Sunday, 12 September 2021

Keppel DC REIT- Growth Story Intact And Supported By Visible Pipelines

For unitholders who bought into Keppel DC REIT (“KDC”) from Aug’20 to Apr’21 at the range of S$2.55 per unit to S$3.04 per unit, the recent downturn in price from May’21 till Sep’21 has been rather disappointing. This is despite many good news being released for KDC such as over 12.5% improvement in 1st Half FY2021 DPU, joint investment with M1 into digital network assets, maiden foray into China Data Centre market as well as acquisition of its third new data centre in Netherlands. The price as at 10th September 2021 is at S$2.56 per unit.

1. Some investors view KDC as a risk free bond.
Well, this is a very strange assertion being made by some investors indeed. I think let’s not get confused, KDC is a REIT and is equity in nature. Let’s call a spade a spade. It is definitely not a bond. It is also not “risk free” bond. I mean just take a look at its wild fluctuation in pricing over the past one year.
KDC is still subject to the normal business risks faced by all REITs. For example, venture into China data centre may turn out to be a bad thing if a tenant went bankrupt. The same business risks applies albeit perceived lower risk than other REITs. In the event of liquidation, all unit-holders of KDC will rank behind bond-holders and other creditors in claims.

2. Some investors view KDC as a “growth” stock.
This is a very interesting assertion in that KDC is a growth stock. Growth stocks to me are those that has the potential to grow its business exponentially like Tesla (Cathie Wood of Ark Investment is crazy over Tesla). KDC on the other hand is growing but at a gradual stable pace- I do not think its unit price will increase 6 times over in 1 year. The slow and gradual expansion path is very unique among the Temasek government linked REITs such as those in the Mapletree family. After acquisition, (i) stablise the performance, (ii) then market price increases which brings down the current distribution yield and after that,(iii) aim for another new yield accretive acquisition to maximize the play-out of this virtuous REIT cycle.

3. Slump in price for KDC makes it slightly more attractive for investment accumulation.
Good thing here is that the resistance price seems to hang around S$2.53 per unit. Also forward yield for the next year in view of new acquisitions made recently mean that distribution yield will be around 4.1% plus. This is so much better than the previous year of approximately 3.2%-3.5% distribution yield on very high prices of KDC at up to S$3 per unit.

Of course, for those waiting for KDC to drop further to S$2.30 per unit region, personally, I think it may be a tough and long wait. This is because KDC has strong pipelines from its sponsor Keppel Corp as well as the right of first refusal for another 5 data centres under development in China Guangdong province. Its net asset value will only grow over the next few years barring any unforeseen circumstances.

Parting thoughts
Personally, I still do not find KDC’s current pricing super attractive to enter as it offers a low yield of a mere 4.1%. Nevertheless, being a data centre focused REIT and with an impressive track record of its performance during the worst of the COVID induced market crash in early part of 2020, I think that there may not be any good time to grab KDC at a huge discount to its intrinsic value given that the local market has now grown more familiar with this class of asset. I have accumulated another 10,000 units in KDC as I like the “slow and steady growth” story with visible pipelines.

Friday, 10 September 2021

Historic Moment for Singapore Press Holdings Group- Goodbye to Media and Press Business!

What an exciting day it has been for the shareholders and management of Singapore Press Holdings (“SPH”). The results of the EGM has finally been announced. Goodbye to Media segment….what a historic moment indeed for SPH milestone! Despite seemingly fierce resistance put up by the minority retail investors asking that Media business be either sold to an interested party or to simply just shut down the media business [instead of paying S$80Mil in cash and other assets for transfer over to the newly formed Company Limited by Guarantee (CLG)], the objections turned out to be only pinpricks in the vast ocean. An overwhelming 97.6% of shareholders voted “Yes” for the first resolution to transfer the Media business out to the CLG while 97.5% voted “Yes” for the second resolution to adopt a new constitution for SPH.
 
Why can't the CEO close down the Media segement? Reason is simply that it is a public good despite SPH being a listed company
The thing about Media business is that it is actually a public good. If it can be so easily shut down just like a normal commercial entity, the CEO of SPH, Mr Ng Yat Chung, would have already shut down the business 2 years back instead of trying to do various rounds of Media staff restructuring exercises. As for selling to 3rd party, I have already explained in my previous post why this option would not work.
 
Only option left is to unwind the Media segment by paying a divorce fee
Consequently, the only way out of the loss making Media business is to pay a fair divorce fees to appease our Singapore Government. Ultimately, the current property business is being built using the enormous profits of Media segment back in its glorious days.  With the transfer of Media segment and removal of the restriction of the Newspaper and Printing Presses Act, SPH can now finally function like a normal commercial entity and many corporate actions can be pursued by SPH besides the Keppel Corp offer.
 
