Saturday 29 December 2018

Parc Botannia Review- The Condo Next To Jalan Kayu Food Heaven

Everyone in Singapore would have heard of the food heaven at Jalan Kayu which is home to the famous Thasevi roti prata. A branch of Blanco Prawn Noodle House is also located there and full of queuing customers. Have you guys heard of the famous Beach Road Prawn Noodle? Blanco and Beach Road Prawn Noodles are actually restaurants that are set up by the same Lee family (please read the history here by Dr Leslie Tay-Ï Eat I Shoot I Post"). The prawn noodle at Jalan Kayu is really superb and is a must try for all foodie! Ok, back to Parc Botannia review. The reason why I mentioned Jalan Kayu is that Parc Botannia is a stone's throw away from Jalan Kayu and one can feast on roti prata and prawn noodles daily if one choose to live in this lovely development.

(1) Location of Parc Botannia
Parc Botannia's address at Fernvale Road makes it a 10 mins brisk walk away to the Seletar Mall. This development is also just right next to Thanggam LRT station which is 1 LRT stop away from Seletar Mall and 4 LRT stops to Sengkang MRT station. There is also a plot of land designated for Park development by Npark just next to Parc Botannia (the new park sits between High Park Residences and Parc Botannia).

In addition, the Sengkang Riverside park is also near Parc Botannia or 1 LRT station away- Perfect for nature enthusiasts or folks who enjoy jogging. 

(2) More details about Parc Botannia
Tenure of Land: 99 years leasehold commencing Dec 28, 2016
Site Area: Approximately 185,095sqft
No of Units: 735 Units (spread over 4 blocks) and a childcare centre.
No of Parking Lots: 741 for residents and another 15 for childcare centre
TOP: Dec 30, 2021 (but expected TOP earlier in 2020 if construction progress is good).
Parc Botannia is being developed by joint venture partners, Sing Development and Wee Hur Development. The developers paid the winning bid of S$517.03 psf per plot ratio in September 2016 during the Singapore Government Land Sales.

(3) Internal Layout and Premium Units with Private Lift
This is one of the most efficient unit layout that I have seen despite the smaller size of the apartments relative to those launched in the area 7-8 years ago (H20 Residences, Rivertrees and Riverbank). 3 bedders are around 969 sqft but do not feel crampy as seen in the showflat. 
The high ceiling height of 2.9m certainly adds volume and exude class to the units. The developers are generous to have built in such high ceiling which is a sharp contrast to High Park Residences next door as well as many other condo ceiling heights of only 2.7m these days. 
The best units in this development are the 4 bedder Premium units as well as the 5 bedder Premium Units which comes with its own private lift. There are only a total of 3 stacks of such premium units. In addition, the premium units come with walk-in wardrobe in the master bedroom. The Master bathroom for the premium units also has 2 basins for "his" and "her" which are definitely very luxurious and posh.
Private Lift Lobby with Built in Shoe Racks/Storage
However, due to the high psf (please see "Pricing" below), getting a premium unit will set one back by an extra few hundred thousand dollars. In my opinion, getting the 958sqft 3 bedder or the 1,130sqft 4 bedder units are already value for money due to the efficient layout, high ceiling and premium fittings committed by the renowned developers, Sing Holdings and Wee Hur Holdings. 
3 Bedder Premium

4 Bedder-Typical

4 Bedder Premium with Private Lift

5 Bedder Premium with Private Lift

(4) Pricing of Parc Botannia
The average launch psf was 1,270psf. Since then, 75% of the 735 units have sold out as per the marketing agent. The remaining units are on the higher floor and may cost up to 1,350psf for high floor units. For a premium 1,249sqft unit, the price tag is thus approximately S$1.68 Mil before stamp duties.  

The strange thing about the pricing is that the developers seem to have priced the park facing units at a higher psf than the pool facing units. 

There is a current up to S$70k "Starbuy unit discount" on offer during this festive period for a limited time period. 

(5) Parting Thoughts
This is a well-conceived development by Sing Holdings and Wee Hur Holdings. There are many facilities on offer within Parc Botannia. The layout for units are very efficient and the finishing and fittings given are branded and classy. Being so close to Jalan Kayu and minutes walk away to Seletar Mall is very convenient for the residents of the development. One will certainly be enthralled when arriving home to one's personal sanctuary at Parc Botannia.

