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).  

Saturday, 13 October 2018

White Knights Charging Forward To Save Hyflux And Tuaspring


In my last post on 21st July 2018, I have posted the reasons on why the government should step in to bail out Hyflux. I have also mentioned that Temasek linked companies such as Keppel and Sembcorp should step forward to rescue Hyflux. My wishes came through-both Keppel Corp and Sembcorp appeared as white knights in shining armour along with other interested parties. Out of 8 interest parties approved by the PUB, only one submitted a bid. It was believed that the only bid was submitted by Sembcorp. 

As I mentioned before, Hyflux investors will have to suffer a hair cut in terms of what they can recoup. The only question now is how much they can get back. I believe that more news on the rescue package will be announced as early as next week. It will not be a surprise if the bidder put in a bid that is significantly less than the S$1.3 billion in book value of Tuaspring. Temasek linked companies or not, the bidder will likely exploit the current weaken financial position of Hyflux to extract a good deal for their own shareholders. Nonetheless, it will be a win win deal for both parties.

It will be interesting to watch out for the unfurling of more details with regard to the rescue package next week.

P.S (Updates as of 20 Oct 2018): It turned out that the White Knights are from the Indonesian consortium making up of the conglomerate Salim Group and the energy giant Medco Group. The consortium will pump in liquidity of S$400Mil equity in exchange for 60% stake in Hyflux after they have settled their debt. Also a loan of S$130Mil for Hyflux for its working capital needs during the restructuring. A cool S$530Mil. This is a strong testament to the underlying value in Hyflux business operations that many experienced businessmen still see in it. There will also be additional business opportunities opening up to the "new Hylflux" from the synergy with the new shareholders coming onboard. 

Saturday, 6 October 2018

World's First Super Battery Prototype Successfully Developed- Electric Car Revolution Coming Up and Sunset Industry for Oil and Gas Companies!


2018 has been an amazing year for the progress of new scientific breakthroughs. We live to witness the major leapfrog of another new battery technology during our life time since the development of the first lithium ion battery in 1980. Billions of dollars have been invested by many companies seeking to be the first to develop a super battery to overcome the current constraint of limited power storage in our traditional batteries. The solid state battery technology has been the long awaited break through in battery technology that is poised to solve 3 main obstacles hampering the use of electric car, namely, (i) making the range of electric car match the current petrol/diesel car from a single full tank, (ii) cutting down the recharging time of 8 hrs to less than 15 mins and (iii) inadequate safety of the use of current batteries which are prone to fire. Earlier this year, many experts believed that we are at least a decade away from refining the solid state battery technology. It is thus quite shocking when Magnis Resources (a company listed on ASX) announced that they have come up with the world's first working prototype of a solid state battery on 2nd Oct 2018. Mass production is expected to be deployed by 2nd quarter of 2019.   

There were many scientists who had initially poured scorn on the solid state battery theory as it defies the law of thermodynamics with regard to the law of conservation of energy. There are in fact other mysterious new scientific technology breakthrough such as the development of EM Drive propulsion system to power future spaceship for interstellar travel which violates the law of  Physics (Newtons's 3rd law of motion which states that for every action, there is an equal and opposite reaction). 

The successful unveiling of the solid state prototype also means that the solid state battery technology is commercially viable albeit no one can properly explain the theory behind the strange phenomenon. Such battery can also be used in our smart phones. Imagine long lasting power in your smart phones that can be used for up to 1 week eventually without recharging. Also, imagine being able to recharge your smart phones in less than 5 mins. 

What are  solid state batteries and how are they different from traditional batteries?
This is the latest battery technology that uses both solid electrodes and solid electrolytes, instead of the liquid or polymer electrolytes found in lithium ion batteries. Solid state batteries are believed to be capable of significantly higher energy density to current traditional battery. Solid state batteries are also able to be recharged at a super fast rate and expected to be longer cycle life. In addition, as compared to the flammable liquid electrolytes in traditional battery, a solid state battery uses materials such as glass or ceramics etc which are safer. 
Magnis Resources newly unveiled world's first working solid state battery prototype
As an example of the capabilities of this technology, the Magnis Resources C4V solid state battery will be capable of delivering a 70% increase in range for electric vehicles when compared to other conventional batteries, thus allowing an electric car with a current 400km range to be able to run 680km on the same single charge.  

