Friday, 24 June 2022

Mahathir claimed that Singapore and the Riau Islands were "Malay lands" and should be "returned" to Malaysia.


Former Malaysian prime minister Mahathir Mohamad has gone bonkers again. On 20 June 2022, various media outlets reported Mahathir as making the remarks in a speech that Singapore was once owned by Johor and the state of Johor should claim that Singapore be returned to it and to Malaysia. He also made a similar claim on the Riau Islands which belong to Indonesia. 

Then just yesterday, Mahathir changed tune and asserted that the remarks previously made were taken out of context and he was actually just mocking such an idea. I do hope that he can still run for the next election and become the oldest Prime Minister of Malaysia. It would be fun and exciting to watch the sly fox made a mess out of the entire Malaysian political scene again. The last stunt pulled by Mahathir lead to the collapse of the entire Pakatan Harapan government. HBO's Game of Thrones pale in comparison to the real life saga.

Monday, 20 June 2022

Investment Into Q&M Medical Group- Further Diversification Away From REITs Centric Portfolios

Recently, I have decided to invest into the Q&M Medical Group with my main rationale being the diversification of my REIT-centric equity portfolios as well as investing for growth instead of relying solely on an income-focused approach. I have thus added Q&M into my Portfolio 3 parked under Tiger Brokers. The low trading fees offered by Tiger Brokers (relative to traditional trading platform) makes it easier to invest into more equities at bite-size level and at a much more reasonable and sane cost per transaction. There are some interesting developments in Q&M which I like and hence I decided to take up a small investment into it- I should elaborate more below.
1. Investment into Q&M
I have purchased around 8,100 units of Q&M at around S$4K. With the relaxation of anti-COVID measures and the assumption that COVID vaccines and herd immunity will prevent another total lockdown in Singapore and Malaysia (I mentioned Malaysia as Q&M now has a material presence there), I would think that Q&M Medical Group should be able to produce a more robust set of earnings of its dental clinics as it is coming off the previous FY2021 low due to COVID restrictions of available procedures. 

The most fascinating part about Q&M is that it just acquired a testing business, Acumen on 16th August 2021 which has the potential for spinning off into a listing at NASDAQ. This splendid diagnostics business help drive results for the past quarter for its offsite PCR COVID testing after being granted a license by the Singapore Ministry of Health on 16th December 2022. The results for  the Lab segment for 2022 Q1 thus increased 80% relative to 2021 Q1. But we now know what happened subsequently-all PCR and ART tests volume came down as the government declared COVID to be endemic and for everyone to live with it just like the common flu. So I will expect Q1 2022 Acumen testing activities to plunge drastically going into Q2 2022 and onwards. Saying that, the Acumen PCR technology is also being developed for infectious diseases, sepsis and cancer marker PCR tests etc and there is tremendous market potential for such services.

Another interesting part to note is that Q&M seems to be more aggressive growing its network of clinics in not just Singapore but also in Malaysia. The Q&M management has an ambitious target of growing 30 franchise dental clinics every year from FY2021.  Even if we assume they only managed to open half the targeted clinics, this is still an impressive growth rate of around 13%-15% per annum. 

2. Bonus share given but do not despair if you missed this bonus disbursement previously
On 13th August 2021, Q&M proposes a 1 for 5 bonus share- 20% additional issuance of net assets as bonus shares. Its share price hit a high of S$0.835 per share. If we normalise this, the share price then would be S$0.668 per share taken into account bonus shares. However, current share price has since plummeted to S$0.455 per share as at 20 June 2022 which is at a 32% discount to those who purchased during the bonus share issuance period.

Also, based on Q&M's annualised dividend of S$0.016 (using latest Q1 FY2022 quarterly dividend of S$0.004 per share as proxy) on S$0.455 per share, this is a dividend yield of 3.52% per annum. This thus gives some realised return to shareholders while waiting for the growth story to develop and crystallize. 
 
Parting thoughts
Summarising, Q&M seems to have a few major catalysts for growth being strategized by its dynamic management team lead by its CEO, Dr Ng Chin Siau. The potential NASDAQ listing for Acumen Diagnostics as well as the aggressive opening of new dental clinics bodes well for its future growth. 