(P.S: Check out the official video here of Parc Botannia and the waterfall feature wall at the grand entrance).

Saturday 22 December 2018

SPH REIT Still No Fate To Be Together With The Seletar Mall- But Suprised All With Australian Shopping Mall Acquisition

Many shareholders of SPH REIT have lamented over the lack of M&A for expansion. Ever since its maiden IPO, SPH REIT only had Paragon and The Clementi Mall in its portfolio. During the last AGM held on November 30, 2018, the question of why only a tiny strip of Mall, namely, The Rail Mall was acquired during the current financial year was raised. The answers given as per below screenshot on the usual rhetoric response that the asset acquired must be good quality, well located with a minimum 6% yield similar to the existing 2 malls. You can imagine the disappointment of all shareholders (including myself) that SPH REIT still has no fate to be together with The Seletar Mall that SPH is still keeping in its stable ever since its official opening in November 28, 2014. 

Why is everyone so looking forward to The Seletar Mall joining SPH REIT?
As a suburban mall located in the heart of Sengkang West, it is expected to enhance the REIT's resiliency in earnings even during an economic downturn. Currently, Paragon forms the main bulk of the earnings contribution. The Seletar Mall is expected to cost S$500Mil and will boost the earnings significantly from suburban shopping. NTUC Finest and Shaw Theatres are the current major anchor tenants. The hotpot chain Hai Di Lao also has a new branch opened in 2018 there that sees super long queues during lunch and dinner time during the weekend. 

Other retail chains such as Uniqlo and BHG are also tenants that have been there for many years since its official opening in November 2014. Other F&B tenants include Mc Donald, Starbucks, Burger King, Song Fa Ba Kut Teh. There are also many education centres such as the Learning Lab located at The Seletar Mall. 
Picture of The Seletar Mall at Sengkang West

The interior layout which is unique and have natural lightings from the roof pouring into the Mall.
Many analysts have been saying that The Seletar Mall will be up for sales to SPH REIT since 2016 but it has not materialized.

A surprised announcement of another acquisition- purchase of freehold Australian Mall
The big surprise came on Dec 18, 2018, just 2 weeks after SPH REIT mentioned that they are mulling over acquisitions which have been tough to fulfill based on their stringent checklist. SPH REIT announced that they have signed an agreement to acquire Figtree Grove Shopping Centre from Swordfish Australian Mid TC Pty Ltd for approximately A$210 Mil. 

Figtree Grove Shopping Centre is located about 3.7 km southwest of the Wollongong and 71 km southwest of Sydney. It occupies a total gross lettable area of 21,984 sqm, including facilities like a 24-hour Kmart, supermarkets, retailers and dining options. It sits on a freehold land area of 50,900 sqm. 

The proposed acquisition will be made through Figtree Holding Trust, a wholly owned sub-trust of a joint venture between SPH Reit and entities managed by Moelis Australia, an ASX-listed financial services group. SPH REIT and Moelis Australia Asset Management will pay A$175.1Mil and A$30.9 Mil for a stake of 85% and 15% respectively.

This bodes well for SPH REIT through working on a partnership with Moelis which is brokering the deal with the giant private equity fund Blackstone and providing local networking support. It also allows SPH REIT management team to get invaluable management exposure of shopping mall in Australia and pave the way for more Australian acquisitions in future pipelines. It also diversifies the geographical risk of portfolios based only in Singapore. 

Current SPH REIT valuation using Dividend Discounted Model
The Dividend Discount Model ("DDM" is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. Since REITS payout more than 90% of its earnings as dividends, DDM will be a useful tool for us to do some mathematical valuation to see the fair value per unit expected.
P = D1 / (r -g)
P= Current Price based on summation of the infinite series;
D1= Dividend Payment per unit (S$0.055) for 1 year;
r= Cost of Equity (assume 5.5% based on 21st Dec 2018 closing price);
g= Dividend Growth Rate-Assume zero to be conservative.

From the above assumption, the valuation of SPH REIT is at S$1.00 per unit. The current price as at December 21, 2018 thus does not seem to have fully priced in the upcoming Australian acquisition and also the potential future acquisition of Seletar Mall. Further long term price catalyst includes the new Woodleigh shopping mall that SPH is developing with Kajima at Bidadari. 

