Thursday, 26 March 2020

Personal Updates: "Voluntary" Pay Cut and Restructuring Plan For Company

The COVID-19 crisis suddenly freeze up business transactions almost overnight. Many countries are in lock down. Malaysia just extended their lock down for another 2 weeks to mid April'20. My office phone keep ringing non-stop with many fellow managers asking me what to do with their Malaysian workers who are either trapped in Malaysia or where to house their Malaysian staff. 

It does not help when my Managing Director called me up one night (I mean literally night time) and asked for my help to take a "voluntary" paycut in order to showcase to our Corporate Head Office that we are taking action to ensure the survivability of our Singapore business where business volume supporting retail clients crashed by 70% to 90%. The strange thing is that although my boss said that it is a "voluntary" pay cut request till end of the year, he made it sound like it is mandatory. So no choice, have to take a voluntary 10% paycut. 

One week after that, my boss told me to assist him in the preparation of the dreaded restructuring plan for the entire Company. This really sucks. On top of that, one of my holdings Eagle Hospitality Trust  (ËHT") suddenly announced that it is in default of bank covenant and that USD 341Mil of syndicated bank loan became due immediately and it is not paying out announced dividends- a result of the curse of COVID-19. Anyway, during my last posting on EHT, I have already mentioned that holders of EHT better be prepared for a full write off of their investments similar to Hyflux case.  I should probably do another post on EHT soon on what to expect. Basically, for those who are still vested at this juncture, the longer the whole episode drag on the better will be the net realizable value. Fire-sales asset selling during this crisis time will depress the price and leave nothing to shareholders after paying off the bank loan. 

Stock Market Rally For Past 2 Days- Dead Cat Bounce?
The rally in Singapore stock market is being fueled by the cash injection and government rescue packages being announced worldwide in particularly the USA. However, this comes amidst worsening COVID-19 situation in Europe, USA, India and Asean countries. Stimulus packages will eventually run out of steam if the underlying root cause is still plaguing the global economies. I am actually anticipating another big plunge in the stock market coming up after the recent short rally as fundamentally, nothing has changed and costly disruption to economies are still ongoing. 

Parting Thoughts
We can only hope that the virus will mutate into a less severe strain and then disappear on its own during the upcoming warmer months.

Saturday, 14 March 2020

How To Survive The Market Sell-Off: COVID-19 and Prolong Recession Fears Maybe Overdone

The STI went into another free fall today and a 10 year low. I find it irritating that many stock analysts begin advising people to sell off all their stockholdings in one’s portfolio as SGX will drop to 2,000 or lower level mirroring the Global Financial Crisis in 2008. They are talking about charting and historical data and making it seemed as if exiting is the only strategy forward. If you have believed them, you would have been one of those many retail investors who had sold off all your shareholdings at whatever low price during this week’s bloodbath. 

Panic selling for the whole week
The game plan for many who had succumbed to panic selling this week, effectively, means you would have sold all your equities when prices are low and then try buying back when prices are even lower . I find it very sad and useless to try to time the market using the bottom fishing method- this is a myth as no one can tell you when exactly the trough will appear. Contrary to the current extreme pessimistic views of most stock analysts, there are a couple of minority folks such as Professor Naoyuki, the Head of Asian Development Bank Institute, who believes that the current panic sell-offs may have been overdone. The COVID-19 issue will not last indefinitely as many vaccine developments are already moving on to the first trial stage in human testing. Hence there is light at the end of the tunnel for the economy to eventually recover. 

For those on leverage/margin- Don’t get into a margin call
For myself, I leveraged using margin at between 27% to 33% of my total assets including deploy-able cash. The worse thing that could happen in such blackswan event is being forced into liquidation at fire-sales depressed prices. The current wave of panic selling saw my margin portfolio dropping close to the margin ratio of 140% at one point in time today. I have since topped up with cash and also injected additional shares into my margin portfolio in order for it to withstand another 20% to 30% plunge in market price that maybe coming up in the next wave.   

Is the worst over? Donald Trump may have contracted COVID-19 and he is in the high risk age group.
Unfortunately, the worst of the panic selling is not over. US and Europe COVID-19 have not even peaked yet. In addition, it was reported that US President, Donald Trump had been exposed to people who have contracted the killer COVID-19. Trump reportedly dined with Brazil’s Press Secretary Fabio Wajngarten who has since then tested positive for COVID-19. Donald Trump is 75 years and belongs to the high fatality aged group. More panic selling will definitely occur if the commander in chief of USA is stricken down with COVID-19. Surely, the great and mighty USA will be thrown into political turmoil should anything untoward happen to the President of the United States. 1st April 2020 (around 14 days from now) maybe a better timing to slowly start accumulating good value stocks once we confirm that Donald is well and healthy. 

