the state of the Paid TV business in Taiwan.
Note that Net Income has been decreasing over the past 5 years. This is a worrisome trend.


Is the dividend sustainable? Earnings per share significantly less than the dividend per share declared.
The cashflow from the APTT business model is actually more substantial than what a lot of people think. The reason being that the net income number already includes a high CAPEX upfront depreciation as well as deferred taxation which has no cashflow impact immediately. I did a very high level adjustment to illustrate why the operating cashflow is actually a lot higher than the net income as per below:  

Hence to look just at the net earnings per unit, many analysts concluded that the dividends are not sustainable. This is not true unless there are drastic changes to the way APTT operates through the financing leverage model or the business conditions worsen as per mentioned above. 

Conclusion:
I view the APTT business as a high risk model with high leverage. In addition, there is market disruption arising from the popularity of illegal android TV boxes, legal content provider Netflix, Viu etc. I do like the high dividend yield based on the current unit price for compensation of high risk undertaken by investor to provide equity funding. 

There is no net tangible asset value left from the statement of financial position in the APTT business. The guide to its perceived survival depends on the outlook of its future cash generation ability. Since investment is also about capital preservation, in the absence of earnings upgrade visibility, I will not suggest anyone putting all their eggs in one basket. The high dividend yield is really to cater for the high risk premium for this business. Probably, investors should make it just a small percentage of one's overall stock portfolio until things become clearer that the business strategies can bear fruits for FY2018.

Wednesday, 11 April 2018

Asian Pay TV Trust Review (Part 1) -3 Myths to Debunk.


The Asian Pay TV Trust is a business that seems to have created a sense of confusion among various investors on investment forum. Without scrutinizing the financial statements, it would be hard to assess the future and the risks associated with this business. Let me start with debunking some of the assertions made by some forummers.

Myth 1: “Target: $0.595 soon!!!  Good investment for income by collecting dividends!!! 12.7% Dividend Yield at current price of S$0.510…Hurray!”
Blade Knight: The revenue and distributable income may go down based on historical trending due to more competitive pricing to retain existing TV subscribers. This decrease coupled with the financing cost for unplanned CAPEX for digitalization of TV upgrade led to repeated revision downwards of the dividends over the last few years.

There is always the downside risk that the net income will be insufficient to cover for operating expenses and to also pay off the mammoth financing cost from the S$1.5 billion debt. Unit holders may even have to play the White Knight in such scenario by subscribing to rights issue to raise cash to ensure business continuity and to stave off immediate liquidation law suits by creditors.

Myth 2: “The unbelievably high yield sounds too good to be true, which prob isn' t, if you know what' s really underneath the hood. Might work for a short punt though”.

Blade Knight: But management of APTT did mention that for 2018, they will be offering discount TV packages to grab market shares as well as to  continue to build on the business strategy of up-sell and cross sell of services across Taiwan Broadband Communication’s (“TBC”)  subscriber base to drive growth in future cash flows.

Depending on your outlook, if one thinks that TBC is a stable business that is well positioned for future growth and one likes the business strategies, then this is a sound business well worth the risk undertaken by investor.

Myth 3: “No more CAPEX. So cash paid out reduced and dividend increase.”
Blade Knight: This is not true. The financing or the CAPEX was mainly through additional borrowings. Hence a reduction in project CAPEX will not lead to an increase in dividends available for distribution. It does however stabilize the pool of distributable income as financing cost will not increase from additional drawing down of credit line. For 2018, there will be an overall decrease in financing cost due to 0.3% decline in interest rate payable from the Onshore Facilities followed by the completion of the sale of the Trustee-Manager.

So is Asian Pay TV Trust an up and coming rising Star? Is the current share price excessively discounted right now such that there will be inevitable favourable upside gain? Or the current price has not hit rock bottom and will slide down even further?


P.S: Please stay tune and go on to the analytics on the latest 2017 financial statements as illustrated in the Part 2 Review for Asian Pay TV Trust once it is out.

Tuesday, 10 April 2018

Passive income at over S$24K per annum- Portfolio update of S$400K

With the dividends paid out ploughed back and capital growth over the last few years, I am heartened to see my Portfolio grew from S$200K in 2012 to the current S$414K size in 2018. It has been an amazing 5 years journey with many lessons in investment learnt along the way.  

Tweaks were made to the previous portfolio such as: 
  • the removal of Telecom stocks due to the uncertain entry of TPG into the Singapore market by the end of the year; 
  • selling off of Singapore Press Holdings due to disruption in its traditional advertisement revenue stream by online media;
  • buying into the more defensive retail REITS such as SPH and Frasers Centrepoint Trust;
  • accumulation  of commercial REIT Frasers Commercial as it is back on expansion path with  its maiden foray into United Kingdom;
  • addition of growth stock Perennial Real Estate Investment Trust. The numerous project pipelines and building up of recurring income made this an undervalued stock;
  • acquisition of Starhill Global REITS during the recent all time low selling price. The asset enhancement work completion at its overseas property should improve its net distributable income;  
  • purchase of bank stock OCBC and then selling off  when sentiment improved for profit realization;
  • purchase of Comfort Delgro below S$2 during the recent market low point and then selling off when its price recover.  
I no longer subscribe to the traditional buy and hold forever strategy advocated by many mainstream investors. Buying and selling at different market cycles is also important in capital preservation and realization of profits. Also, I learnt that one cannot time the market perfectly hence it is important to always have ready available cash on hand for immediate deployment in times of opportunity like the recent price correction of REITs.   


Sunday, 8 April 2018

Perennial Real Estate Investment Trust

There have been 2 interesting developments for Perennial Real Estate Investment Trust ("PREIT") in 2018.


1. In January 2018, the deadlock with co-owner Pontiac Land over the Capitol integrated development was finally broken. PREIT paid S$528 Mil to buy out Pontiac Land to become the sole owner. This bode well for the generation of recurring income from the hotel operations of Capitol which has remained close due to dispute over the future direction with Pontiac Land. There will also be synergy for the retail component of Capitol from the resulting higher traffic. 
It is expected to bring in S$40Mil to S$50Mil per annum in recurring income if the execution goes on smoothly as planned. 
2. On 4 April 2018, PREIT and China based Qingjian Group entered into a 40-60 joint venture to jointly develop the former Goodluck Garden freehold residential site in Singapore. Goodluck Garden was previously en-bloc and acquired by Qingjian for S$610Mil. The site area has an land area about 360,130 sqft and is located at Toh Tuck Road. This bodes well for its Singapore property development profitability over the next few years.
Analysts targeted price for PREIT is around S$1.05 to S$1.18. Its current share price is at S$0.86. PREIT represents a unique business that is fast growing with many projects in its development pipeline. The future recurring income from medical services and properties rental income will also increase the dividend pay-out.

Sunday, 23 July 2017

New insurance- Early Critical Illnesses

I finally completed the 15 years limited premium payment for my Aviva traditional whole-life Critical Illnesses coverage from Jan 2017. It was a wonderful feeling to have freed up additional cash of $350 per month for other use. Metup with my Phillip insurance broker recently and I was happy that she still looked the same albeit the passing of 15 years (we did not meet again after the Aviva policy was signed).

The industry has launched various new products on early critical illness claim. Given the relative higher probability of getting such dread disease and knowing that the protection for traditional critical illness came in only upon the final stages, I have signed up with AXA for a whole life early critical Illnesses policy of $100k enhanced protection value till age 70. The premiums are payable for 15 years for the life time protection.

This early claim critical illness policy is one product that I would highly recommend to everyone despite the exorbitant annual premiums.