Sunday 9 December 2018

Jui Residences Review- Inspired by Heritage, Designed for Quality Living

Jui Residences is a freehold development that sits on the former National Aerated Water Company site. I used to study in a school at Geylang Bahru and as I walked to the bus stop home along Serangoon Road, it became a daily ritual to always do a stopover at National Aerated Plant and buy Kickapoo from a vending machine near its main gate. It dispensed Kickapoo cheaply at a mere 10 cents per cup and was very popular with a lot of school kids then. As a result, this development held very fond memories for me.  

Strangely, the show flat of Jui Residences is right next to Woodleigh Residences. I had applied for annual leave to visit Woodleigh Residences as I was rather fascinated by staying in an apartment that is right above a shopping mall just like Punggol Watertown Residences and Sengkang Compass Heights. I harbored hope that maybe there will be special star buys around in Woodleigh Residences given the current feeble state of our global economy. When my property agent who was showing me around told me that prices are around S$2,000++ psf,  I nearly fainted as I gasp for breath. Then the agent whispered into my ear: "Yes, I also think the prices here are crazy.....why don't I recommend you a freehold development near the area that is way cheaper than this?" So, my agent then brought me next door to the Jui Residences show flat.   

In December 2016, National Aerated Water Company sold the freehold industrial site for S$47Mil to Selangor Dredging Berhad ("SDB"). SDB paid an additional S$22.66Mil to the local authorities for intensification of usage to a residential site. The total land cost thus translates to an acquisition cost of S$785psf per plot ratio for the land area of 31,705sqft with permissible built up of 88,775sqft of gross floor area based on plot ratio of 2.8. Also, the National Aerated Water building will be partially conserved as stipulated by Urban Redevelopment Authority and integrated into the new development and kept fenceless along Serangoon Road and the river.

This is a city fringe located freehold property. Coupled with it being just next to Kallang River, residents gets to enjoy river view. Not many properties can boast being near to reservoir or waterbody and I considered it an unique gem that is away from the hustle and bustle of City life. Coming back home to this development thus allows one to enter into a mini resort ambience and at the same time enjoy the convenient location.  
Good size Infinity Lap Pool albeit small landsize.

Amenities and Facilities
There will be 117 units for one tower in this development. Carpark lot is 1 for 1 as well as an additional 5 parking lots for visitors. There will be adequate parking space from B1 to level 4 multistorey carpark. There will not be big fights over parking relative to other developments which has cut down to less than 1 for 1 ratio.

The infinity pool is the main highlight for this development. It looks very impressive and is decent sized considering the small landsize.

However, I was quite disappointed that there was no gymnasium at all. This is good in the sense that this will reduce the yearly maintenance cost. In addition, the developer will link up Jui Residences to the Kallang Park Connector hence probably they make do away with the need for treadmills since residents can just go jogging along the track. 

Units and Finishing
Overall, the layout of the apartments here is quite small. The master bedroom based on my standard are tiny. This seems to be the trending these days. If one wants to buy a 3 bedder unit, please avoid type C1, C2 and C3 which have long entrances that wasted the use of space efficiently. The best will be type C4 as illustrated in the picture above which represented the best 3 bedder layout. Type C4 is also the biggest unit in the entire development.

I do have a serious problem with the finishing given, that is, the tiles for the kitchen wall and bathrooms which I find too "Retro" and does not exude a modern contemporary feel. This maybe due to the integration with the conservation of the older industrial facade for National Aerated Water Company. But one can always choose to change the finishing during the renovation to fit one's desired theme. Rather, it is the location that cannot be altered at will.

Pricing is around S$1,700psf and there is still some discount available from the developer. This is a freehold status development. For home buyers who wanted more value for money and do not mind buying 2nd handed projects, one can look for other older developments located closer to Boon Keng MRT direction and also Potong Pasir direction. 

Parting Thoughts
The "Jui" in the name of this project actually means "Water". This is a good city fringe located property that is beside the beautiful Kallang River. The integration with a part of Singapore history that is being earmarked for conservation further enhances the uniqueness of this freehold development.

Saturday 17 November 2018

Asian Pay TV Trust Meltdown- Is It A Good Buy At Current Price And Is It A Good Business?