Wednesday, 15 June 2022

Some Personal Updates And My Investment Into The Bear Market- Adverse Impacts of Recession Heading Our Way?

Strange that while inflation this year is expected to be 5%, my boss only gave an increment of less than 1.5% to all staff despite making millions of profits in previous years. So this year is actually a net pay cut given the inflationary pressure on almost everything. For example, the price of food keep going up. My fishball noodle at food centre went up from S$3 to S$3.50 per bowl-my close friends told me S$3.50 is considered cheap these days and they are paying S$5.50 per bowl near their workplaces.  

The "Great Resignation" at my workplace has also begun with my company's Human Resource department unable to retain a single staff who have resigned and HR is unable to find replacement at the old salary rate. My old buddy from University sent me the link that reads "KPMG S'pore increases starting pay by up to 20%" and I was shell-shocked. No wonder my HR Manager is so busy these days fighting battles with the entire labour market for headcounts and talents.

Despite all these challenges of escalating prices, many local residents seem unfazed with the ever increasing interest rates and possible loss of jobs due to the impact of recession. Private properties continue to fly off the shelves upon release by developers as if there is no tomorrow (look at Piccadilly Grand). There is also talks that sub-urban condominiums will need to launch at S$2,000 psf in future to cover for increasing land costs, materials and labour costs. North Gaia EC at Yishun Close already achieves 27% sales at an average of $1,302 psf in April'2022. It was also reported that developers in Singapore sold 1,356 new homes in May'22 relative to April'22 660 units- more than double the previous month. 

The most absurd news is that COEs for category B vehicle is now at S$100K per paper certificate. We need to pay S$150K to S$180K for cars these days? This is absolutely crazy. I told my wife to prepare to take more public transport once our existing COE expires in another 4 years time. It is a good time as the kids would have grown old enough to take the train and bus themselves.
 
1. Investment front
The SGX has been playing see-saw up and down every few days during this period. The S&P500 in US market is also down 20% from the beginning of the year. We are officially in bear territory. 

1.1 Investment into Mapletree Logistics Trust
I have  invested additional S$20K into Mapletree Logistics Trust ("MLT") during this period. The price of MLT has dropped <13.7%> from S$1.90 per unit from beginning of the year to S$1.64 per unit. It has been a long time since I last saw the projected distribution yield hit above 5%. MLT is well-diversified (183 properties in 8 countries worth over S$13 billion as at 31 March 2022) and has just completed 16 M&A this year so far. MLT has an excellent track record of making yield-accretive acquisitions in a space that still sees healthy demand due to the boom in e-commerce. I expect its DPU to continue growing.

1.2 Investment of CPF ordinary funds into S&P500.
I have put in 3 tranches spread over (1 month) into the S&P 500 (total S$15K invested) when it is at level of 3735-3900. If the S&P drop further, I will put in additional CPF funds to take advantage of the opportunity. While I try not to touch my CPF for investments as it represented my last resort retirement funding in event of total loss on the stock market, current opportunity due to the more than 20% plunge in market valuation seems to be worthwhile. However, I have only utilized my CPF ordinary account for investment and will not be using any of my Special Account which has already reached the Full Retirement Sum balances (and earning a risk-free 4% interest rate). 

2. Wife does not believe in investing into the stock market and prefers to hold all cash in bank account 
My wife does not like investing into the stock markets and she prefers to put all her cash in the bank. I managed to convince her to invest an extra S$15K into REITs during this period of market downturn and invested into United Hampshire US REIT and Mapletree Logistics Trust.

I have built up an equity portfolio of S$140K (REITS and local banks) under her own CDP account thus far. Hopefully, I will be able to persuade her to have more faith and to build up a more substantial recurring passive dividend income. Coupled with her overseas investment property being rented out, I reckon her passive income is around S$12K per annum.

Parting thoughts
The persistent high inflation rate is a real nightmare and gives rise to relentless increase in interest rates by the US Federal Reserve to combat it. I am disappointed to see that May'22 is another record month for inflation when I thought that there should be some good news on it being tamed. 

Friday, 10 June 2022

United Hampshire US REIT Acquired New Grocery Anchored Shopping Center- Improved Forward Distribution Yield Of 10.38% Per Annum.