Thursday, 12 March 2020

Hyflux Still In Limbo- Hyflux Asserted That Utico Gave Inaccurate Announcements

The scheme meeting with creditors will be held on 22 April 2020. However, we are already seeing the senior management of Hyflux once again crossing sword with their own White Knight Utico. Yes, I used the word “again” because Hyflux also went into disagreement previously with their previous White Knight Salim Medco Group. Apparently, the current cracks in relationship came from the amount of legal and advisory fees pot of S$50Mil being committed. Utico is only willing to put up S$30Mil as the professional advisors of Hyflux and SIAS failed to show support for the scheme by 29 Jan 2020 court hearing. Original intention was S$50Mil for the professional services pot if show of support settled by end of Jan 2020 but unfortunately it was not to be due to various factors such as the emergence of another player, Aqua Munda, which offers to buy creditors’ debts at a minimum discount of 85%.     

Why so drama?
The senior management of Hyflux released a statement that asserts Utico’s press announcements contains “material inaccuracies” which appear to be designed to further its negotiation with the company and dissuade competing third party investors from investing into Hyflux. Personally, I think it is strange that Hyflux management team is still thinking of getting other prospective investors to come in at this juncture. One will probably be wondering whether it is Utico instead of Hyflux which is in need of a financial bailout.

Parting thoughts- slow and painful progress (if we can call it progress at all)
My thoughts are that the senior management of Hyflux are behaving as if they got many choices and can afford to keep shopping around. Hence one cannot blame Utico for bypassing Hyflux and conducting their restructuring negotiation through public announcements. Why do I get the feel that Hyflux management team will be more than happy if the Utico deal failed? In the meantime, the never ending Hyflux soap opera continues…..


P.S: Please see my previous other postings here on the Hyflux saga:
1. Hyflux Utico Rescue Deal May End In Failure- Unsecured Creditors and Perpetual Securities Holders Still Unhappy

2. The Never Ending Hyflux Saga- Utico Deal May End In Shambles

Thursday, 5 March 2020

Eagle Hospitality Trust CFO Suddenly Quit Less Than One Year On The Job For Personal Reasons


On 3rd March 2020 (Tuesday), Eagle Hospitality Trust (“EHT”) suddenly announced that its Chief Financial Officer (“CFO”), Fred Chee, has resigned for personal reasons. This does not bode well for EHT and lead to continued mass selling of units by many skeptical investors despite the announcement asserting that Fred Chee is leaving due to personal reasons. The leaving of a CFO is normally bad news for a business entity, especially when Fred Chee just joined EHT on 28 June 2019 and quit in just 8 short months. This is simply a public relation nightmare for EHT.
Extract from Announcement on 3rd March 2020

1.   The CFO is leaving due to “personal reasons”.
When an announcement states that a CFO is leaving due to “personal reasons”, it may be really nothing but the truth. However, personally, I think there are other possible undercurrents that hint at something else may not be right within EHT. When Fred Chee quit Sasseur Reit on 30 May 2019 to join EHT on 28 June 2019, he would have make a commitment to do his best and utmost in the new organisation and logically, who would quit in less than 1 year if one is happy there?

Hence my personal thoughts are that current investors who have invested money into EHT better be mentally prepared to write off their investment akin to what had happened at Hyflux where investors are only going to get back a fraction of their original investment amount if it happens to fall into bankruptcy and a forced liquidation calamity.

2.   What is the worst that could happen?
Some of the possible scenarios that could be happening at EHT from my personal perspective:

(i)                 There is a high probability that Q1 FY2020 results is going to be another disastrous one. The prospect are not good, hence time to resign.

(ii)                Work culture differences. Could not work with the CEO. Many underlying differences with the CEO with regard to the accounting and presentation of financial figures.


(iii)              The future prospect based on first hand internal information gained as a CFO may suggest upcoming going concern issue that are still not revealed to the public. Time to say goodbye instead of waiting around and doing lots of pointless preparation work and financial modelling for CEO’s review and then presentation to shareholders. If don’t leave now, sure get lots of scolding from CEO and also shareholders later on.

(iv)               Overworked and stressed out. Damn it, SGX regulators have written in not once but many times to query the EHT team since the not so long ago IPO. The extraction of numbers and crafting of answers are extremely stressful and no joke with all the various tight deadlines. Life is short, why do so much shit work? Time to resign.