Asian Pay TV Trust (APTT) unit price plummeted this week upon the announcement by their management team that they will be cutting dividends by 80%. This was a rude shock to many of their investors who were anticipating the dividend to be cut by half only. As a result, the unit price had a meltdown and dropped to S$0.15 during an all-time low on 14 November 2018 from the previous day closing price of S$0.315. Obviously, a lot of dividend yield-seeking investors are cursing and swearing at APTT. I also know of a case of an investor who bought 100,000 shares of APTT at around $0.47 a few months back and in total held over 300,000 shares of APTT. This represented a loss of at least S$100K in the capital value of the stocks on hand due to higher acquisition price over the prior years.

Why Do Some Investors Use Net Asset Per Unit To State That APTT Is Undervalued hence keep buying non-stop?
I would also like to add on that using purely Net Asset per unit to value APTT is not a good yardstick which some investors had relied on. This is because a huge chunk of the "asset" is tied up with an intangible asset in the form of a license to operate its business in Taiwan. The valuation of an intangible asset is fraught with lots of subjectivity depending on your beliefs. For my own sensitivity analysis, I would have impaired and discounted it severely based on the ever-weakening future cash flow generation from the entire business.

Is The Worst Over For APTT?
The million dollar question that everyone keeps asking now is whether the worst is over. Most importantly, is it a good time to buy undervalued units for APTT and also whether it is still a good business to invest in?
First and foremost, my personal view is that APTT has been massively oversold. There are no significant changes in the current business environment. The results show 9mths ended 30 September 2018 revenue declining by <6.3%> and EBITDA decreasing by <6%> whereas unit prices had plunged by 50%.  I think that the fair value should be a lot higher. Also, the dividend payout after the cut is actually more sustainable. For those who dare goes in now will definitely have a higher probability of making profits. Generally, it is the entry price relative to the fair value of any type of business that determines whether the investment will turn out to be profitable.

Also, the extremely low price is actually making it an attractive offer for buy-out by existing shareholders such as Terry Gou (Hon Hai Group Chairman) or other big corporations. 

BUT personally, I need to point out that while the unit prices are currently undervalued, there are unstable elements that are shaking the fundamentals of APTT and one may not be able to sleep well at night holding on to this counter.

3 Reasons Why Low Risk Tolerance Investor Should Stay FAR Far Away From APTT:

(1) Intense Competition from Pirates and Mobile unlimited Data Plans from Taiwanese Telecoms.
Consumers today are buying lots of TV boxes with free pirated TV shows. OTT such as Netflix, Viu, Youtube Premium etc are rising in popularity. Pay TV services is a declining market. For fibre broadband, they are also facing intense competition from Taiwanese Telecom companies which are offering unlimited Data Plans on the mobile network for connection. While the services are not obsolete, the revenue APTT can generate will continue to decline gradually due to a change in consumer demand. 

(2) APTT Management Team is either exhibiting excessive optimism from previously announced results or they are unsure of their own business and industry outlook. 
I have previously pointed out in my other posts that the management keeps repeating that the ARPU decline is stabilizing. Apparently, their perception and definition of stabilization are very different from my own definition. Quarter by quarter it has been declining. I do not see anything stabilising about that aspect. 
Extract from previous QFY2018 Q2 Results Presentation
In addition, during the 2nd quarter announcement, the APTT management team mentioned that they believed the unit prices are undervalued and that they are contemplating a share-buy back. But for the recent 3rd quarter announcement, it turns out that they have cashflow issue to fund future CAPEX without incurring more debts. Hence why talk about share-buy back when they do not even have sufficient funds to maintain the previous dividends and future CAPEX? I personally find such presentation contradictory to the ground situation and have sold off all my APTT units immediately after my last post in September'18 and hence was lucky to have avoided the recent crash in the unit price.

I hope that the major institutional investors will demand for at least 1 new senior management personnel to join the current APTT management team. It is time to do a global search or look in Taiwan for someone who can effect change by bringing in new perspective to the current business. Look at Starhub Singapore, it has done well with a new CEO who has brilliantly executed a cost-cutting exercise and a joint venture for cybersecurity.

I hold a view that a solid management team is a core to sustaining and developing a business and to continue to make it relevant.

(3) Massive Debts and Rising Interest Rate Environment
S$1.4 billion debt is actually a high risk to APTT as alluded to Reason 1 above. The old perception by everybody that APTT is a defensive stock and has stable cashfllow is actually no longer valid due to the declining customer demand. Banks are known to be fair weather friends. Once the marco economic environment sours or there are further decline in operating results that lead to banker's re-assessment, there is no guarantee in the loan agreements that the bankers are obligated to continue extending the borrowings indefinitely. The billion dollar debt is not a small amount.