Impact of  solid state battery technology on renewable energy development

The new solid state battery could be the "missing piece" in sustainable energy development. For too long, wind and solar energy generation are unreliable due to the inconsistency of wind or solar at all times of the day. The super batteries can be built into the smart power grid system to store excess electricity generated from such sources at a particular active time and then release the supply of energy at any time of its choosing. The expected tougher durability in terms of the re-use from repeated recharging of a solid state battery is also expected to bring cost down further.

Impact of new battery technological breakthrough on Oil & Gas Industry
With the ever evolution of new battery technology and development of sustainable renewable energy, the reliance on fossil fuel is finally broken and coming to an end. Oil and Gas companies certainly have to prepare for the inevitable downturn of the whole industry in the next 2 decades. I have no doubt that this will be a declining industry. OPEC and other oil producing countries should accelerate plans to restructure their economy from export of fossil fuel that is currently making up the main bulk of their economy and revenue. 

Parting thoughts
Overall, I am extremely excited by the latest announcement of a working solid state battery. With billions of dollars poured into R&D and many companies jumping into the enhancement and development of this battery technology, this will definitely improve renewable energy reliance and also enhance our lives with all the new products with inbuilt super batteries. Expect the prevalent adoption of electric cars worldwide and conversion of petrol station kiosks to electric recharging stations as well as more sustainable energy development. This may also turn out to be the missing key in our own salvation from the dire effects of global warming.

Monday, 1 October 2018

Global Investment Limited (Attempt To Unlock Intrinsic Discounted Value)- Wiping off Accumulated Losses from the Global Financial Crisis.


Global Investment Limited (“GIL”) has announced on 28 September 2018 that it intends to hold a Special General Meeting (“SGM”) to pursue a few ordinary resolutions. Most of the resolutions proposed are due to technicality issue when GIL transfer the domiciliation of the Company from Bermuda back to Singapore. Hence by virtue of the Singapore Companies Act and SGX Listing requirement, it required shareholders to give a new mandate such as on existing share buyback and Scrip Dividend Scheme that are already in existence under the law of Bermuda. I will give a quick highlight of the 2 ordinary resolutions that may have a greater impact on the financial and share price.


Extract of Proposed Resolutions at Special General Meeting

The first ordinary resolution is basically a capital reduction exercise proposed by GIL. There is actually no financial impact from this resolution being pursued. But I reckon that it is an attempt to remove the stigma of the huge losses incurred by the previous Asset Manager, Babcock & Brown. The stigma has long been associated with a huge discount off the book value of GIL.  

(1) Background and rationale of the 1st proposed resolution for capital reduction
GIL was incorporated in 2006 and run by Babcock & Brown from 2006 to 2009. It incurred astounding losses of S$236Mil up to 31 December 2009. The losses arose mainly from the impairment of the underlying investments made in 2008 and 2009 during the Global Financial Crisis.

ST Asset Management Ltd took over as the manager of the Company on 25 November 2009 followed by Singapore Consortium Investment Limited from 29 April 2016 till present. It is worthwhile to note that under the current management team from 1 January 2010 to 30 June 2018, GIL has generated a total profit of S$193Mil out of which S$127Mil has been distributed out as dividends.

In addition, there were also legacy issue with regard to the significant cumulative forex losses from the USD functional currency of S$66Mil prior to the effective change from USD to SGD as functional currency from 1 January 2012.

(1.1)Structure of the proposed 1st resolution for capital reduction
Extract of Statement of Financial Position as at 31 Dec 2017

This exercise undertaken is to better reflect the underlying assets of GIL’s balance sheet. This will remove the “Accumulated losses” that is so prominently being displayed as negative on its balance sheet. By flushing the losses against share capital, my guess is that the directors are trying to dis-associate GIL from its previous management during the Global Financial Crisis. This seems like a re-branding & marketing effort for investors to re-assess the Company based on the solid track record of the new management. Will have to give the management credit for this valiant attempt to try to close the gap between the net realizable values against current undervaluation by the market on SGX.