Fast coming off the disposal of its locker storage facilities, United Hampshire US REIT ("UHREIT") wasted no time in its announcement on 9 June 2022 that it is acquiring Upland Square Shopping Center in Montgomery, Pennsylvania for US$85.7Mil. This DPU accretive deal will push up future annual distribution yield to 10.38% based on previous closing price of US$0.610 per unit.

1.Key benefits of this deal are as follow:

1.1  Additional diversification of tenants for UHREIT. 
Post acquisition, UHREIT top 10 tenants concentration will drop from 60.2% to 56.8%. It thus reduces tenant concentration risk and enhances income resilience.

1.2 DPU Improvement
DPU is expected to improve by 2.13% post-acquisition. 6.23 cents will mean a distribution yield of 10.38% based on the previous closing price of US$0.64 per unit. The acquisition will be funded mainly with the sales proceeds from the locker storage facilities as well as the assumption of the existing mortgage.

2. Bad point for this deal- Leverage post acquisition crosses over the 40% mark.
The aggregate leverage of 42.7% is not desirable. While there are still ample headroom under the Monetary Authority of Singapore (MAS) stipulation of up to 50%, nevertheless, if recession were to rear its ugly head, valuation of properties may drop substantially and rights issue at severely discounted prices will be needed to restore back the leverage level. Retail investors in particularly may not have sufficient cash on hand to do such subscription during crisis period and end up heavily diluted in their unit-holdings. 
Personal thoughts
While UHREIT portfolio’s focuses on cycle agnostic tenants providing essential services, its unit price has been in a persistent doldrum. Its price for the past 2 months has been in the US$0.600-US$0.640 per unit range. Despite the announcement of the above mentioned acquisition deal, its traded price remain stagnant like still water. It is currently trading at a 21% off its NAV (US$0.74 per unit) with an incredulous 10.38% forward distribution yield. It is interesting to note that the analysts of UOB Kay Hian has a target price of US$0.88 per unit for UHREIT in their report of 3rd June 2022. This represents a 44.3% potential upside in capital appreciation. Of course, the other flip side is that there maybe something wrong with the business hence the ever dwindling unit price of UHREIT being priced in by the market. 

(P.S: Recently, I have been building up additional stakes in UHREIT to collect dividends while waiting for potential capital appreciation in future. Not sure whether the upturn in its unit price will ever materializes....but I am keeping faith that since it survives the COVID induced recession onslaught with resilient performance for the past 2 years, it should theoretically continue to do well....keeping my fingers crossed).

Wednesday, 8 June 2022

Elite Commercial REIT High Dividend Yield of 7% But May Not Be As Safe As One Thought- 3 Things To Watch Out For.

Elite Commercial REIT ("EC REIT") debuted in early 2020 on SGX mainboard at GBP 0.705 per unit which is 3.7% higher than its IPO price of GBP 0.68 per unit. Ever since then (in particularly the last 52 weeks), its price has hovered mostly between GBP 0.610 per unit to GBP 0.680 per unit. Most recently, it was announced that its major tenant, the UK government, has agreed to the removal of "break clauses" for its rented properties from EC REIT during negotiation which thus translates into a long and stable WALE of around 5.5 years as of March 2022. The current 7% dividend yield is one of the highest among the Singapore REITs. The UK government also seemingly appears to be an AA-rated solid tenant and the lease is on triple net lease basis. However, I am staying away from Elite Commercial REIT due to 3 main concerns which I will further elaborate below.

1. 99 per cent of its gross rental income came from from leases with the UK government, primarily DWP (Department for Work & Pensions) which is the largest public service department
Concentrating 99% of its gross rental income on the UK government is actually a double edged sword. Since 2001, the UK government has been running a budget deficit. UK's Public sector debt excluding public sector banks was at GBP 2.34 trillion at the end of March 2022, or around 96.2% of GDP. It’s now at levels not seen since the early 1960s. Hence there is a real risk that there maybe governmental fiscal structural reform.  

While I do not think that the UK government will default on its rental payment, there is a strong likelihood that if the fiscal situation worsened in future and things become unsustainable, then there maybe a "re-negotiation" with EC REIT that may result in a substantial haircut to rental rates. Look at what happened to First REIT and its master and main tenant Lippo Karawaci in Dec 2020 and I cannot help but get this Deja Vu feel.