(v)             The CFO is really leaving for “personal reasons” that has nothing to do with EHT in anyway. For example, acquiring stamp collection hobby full time or wanting more time to play golf with old buddies. Do you believe this as the likely scenario?
  
3.   Chiong to buy more EHT units at cheap valuation of as low as USD0.340 per unit (56% plunge in value from IPO price) or time to exit EHT before the shit rolls down the mountain further?
Unfortunately, I cannot provide an answer to this. Each and every one of us has their own risk tolerance level so as not to lose sleep at night. If you think EHT is going to go bankrupt soon due to imminent bad news disclosure from its sponsor Urban Commons, then it maybe time to just bite the bullet and salvage whatever value is left. If you are lion-hearted and thinks that EHT is oversold, then go and buy more as once market recovers from the COVID-19 crisis, you will be richly rewarded. If the price recover to just S$0.51 per unit, it will be a substantial 50% gain in valuation if one purchases many units at the current crazy Great Singapore Sales price of S$0.340 per unit.

I guess the only question is which scenario as alluded to Pt 2 is behind the real underlying reason why Fred Chee decided to throw in the towel. Do share your thoughts on the current EHT unit price that is in free fall.

Pls also see my previous posting on EHT:
Eagle Hospitality Trust Announced Disastrous Quarter 4 Results- Distribution Per Unit Slashed by Whopping 24%

Thursday, 27 February 2020

Undervalued Gem Singapore Medical Group Adopted Dividend Policy- Maiden Dividend Declared

Singapore Medical Group ("SMG") just announced another set of excellent financial results for FY2019. Its revenue rises 11.3% relative to prior year to a record S$94.7Mil driven by growth across all business segments. SMG also reported a 5.7% increase in net profits to a record S$13.6Mil.  However, its share price performance for the whole year was disastrous as it plummeted from an all time high of S$0.490 per share to a low of S$0.0.275 per share range despite the excellent performance of a few years for no apparent good reason. During the year, directors also sold some of their stakes to the strategic Korean Medical Group CHA for S$0.605 per share. The current share price of S$0.310 thus reflect a massive discount to its fair value using the S$0.605 as benchmark and a 100% potential upside.   

The only reason that I can think of for the poor share price performance may be attributed to investor fatigue and the perceived unfairness by retail investors in terms of the recent capital raising exercise using convertible loans at S$0.423 per new shares and sales of shares to CHA at S$0.605 per share which is only opened to the senior management staff. 

1. Announcement of Dividend Policy-Finally!
During my last posting on SMG, I have mentioned that I have written in to the senior management team of SMG for them to seriously consider the immediate roll out of a dividend policy to support the undervalued share price. I think that many shareholders may also have voiced out the same thoughts. I am glad that the Board of Directors listened to shareholders and decided to roll out a formal dividend policy to reward shareholders.
Dividend Policy announced on 24 Feb 2020
For long term investors, the dividend policy which endeavors to pay out at least 20% of yearly earnings, should be rewarding enough to stop the relentless dumping of SMG shares by existing shareholders.  At a price of S$0.310, the current payout of S$0.008 per share translates to a 2.58% dividend yield while the remaining earnings is ploughed back into the SMG business for further regional investment and expansion. 

2. How "undervalued" is SMG?
Compared to other medical groups out there, SMG is severely undervalued. The P/E ratio of most medical group such as Raffles Medical Group, Q&M Dental Group & ISEC Healthcare is around 25 times. SMG P/E ratio stands at a mere 12.6 times only- please refer to below chart on "Peer Comparisons". 

3. Summary
With the introduction of a formal dividend policy, shareholders can patiently wait on the sideline to receive dividends while waiting for price to recover to its fair valuation of S$0.605 that is, a potential 50% to 100% upside of capital gain over the next few years.

Note: I have started to re-accumulate shares in SMG due to the introduction of the dividend payout policy.  Currently holding on to 60,000 shares with plans to increase it further. But the headache now is opportunities for other higher dividend yield stocks are opening up in view of the COVID-19 worldwide outbreak. 

Please also see my previous postings on SMG:

Tuesday, 25 February 2020

Mahathir Checkmated Anwar- Singapore Still In Trouble

I was shocked beyond words when major news agencies began reporting that Anwar got betrayed by his coalition partners in  Pakatan Harapan. I was expecting Anwar to be eventually out-foxed by Mahathir and that he will never become the Prime Minister but did not expect it to be so soon.