I am also not confident that APTT will be able to get a lower financing charge upon renewal in the face of a rising interest environment and also declining business albeit gradually, that leads to worsening risk profile. Again, I do not share the same excessive optimism of the management team of APTT. Leverage is always a double-edged sword that cuts both ways.

Parting Thoughts
The current price of S$0.167 per unit includes dividend declared. Stripped off the Q3 dividend of S$0.016 per unit and ex-dividend effect will be S$ 0.151 per unit. From the revised dividends projection of S$0.012 per unit for FY2019 and FY2020, the dividend yield thus becomes 7.95% which is fairly decent as historical excessive dividends payout will be re-deployed back into the business as CAPEX investment.

For more conservative and low-risk tolerance investors, it may be better to give APTT a miss in order to sleep better at night.  

Saturday 10 November 2018

Singtel 1st Half 2018 Results Review And Interim Dividends Payout (6.8cents per share)

Singtel just announced its first-half results ended 30 September 2018. I actually think that it is a fairly good results being announced considering the intense competition faced by its overseas associate companies and Optus. Operating revenue surprisingly remained resilient and even grow 3% to S$8.4 billion. Margin eroded by over 21% (after normalisation from one-off gain from disposal of Netlink Trust in the previous year) mainly due to lower contributions from Airtel and Telkomsel as well as foreign currency translation losses from the effects of stronger Sing dollars against other currencies.

The only concern I have is that Singtel still has not stemmed the bleeding from Group Digital Life business. It continued with  a widening of losses of <S$84Mil> based on the first half results. While I understand the importance of investing in this business segment which management seems to believe that there are perceived synergy to exploit on the Group's service offerings, the results have been depressing for years. They just can't seem to breakeven despite growth in revenue.

I have previously disposed all my Singtel stocks at prices of S$3.78 level as I do not like the intense competition with TPG jumping into the Singapore market by year-end. With the sharp decline in the prices of Singtel and which I think have been oversold, I have been accumulating new Singtel shares at prices ranging from S$3.060 to S$3.180 recently. The current business model from telecom business is still relevant and Singtel has proven to be defensive in nature over these past few months with lesser trading volatility relative to other blue chips. 

An interim dividend of S$0.068 per share has been declared which represented a 2.19% yield based on the last traded price of S$3.10 per share and in line with expectation. Hence Singtel is still on track for its dividend guidance over the next 2 years of S$0.175 per share. This represents an annual yield of 5.65% which is fairly attractive while waiting for the share price to recover.  

Tuesday 6 November 2018

Risk of Higher Interest Rates Effect On Stocks and Properties Amidst Trade War Between US And China

The stock market has been going on a see-saw ride for many months now. Just a few days ago, stock market worldwide rallied thinking that Trump will end the standoff in trade spat with China. But then on Monday, Asian markets tumbled immediately after White House economic advisor Larry Kudlow gave a clarification that the US is not likely to deal. 

In view of the great uncertainty over the resolution of the ongoing trade row, economic activities will continue to slow down albeit the full impact not being felt in Singapore yet. We remain in a perilous situation. The relentless increase in interest rates by the Federal Reserve certainly does not help the current economies.

On the stock market front, it is a fallacy to think that banks will definitely benefit from a higher interest rate and that it is a good time to buy into banking stocks. Banks may not benefit at all from interest rates rise if the volume of transactions goes down drastically, in particular in an economic recession climate. All economies and companies follow the rule of going through ups and downs. Banks such as DBS and OCBC cannot be delivering gravity-defying higher and higher record profits for every quarter.

On the Singapore property market front, an increase in interest rates in the face of ever-increasing property prices may eventually lead to a decline soon. This is because once cheap money is removed and new buyers take up more expensive property loans, they will have to fork out a lot more in terms of monthly repayment. The below illustrative (using the recent hottest property on the block-Woodleigh Residences) depicts the effects of the monthly housing loan repayment based on varying interest rates over 30 years for those who dare to venture into the private property market at this point in time.

The Hong Kong market has already been seeing signs of a housing downturn amidst the rising interest rates. Application for mortgage applications have dropped and increasing properties being let go at lower asking prices. A similar fate awaits the Singapore property market if things do not improve soon. 