In addition, what if the UK government decided to give up half of the properties in future and make use of online technology to service citizens? EC REIT's marketing team will have a very exciting time trying to search for new replacement tenants. The lack of diversification of non-government tenants is worrisome. Hence having 99% of gross rental income coming from the AA rated UK government is really a double edged sword- it can cut the other way just as easily.
From the Q1 2022 updates, we are already seeing some of the government properties being given up
Note that a total of 8 properties making up around 4.8% of FY2022 contractual rental are now at stake for FY2023. EC REIT is pondering a variety of options for each of these properties, including re-letting as an office or other uses, disposal with vacant possession or following re-letting, and seeking consent for alternative uses such as redevelopment.

2. Weak bargaining power in negotiation since major tenant (UK Government) took up bulk of its commercial properties
As evident from the latest negotiation with the DWP, the rental rates offered for 11 properties were being reduced. I find this very strange and disturbing given the assertion that UK rental market is resilient and that the Consumer Prices Index ("CPI") rose by 7.0% in the 12 months to March 2022.
3. Forex currency conversion risk
I do not think we need to delve too much into this forex issue. EC REIT is listed in pounds and functional currency is in GBP. Hence SGD receipt of distributions or any capital gain/loss will be subject to forex conversion risk.
Parting thoughts
Despite the acquisition exercise in FY2021 of 58 additional UK commercial properties, the so-called "diversification" of tenant base towards other UK Government occupiers beyond the DWP for other tenants to be 10.4% of total gross rental income is immaterial and ultimately, still with the UK government and not exactly the diversification which I have in mind. EC REIT also has 12 months to decide on their strategy and types of usage for the 8 properties that DWP had exercised the break clause. I remain skeptical of having such a high concentration risk of main tenant and will not be investing into EC REIT.

(P.S: There are some folks who seemed very upset with this posting. I just want to point out that this is a free world. If one's view is that it is absolutely safe, then please put in as much cash or even make it into one's 100% concentrated portfolio. The above is just my personal view due to previous bad experiences with REIT tenant making up more than 90% of rental income and the importance of tenant diversification. This is not a recommendation to buy or sell or to talk-down a particular REIT.) 

Sunday, 29 May 2022

Alibaba Horrendous Q4 2022 Results Release And A Silver Lining In The Dark Cloud

 
I am not sure why many analysts were very pleased with the latest Q4 2022 results released by Alibaba (despite it depicting a huge loss worst than the prior Q4 quarter of 2021) which they think is much better than their expectation. The US and HK stock exchanges for Alibaba also went up between 12%-15%. For me personally, I am holding a contrarian view for the near term as despite the 9% growth in revenue for Q4 2022 year on year, Income from Operations has actually fallen off the cliff after normalising for reversal of share-based compensation expenses of RMB13,046 Million in Q4 2022-meaning a razor thin profit from Operations of only RMB 3,671 Million for Q4 2022. This also means that the Net Loss for Q4 2022 is approximately  <RMB 31,403 Million> after normalisation. 
1. Loss of RMB18.4 billon dollars on RMB 204 billion dollars of revenue for Q4 2022 results
The bad news here is that the pressure on gross profit margin from the anti-monopoly measures forced down on Alibaba seems to have squeezed the life out of the e-commerce giant. In FY2021, its Q4 Loss from Operations included a RMB 18 Billion (US$2.7 Billion) Anti-monopoly. Hence the actual decline for the same Q4 year on year is a whopping RMB 31.4 Billion decline.

The other complication here with regard to earnings visibility is the impact of COVID-19 disruption to Alibaba operations. As China gradually open up its economy, the million dollar question here is whether the number of transactions generated from e-commerce spending by consumers during lockdowns will decline drastically as some consumers head back to traditional purchases. Hence based on its current Q4 results, the results are murky and personally, I am unable to tell with more certainty on the general trending for Alibaba's future performance.