(2) Proposed re-domiciliation of the Company from Bermuda to the Republic of Singapore
GIL intends to seek shareholders’ approval for the transfer of the domicile of the Company from Bermuda to Singapore by way of a discontinuance out of Bermuda and continuation and registration in Singapore. The 2 main purposes are to (i) align GIL’s country of registration with its country of listing and where its main operations and business are situated (which is actually Singapore) and (ii) to enhance administrative and operational efficiency when the Company contemplates any corporate transactions or undertakes any fund raising exercise whereby GIL will need to ensure compliance with both Singapore listing rules, regulations and laws as well as Bermuda laws and regulations.

(2.1)Cost savings from the re-domiciliation of GIL from Bermuda to Singapore
Currently, for any corporate transactions and exercise undertaken by the Company would need to comply with both the rules and regulations of Singapore and Bermuda. There is thus a duplication of legal expenses for compliance. By switching the re-domiciliation of the Company from Bermuda to Singapore, there will be savings in the costly legal fees for compliance purpose. Hence overall, this initiative is an excellent move as it would result in faster execution and lower costs incurred by GIL.

Final thoughts on the Special General Meeting
I think that the management of GIL are awesome and pro-active in terms of doing their best for the Company and the assets under management. It is great to see that the management are making efforts to lessen the magnitude of the huge discount of the market value relative to the intrinsic value. I am keeping my fingers crossed that with the proposed resolution, there will be some short term improvement in the closing of the current gap. However, I am not sure how effective this move will be given that the undervaluation issue has been there for many years.

If this still does not work out, the management should probably up the ante and get some big investors to come in and buy out GIL closer to the fair value. Then inject new assets or business along with existing ones into a new Company and then do an IPO in future. This seems to be the only quick way to unlock the dormant value hidden in GIL.

Note: Please also refer to the following links for the previous reviews on GIL


Saturday, 22 September 2018

The 99 Years Leasehold HDB Issue And The Legend of Freehold Property is King


Recently, I have been hearing a lot of people talking about the declining value of HDB Flat due to the 99 year leasehold problem. The opposition political parties members also went on to rattle away about how the current government is not doing enough to address this problem and it is wrong to be telling Singaporeans that HDB is an appreciating asset. In addition, many folks began to assert that owning a freehold property is the best solution to preserve the capital value of the investment into housing which is a major component of all assets for most families.

The "Legend of Freehold is King" in Singapore is not entirely correct for a number of reasons:

(1)  In one of my previous post, I have mentioned that in land-scare Singapore,  no one can guarantee that the Singapore Government will not invoke the use of a major weapon in their arsenal, that is, the Land Acquisition Act to take away even Freehold land. Hence freehold in Singapore context does not contain the essence of perpetuity relative to other neighboring countries such as Thailand. 

(2) Once a property reaches 30 years old or older, chances are that there will be many property maintenance issues regardless of being HDB, private leasehold or private freehold properties. Common problems include spalling concrete, worn out electrical fittings, water pipes bursting or leaking, pneumatic disposal system, major refurbishment of old and frequently broken down lifts etc. I have not known of any property that just because of its status being "Freehold" are exempted from these old age maintenance issues. The collapse of the bridge in Italy has shown the world that reinforced concretes do not last forever.

(3) In land scare cities such as Hong Kong and Singapore, buying any type of property is an extremely expensive affair. But in Malaysia and Thailand, there are abundance of freehold land and properties all around but at so much cheaper prices and also the associated maintenance cost. The cost of maintenance alone for any type of property is high in the context of Singapore. Tearing down and rebuilding are known to be very expensive for individual owners to undertake. Only the very rich minority upper class benefit from  holding a freehold property and not the middle class folks which forms the majority.    

(4) If freehold is so wonderful, then why do many private freehold owners in Singapore wanted to go the En Bloc route for redevelopment via selling off to private developers citing aging properties and maintenance issues. Most of these properties are less than 40 years old. Not even reaching half of 99 years old.  

(5) Freehold properties are generally at least 10%-20% more expensive than leasehold properties. One would be better off investing the differences into other income generating investments for additional passive income.  Personally, I will not pay a single cents more for a freehold status property over a similarly located property if the purpose is just for own stay.