For investors, this represents an extremely rare opportunity to get stocks and properties at a good deal. The moral of the story is to wait for economic events to unfurl. Recession or not, I have learned a good lesson from the 2008 global financial crisis, that is, do not go into the market immediately. Be patient and spread out available cash and accumulate assets gradually over the coming 6 mths instead of pumping all available resources into the market at this juncture as if there is no tomorrow for fear of missing the boat.

Saturday 27 October 2018

Dead Cat Bounce and Bear Coming Out? Are We In A Recession Already?

Recent turmoil and bloodbath in the stock market are giving me a Deja Vu feel to the 2008 pre-global financial crisis. The stock market will recover with many analysts chanting just a normal correction. Then stock prices will pick up as if poised for a major rally but within a few days commence tapering off again. This dead cat bounce will happen a few times but the market never seems to be able to break out.

Our government also warned of the effects of the US-China trade war beginning to hit our economy over the next few months. 

Keeping my fingers crossed that there will be an improvement when Trump and Xi next meetup in November 2018 during the G20 Summit. Business and consumer sentiment are very fragile objects which can be shattered easily by any external economic bad news. It may go quickly south in the blink of an eye or even worse, the beginning of an economic meltdown. Probably best to keep additional liquidity on hand instead of a full deployment of all available cash into stocks at this juncture. 

Please feel free to share your thoughts and comments on the economic outlook. Thanks!

Monday 22 October 2018

Singapore Press Holdings- Review of FY2018 Results and Cut In Special Dividends

SPH had announced their full year results for FY2018 on 15 October 2018. The media segment had continued its decline. Good news here is that the rate of decline had slowed down. However, the decline is serious enough on its free cash flow to warrant SPH to cut down on their year-end special dividends. In its results announcement, SPH mentioned that the Media segment continued to be highly profitable. I actually think otherwise. Operating GP margin for Media segment is only at 14.1% based on annual revenue generated of S$655.8Mil and profit margin of S$92.3Mil. I would think that the real super profitable SPH business is in its current property business. The operating GP margin for property is highly profitable at 62.6% based on annual revenue generated of S$242.4Mil and profit margin of S$151.8Mil.

Extract of operating revenue by business segments

Extract of profit before tax by business segments
In terms of the profitability driver, the contribution from property segment has far outstripped the contribution from the media business. It is only contributing a mere 26.7% of total profits before tax and this is expected to further decline to below 25% in future. The future growth engine for SPH thus comes from its up and coming Property segment which is expected to make up more than 50% of its profitability going forward since any further decline in revenue from Media segment translates only into less significant profit drop based on the operating profit margin of a mere 14.1%. For example, a drop in S$10Mil of Media segment revenue will only cause a decrease of <S$1.41Mil> in profits.  An increase of S$10 Mil in Property segment revenue will add on over S$6.26Mil to the bottom line.
Weightage of each business segment against total profits
The growth driver for SPH burgeoning property segment will come from the below business catalyst:
  1. Recently acquired student accommodation business in UK;
  2. Development of residential project Woodleigh Residences in Singapore Development and 
  3. Management of upcoming Woodleigh shopping mall for rental income
Thoughts on the Dividends Declared and Fair Valuation
The SPH Board has declared a final dividend of 7 cents per share comprising (i) 3 cents of ordinary dividend and (ii) 4 cents of special dividend. Coupled with the interim dividend of 6 cents per share, the total dividends for FY2018 is S$0.13. Based on closing price of S$2.62 on 19th October 2018 (Friday), this represented a dividend yield of 4.96%.

My personal thoughts are that the business of SPH has actually stabilized now that new growth engine has been put in place. The current dividend yield of approximately 5% is very attractive as it gives a payback annually while waiting for the business to continue growing and to realize its potential. The main risk now is whether SPH can maintain at least S$1,800psf in the average selling price of its units in the Woodleigh residential development project in view of the new cooling measures announced by the government this year. SPH and its partner Kajima had invested over S$1.132 billion to acquire the Bidadari commercial and residential site. Any severe economic downturn from the global effects of US China trade war and interest rate hikes will adversely impact the returns on this property development venture.  

Hence, I will say at S$2.62, SPH is fairly valued. If the price drop below S$2.60, it will be a good price to start accumulating some of its shares for a reasonable margin of safety while waiting for the new property projects to bear fruits. 

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?