Over the weekend, Azmin Ali and his supporters have quit the ruling coalition in Pakatan Harapan. Mahathir's party Bersatu had also decided to quit Pakatan Harapan. Both have linked up with UMNO and PAS to form the next coalition for the next government.  The very funny thing is Mahathir tells everybody that he is not involved in all this drama and that he disagrees with the move. So Mahathir resigned as Prime Minister and also as chairman of Bersatu to voice his strong objection over such a move that goes against the mandate of the Malaysian people.

The strange things about all these unfolding melodrama as follow:

1. Mahathir outfoxed Anwar
From my personal view, there is no doubt that Mahathir was the main plotter of the change in government. As a matter of fact, it was brilliantly executed and a world class act indeed. Give the man a Tiger beer! The whole thing became crystal clear when the Malaysian King accepted  the resignation of Mahathir as Prime Minister but still appointed Mahathir as interim Prime Minister. After so much drama, the Prime Minister is still Mahathir.


2. Mahathir unable to stop his party members from leaving Pakatan Harapan? Do you believe that?
How can Mahathir, as the chairman of Bersatu, be unable to stop the party from quitting Pakatan Harapan? To claim that he disagree with such a move and have to quit as chairman is absurd. Mahathir must have wield significant influence in his party to become chairman, so the party's decision to quit the ruling coalition must have his support definitely from my personal perspective.

3. But the people of Malaysia will scold Mahathir if he quit Pakatan Harapan like that which is a betrayal no doubt. 
Best way to avoid scolding will be to resign as Prime Minister and also quit being chairman to distance himself away by saying he was not involved at all.  Then arrange behind the scene for the great come-back. Brilliantly executed indeed by the great Mahathir. 

4. Anwar no choice but to suck thumb to save face and also reserve political capital
Anwar is not giving up without a fight. At the same time, he cannot openly go to war with the old fox as he needs to keep the door open for any future alliance. 

Also, he can then declare to the people that the bloodless coup does not have the support of Mahathir and try to win back enough seats. 

Impact on Singapore
I have a feeling that Mahathir will still be around as Prime Minister after the political drama. Hence, the bashing of Singapore by Mahathir will go on. But good to have UMNO back. Not much of a change in the Malaysia political scene.

Updated on 26 Feb 2020, 9.45am:
Another stranger thing of strange things happen: On 24th Feb 2020, the supreme council members of Bersatu all came out together and unanimously reject Mahathir's resignation as party chairman. This is akin to a person tendering letter of resignation to leave the company but your company directors and senior managers all decided to reject your resignation "unanimously" and then force you to stay in the company. Hence how weird can this be? I doubt Mahathir will resign.

Both UMNO and Anwar's Pakatan Harapan need Bersatu's MPs seats to have enough number to form a majority to rule as government. Either way Mahathir choose, he will still reign as Prime Minister.

My Malaysian relative told me this well known saying: "Malaysia Boleh!" 

Wednesday, 19 February 2020

Eagle Hospitality Trust Announced Disastrous Quarter 4 Results- Distribution Per Unit Slashed by Whopping 24%


Eagle Hospitality Trust (“EHT”) delivered a set of extremely disappointing Q4 FY2019 earnings which represented a significant decline of 14.7% of their net property income against IPO projection. Consequently, EHT also slashed their dividend distribution by a whopping 24.4%. relative to IPO forecast. The first announcement I came across was an "Improvement to the Master Lease Agreement" which allows EHT to receive more rent from any outperforming properties that produce excess cashflow. 80% of the excess cashflow can then be applied against shortfalls from underperforming properties. To me, this seems nothing more than an appeasement policy to pacify unit holders. True enough, when I opened up the main results announcement, I was shocked beyond words against the disastrous results. 


Reasons for the poor performance
1. Displacement from its largest asset, Holiday Inn Resort Orlando Suites ("OHIR"). OHIR is currently still undergoing roof repair works on the heels of a cateogry 5 hurriance in 2nd half of FY2019.

2. Softening US market.  This is a major concern to watch out especially in the face of the COVID-19. Good thing is the virus has not spread extensively in US. 



Summary
Despite management claiming that they did better than competitors and performs well amidst market headwinds, I think otherwise and that EHT performed badly.  I believe the disappointing results against IPO forecast speak for itself. Fundamentals in the US hospitality sector seems to be worsening. With the slashing of distribution per unit by 24.4% in Q4 FY2019, annualised dividend yield has dropped to 10.9% based on unit price of US$0.525 per unit.