(6) Most freehold properties locations are inferior to 99 years old leasehold properties in the context of the middle class which forms the majority base of Singapore. 

As alluded to the above factors, my personal thoughts are that having the so called "coveted" freehold title is not an effective solution to the 99 years declining value problem in our local Singapore context. For own residential living in Singapore, holding a HDB flat may in fact turn out to be a better choice than other forms of property and which makes the most financial sense. 

Please also refer to my other posting with regard to the (i) preservation of value for HDB and (ii) also the latest "VERS" announced by government:


Thursday, 13 September 2018

Asian Pay TV Trust Review for Q2 2018-Plummeting Unit Price And Goodbye To 2019 Dividends



Frankly speaking, I am extremely disappointed with the financial performance of Asian Pay TV Trust (“APTT”) for Q2. Disappointing as in the ARPU has not stabilized at all as per asserted by APTT management for many prior quarters. Q2 2018 saw further decline instead of “stability” in the key performance indicator of all its business segments. I have previously posted that in the absence of visibility of earnings upgrade from the ARPU, I will not put in more investment into APTT due to the intense competition disrupting its business.

Basic Cable and Premium Digital Cable TV Q2 2018 Performance
APTT is clearly facing tremendous competition from pirated Android TV boxes, Netflix and other online video streaming medium-IPTV. The piracy issue is not just a Taiwanese issue. This is a global problem. In Singapore, Starhub is a very good example of another pay TV business that is seeing declining subscription from the rampant piracy issues. I am sure many of you all know of some colleagues/friends or relatives who have purchased those “TV boxes” from Sim Lim Square and then decided to cancel the monthly subscription to Singtel and Starhub pay TV services due to the super cheap cost. So far, the content pirates are still outwitting authorities & pay TV companies and proved almost impossible to shut them down. 

Broadband Q2 2018 Performance
In addition, APTT is also besieged by unlimited wireless data packages from mobile operators on the Broadband front. The availability of low cost unlimited data offerings from top Taiwanese mobile operators means that APTT is forced to offer higher speeds at competitive prices to acquire new RGUs and re-contracting existing RGUs. The CAPEX invested over the past few years for growth purpose turns out to be more of a defensive CAPEX nature in order to address the decline in broadband subscription over the past few years.
 
Management assertion on share buyback due to undervaluation of share prices
APTT senior management gave reassurance to all investors during the Q2 results presentation by pointing to the assertion that “With a stable and resilient cashflow, APTT is a defensive business that is positioned to grow in a measured way”.

The 4 main growth drivers are as follow:
(1)         Up sell and cross sell across TBC’s subscriber base for future growth;
(2)         Scalable and efficient cost structure. There is headroom in network capacity to allow provision of additional services at limited incremental cost to support future inorganic growth;
(3)         Broadband Growth intact from opportunity to gain more market share. Moreover, there is rising demand for higher speed broadband due to rapidly growing demand for data AND
(4)         Premium Digitial TV. Room for growth as digital cable TV penetration in Taiwan is still lower than that of Korea, Singapore and Hong Kong.

The management team has mentioned that APTT is exploring potential unit buybacks as the current unit price of APTT is undervalued. At the same time, it wanted to strengthen its balance sheet hence as a result, the Board of directors is of the view that the distribution per unit in 2019 is likely to be lowered to support the initiatives.

My thoughts before final parting for Q2 2018 review
I find it incredulous that at this juncture, the management team feels strongly that APTT is undervalued by the market. A declining service pricing and uncertain future market outlook (declining historical track record since IPO) can also mean that the business activities will continue to worsen. I will not be surprised given the upcoming super fast 5G mobile network roll out and also unresolved rampant piracy issues. APTT is already warning investors that the overall performance of FY2018 will be worse off than FY2017. The cutting of future 2019 dividends in a way seems to be an admittance that the historical business model of leveraging heavily from bank borrowings is no longer sustainable in view of the competitive operating environment.

Using the dividend discount model and assuming dividend is cut by 50% due to lower cashflow and to fund CAPEX, the price may drop to S$0.216 per unit once it is announced officially in Q4 with regard to the slashing of dividends. I do not think investors will accept a cost of equity lower than 15% for holding on to APTT unless the business outlook and revenue generation improved drastically.