Will SPH became part of Keppel Corp?
The next major milestone would be whether SPH becomes a member of Keppel Corp in December’21. Even if that fails, SPH can definitely survive on its own. Its student accommodation business is the new growth driver which also provides resilient recurring income. I hope for a rally in SPH share prices next week after the trading suspension is over so that it more closely reflect the offered consideration of S$2.099 per share.


Thursday, 9 September 2021

Singapore Press Holdings- EGM And D-Day For The Fate Of Media Business

Singapore Press Holdings ("SPH") will hold its EGM this afternoon (10th September 2021) at 2.30pm. Finally, the much anticipated EGM will be convened. Will Media business be successfully transferred out of SPH? Will the special resolution on a new constitution be also approved by more than 75% of shareholders in order to be eligible for the Keppel Corp buyout? 

If it goes through, will SPH share price finally hit S$2 per share or will it plunge dramatically by end of the day or next week due to the deal falling apart?


Updates as of 10 September 2021 (5pm)-Results of SPH EGM:

Previous posts on SPH:

Saturday, 4 September 2021

Fu Yu Corporation (Super Hero Cash Cow)- Special Dividend of 10.15% Yield Declared and New Business Segment Acquired

It has been a very long time since I last took a detailed look at Fu Yu Corp in my investment portfolio. I was surprised recently when the projected dividend tool from Stocks Cafe indicated that Fu Yu Corp will be crediting S$3.3K of dividends (11.38% yield) on 7 September 2021. A special dividend of 3.3 cents per share had been declared on top of interim dividend of 0.4 cents per share for the 1H 2021 results. Hence I decided to do a quick review of its current business operations.

Apparently, for 1st half results announcement,  Fu Yu Corp had announced net profit improvement of 20.1% to S$8.9Mil in 1H2021 relative to S$7.4Mil in 1H2020. Fu Yu Corp financial position remained sound with cash of S$100.2Mil and zero borrowings on its balance sheet. 
To demonstrate appreciation to existing shareholders for their continued support of Fu Yu Corp, the management has thus decided to declare a special dividend as a reward.  

New Business Acquisition to Fuel Growth Path
Earlier this year,  the trio co-founders has sold off the majority of their stakes to a private equity fund, Pilgrim Partners Asia. The co-founders have sold off 29.8% of their stakes, around 224.4Mil shares of Fu Yu Corp, for S$58.3Mil to local fund management firm, Pilgrim Partners Asia which worked out to a valuation of S$0.26 per share. So far so good, the new management team appointed by Pilgrim Partners Asia have done well in terms of cost optimization and getting new projects from its business development efforts. 

Perhaps, even more interesting is that the new shareholders of Fu Yu Corp wasted no time to do an M&A to acquire a new business. To diversify the Group’s business beyond the core manufacturing business, the management have recently formed a new business arm by acquiring 100% equity interest in Avantgarde Enterprise Ptd Ltd (“AGE”). AGE is engaged in the business of providing supply chain management services for commodities. This is effectively financial trading activities. 

In addition, there is actually synergy with the AGE acquisition as Fu Yu Corp hopes to lower the purchasing cost of its key raw materials (resins) with direct purchase via AGE. 

As a result, Fu Yu is currently back on a potential rapid expansion path with a new growth engine in place.  

Parting Thoughts
With the near completion of Fu Yu Corp Singapore factory by end of 2021, there is thus another potential catalyst that could boost the gross profit margins of its existing manufacturing business besides the new business arm of AGE. As at 1st half of 2021, Fu Yu Corp's cash balances made up 58% of shareholders' equity. Normalized dividend yield of around 5% also makes Fu Corp an attractive business at S$0.29 per share as at last trading price on 3 September 2021. 

Previous Postings on Fu Yu Corp


Sunday, 29 August 2021

SPH Media Spin Off EGM- Retail Investors Should Be More Pro-Active To Exercise Their Voting Rights

I thought that it is a no-brainer to agree to the transfer of Media business out of SPH and into the newly created CLG entity. Media is a loss making business. Existing shareholders need to bite the bullet and agree to pay the divorce fees to get rid of the Media segment. It is only with the media business out of SPH that we can move on to the next stage of a wider corporate action options being made available to sell of the property business of SPH to other interested 3rd parties. 

1. Media still making losses despite 2 rounds of staff cutting to save reduce labour cost.
Once the traditional media economic moat is being disrupted by Facebook, google etc, there is no point in trying to keep doing "headcount restructuring". SPH already went through 2 rounds. There is a limit that can be cut in order to preserve the quality of journalism and news being reported.