2. Silver lining in the dark cloud
As mentioned earlier, the good news is that Alibaba continued to grow their revenue by 9% based on Q4 year on year. This is a rather impressive feat given the multi-faceted challenges in the regulatory environment and also covid 19 lockdown disruption to the supply chain. 
In addition, the adjusted EBITA for Cloud segment of Alibaba Group shows a profit RMB276million for Q4 2022 instead of a loss of RMB342million for previous Q4 2021, largely attributable to the realisation of economies of scale. This is a rather good sign as besides China e-commerce segment, the Cloud segment seems to have grown in size and generating a positive EBITA despite the pulling out of cloud services by state-own companies (as ordered by regulators over cybersecurity concerns of Alibaba and Tencent in Dec 2021).

Last but not least, its international e-commerce business fronted by Lazada continues to grow rapidly. Although the planned IPO for Lazada has been halted for now due to less than ideal valuation, there will be upsides to Alibaba group from its listing once the market conditions improves.
Parting thoughts
Overall, despite the headwinds from the competitive e-commerce landscape and uncertain times, Alibaba continued to invest into strengthening its eco-system to generate revenue growth and has taken drastic measures such as laying off (around 15%) of its workforce to optimize its operating cost structure in order to enhance overall returns to shareholders. I will continue to hold my small stake in Alibaba while awaiting greater clarity in its next quarter earning release. 

Tuesday, 24 May 2022

Why I Am Staying Away From Temasek's Astrea 7 PE Bonds.

The application period for the Astrea 7 PE bonds opens on Friday (20 May 2022) and closes at 12pm on Wednesday (25 May 2022). So far, I have seen a couple of glowing reviews about this new class of bonds for retail investors and folks who want to subscribe. However, I will be staying far far away from this particular Astrea 7 series. I have to give a thumbs down for those who keep insisting that bonds are relatively less risky than holding equities. It is all about the market trending and macro-probability. In the face of super inflationary pressure and US Federal Reserve putting an all out stop to combat rising inflation, buying bonds now is just suicidal for me. I only have one thing to say about the issuance of this current tranche, that is, Temasek's Azalea could not have picked a worst time for this particular fund raising exercise.
1. Rising interest rate environment leads to butchering of the face value of Astrea 7 PE Bonds
Well this is basic economics 101: Bonds have an inverse relationship to interest rates. When the cost of borrowing money rises, bond prices usually fall. With an all out fight to stop hyper-inflation, the US Federal Reserve is hell-bent on raising borrowing rates. Although there are indeed some signs of green shots sprouting on the taming of inflation, I think it is just too early to conclude that the war has been won. Safe to say, I expect interest rates to continue rising aggressively. 

Simply put, there may come a time when the fixed deposit offered by banks reached over 4%. If this scenario materializes, then we can imagine the opportunity cost of holding on to the PE bonds. The risk and reward does not seemed adequate currently. Chances are that the market value of the Astrea bonds will drop upon listing in the next 6 months is quite high. 

2. Portfolio asset class diversification?
On the need for diversification of asset classes, I certainly do agree with it. Nevertheless, another way I look at this is that our Central Provident Fund ("CPF") special account already provided some good diversification and is the closet thing to a government risk free bond. Why do we want to buy into PE bonds that most certainly will encounter high chance of declining price (as alluded to point 1 above) and also faces the possibility of some valuation impairment for unlisted businesses?

For me personally, now maybe the time to gradually invest more into businesses listed on the various stock exchanges. The S&P 500 is down about 20%. This is definitely a bear market. Again, the strange thing is that many retail investors tend to sell or stay away from equities during bear market and buy more during a bull market rally.

3. Singapore Saving Bonds ("SSB") is more liquid than Astrea 7
Furtherance to the topic of asset class diversification, as a small retail investor, I would rather put my money into SSB as one can do early redemption without any penalty or loss in value. So it would be easier to do switching or re-allocation to equities later on if there are good opportunities. 

For Astrea 7, you can only sell if off in the secondary market on SGX after being allocated the bond issuance- bad news here is that the trading liquidity portion can be a challenge at certain period based on historical issued Astrea series. 
Parting thoughts
Anyway, the above are just my own personal train of thoughts at this juncture based on my own long term investment objectives. For those who wanted to buy into Astrea 7 PE bonds and are willing to hold on till the redemption, I guess this would still be better than putting everything into the bank.