I am thus unsure why the management choose to want to cut dividends instead of continuing to utilize cheaper bank borrowing at effective interest rate of a mere 3.4%…..unless despite all the positives painted in the presentations, they have no confidence and are in fact very worried over the declining APTT business and worsening cash flow generation. But I reckon that APTT management team is probably really just being prudent in its new approach and I am just thinking too much?     

Sunday, 2 September 2018

The Global Financial Crisis Strikes Again Year 2018!

The Global Financial Crisis is back again in 2018! Another Era (再创世纪) is currently being broadcasted. This is an amazing show which draws invaluable lessons from the Global Financial Crisis in 2008 but of course with elements of drama added into it. Also, I find it closely resembling the various office politics in real life and is able to draw parallel to it. 

The great Roger Kwok (郭晋安) plays a resourceful man who was only a low level salaried staff and how he rose up to riches. Roger is some of those folks out there that you will meet  in life who does not see anything right or wrong with how he made his money. Whatever the means, as long as it helps him in his quest to become rich, his principle values do not have the values of good or bad that bounds many other people. In business, he justified the scheming plots and working with other cunning old foxes as exchanging of what each other needs as a fair deal. Also, in the stock market, if there are winners who made it big, there will also be losers who ruined themselves financially. 

Danger of over leveraging and economic outlook is all about consumer confidence.
Roger basically brought down the wealthiest Fang family in Hong Kong by bribing a personal lawyer who keep encouraging the 富二代 CEO to load up on mini bonds while his father,the capable Group Chairman was being hospitalized. When the US government came out to bail out some of the financial and insurance companies as well as Fannie Mae and Freddie Mac, there was a mini stock rally. The corrupted family lawyer managed to get the stupid CEO to take out huge loans using his family shares of the Fang family listed business as collateral to buy more mini bonds and stocks by persuading him that the crisis is over and stock prices will shoot up and it's time to make more money. When the US government decided to let Lehman Brother collapse without rescuing it, the global stock prices continued to free fall. With the value of the collateral of Fang listed shares dropping and the CEO not having enough cash to top up the collateral, the lending bank sold off all the Fang listed shares. The abundance of Fang shares dumped into the market lead to a share price collapse from HK$100 to HK$25 while allowing Roger Kwok to jump in and accumulate the Fang family business at a super cheap price. Damn smart unscrupulous guy!

The moral of the story here is one can never know how bad the financial crisis will become. The 2008 Global Financial Crisis was considered mild relative to the 1930s Great Depression. If one is forced to liquidate during such market downturn and do not have sufficient resources to prevent a force selling of  one's own stock purchases, one will suffer tremendous realized losses. This is the danger of over leveraging on loans or margin financing. The world was lucky that Ben Bernanke, a student of the Great Depression and belief in staunch government intervention managed to prevent the crisis from worsening.  

Complex financial products such as sub-prime mini-bonds is not for all retail investors.
In "Another Era", the series antagonist Roger Kwok approached the "good guy" Frankie Lam (林文龙) to offer him a job at his new Company. Roger greatly admired Frankie for his wits in advising the then 2nd richest man in Hong Kong  on how to rescue the Hong Kong Stock Exchange by engineering a series of financial moves to restore confidences back in companies, institutional investors  and also retail investors. However, Frankie replied that he will never align himself with such an unscrupulous man like Roger.  The next shocking thing that Roger responded was that the Minibonds product were designed by Frankie himself so as a matter of fact, Frankie himself is no saint as retail investors lost more than HKD$20 billion due to this sub-prime creature. 

Frankie lamented that the mini-bond was supposed to be for corporate companies and the greedy banks repackaged them and sold them to the man on the street without highlight on the complex underlying securities risk on this product.  
  
The lesson here is never to purchase a financial product that you do not understand. Do not follow the herd instinct. Buying something without adequately understanding it and succumbing to thoughts on easy money will make one vulnerable to total loss of investment.

Final thoughts
The "Another Era" is an awesome show starring many prominent Hong Kong Stars and highly recommended. It is cleverly written and depicts the financial market as well as the greed of man accurately. A must watch for all retail investors!