2. Naive to think that there is a chance to sell of Media segment to external overseas parties
While I seen on investment forum some shareholders who held on from S$4 per share many years back to the current disappointing S$1.92 per share lamenting that they are against the spin off of Media and hope to sell it to other parties, I think that they are not being rational and just being naive. The Singapore Government will never allow a media company to be controlled by 3rd parties or foreign MNCs. No sane government will allow that.

3. Retail investors must play their own part to exercise their EGM rights.
This is a common issue with retail investors. Many do not take part in shareholders' activism to protect their own rights and interests. How many times has a retail investor take part in AGM or EGM? How many bother to fill up the proxy form to appoint the chairman to vote on their behalf even if they do not have time to attend the AGM/EGM? The common reason given by individuals here is that our shareholdings are too small relative to the big boys (institutions).

If everyone thinks like that, then it is confirmed gone case. Look at Sabana REIT, their minority retail investors work hand in hand with some of the other shareholders to prevent the acceptance of a low ball offer. Hence rather than complaining, it is still better to take action. Your 0.001% vote may be the difference to get a normal resolution pass the 50% mark or the more than 75% mark for special resolution. 
Note that the last date and time for lodgment of the proxy form is on 7th September 2021.
Note that Resolution 2 will also need to be passed through for SPH to adopt a new constitution without the provision of the Newspaper Act in order to be eligible for the Keppel Corp buyout offer.

Final thoughts:
For shareholders holding their shares through custodian brokerage accounts, please do approach your brokerages on how to contact their admin department to help you submit your vote for the SPH EGM. Personally, I thought that the deal to transfer out the Media business will definitely go through as it just requires a more than 50% vote on 10 September 2021. However, the risk is in the 2nd resolution to overhaul the original constitution to take out the "Newspaper Act" which requires more than 75% votes. Once both resolutions go through, I reckon SPH share price will go up a bit more due the boost in certainty of being eligible for the Keppel Corp buyout. 

Saturday, 21 August 2021

Crash in China Tech Stocks- Disaster In The Making Or Once In A Lifetime Opportunity

The heavy hand of China regulators has been making huge dents on many China technology stocks. Alibaba and Tencent have been beaten down to a pulp. The sea of red in China stocks reflected the pessimistic sentiment of most investors who are exiting rapidly. Is this a disaster in the making or once in a lifetime opportunity for retail investors? 

The "Once in a life-time Opportunity"?
As an income strategy focused investor, my main investment philosophy is on accumulating securities that pays decent yield dividends or interest income. My original resource allocation into a secondary approach focused on growth stocks is only expected to have not more than S$5K into any individual counter and also a small part of my overall combined portfolio. 

For Alibaba (on HKEX), initially at beginning of the year, I only target to have 100 shares.  However, since then, I have invested almost S$20K (600 shares) into Alibaba despite the ever decreasing price. Yes, I am in the "Pro" camp of Alibaba based on its recent financial results and also growth story such as rising demand for its cloud computing as well as its investment into data centers. I also plan to continue adding on to Alibaba based on its current price weakness. In addition, I am of the belief that China government will not destroy the best their companies.

The Predicament
Nevertheless, the past year has taught me invaluable lessons in stock market investment that some risk factors like government intervention, major lessee negating on contractual rental agreement and fraudulent acts by management of a company are uncontrollable factors that may lead to permanent loss of value or even total bankruptcy. 

Hence I plan to restrict my investment into China Tech to no more than 5% of my overall equity portfolio. Yes, some of the people around me is calling me idiotic in that but I think it is important to be able to sleep soundly at night based on one's own comfort level- no right or wrong in that. I still prefer reaping dividends at regular intervals annually rather than not sure waiting till 1 year or 3 years later to realise the full benefits of growth stock strategy. 

Parting thoughts
Who dare wins! May good luck and fortune follow all who took the plunge into China tech stocks recently. 😃💪💪

Tuesday, 17 August 2021

Is Muhyiddin Yassin Malaysia's shortest-serving Prime Minister? Will Mahathir Be Back?

Wow! Muhyiddin has stepped down as Prime Minister of Malaysia in just 17 months (resigned on 16th August 2021). If not for COVID and parliament being suspended, I reckon he would have "up lorry" even earlier. Will the Malaysian King choose Mahathir, the veteran elderly statesman, to come back and become Prime Minister again? From the bottom of my heart, I certainly hope that it is not Mahathir. There will be no end to trouble and Singapore bashing by Mahathir. Best time to distract the people from the immense suffering under COVID is to shift attention and focus by bashing Singapore.