Sunday 29 April 2018

Global Investment Limited- Financial review. Is it really a "Hidden Gem"?

In the previous post, I have mentioned that Global Investment Limited ("GIL") was indeed giving out dividend yield of over 10% for FY2015 and FY2016. In FY2017, its yield was over 8.9% in view of the growth in market valuation from S$0.136 per share to S$0.146 per share as at 31 December 2017.

What are the principle activities of GIL?
GIL works something like a unit trust with a balanced fund portfolio that focuses on:
(i)   equity investment;
(ii)  fixed income component;
(iii) asset back securities;
(iv) collateralized loan obligation securities and
(v)  operating lease assets (currently not holding on to any).

According to its investment philosophy, GIL seeks to make investments through different means to achieve the desired economic exposure to the risks and rewards of the assets. GIL aims for assets that will generate steady income and appreciation in capital to deliver regular dividends and achieve capital growth.

In addition to direct asset ownership, such methods may include, but will not be limited to stapled securities consisting of debt and equity, guarantees of assets and performance, securities lending and participating loan agreements.

With regard to collateralized loan obligation securities, it refers to their investment in mezzanine and subordinated notes which are issued by secularization vehicles that hold collateral consisting of mainly senior secured corporate loans, while the CLN investments reference portfolios of trade finance obligations and corporate loans, with obligors mainly domiciled in Asia. 

I would also like to draw attention to GIL's dividend policy which is to pay out most of its profit after tax after taking into consideration GIL's requirements for future growth.

Key Personnel and management of the fund
The BOD of GIL metup 7 times in 2017. GIL is managed by Singapore Consortium Investment Management Limited (SICIM) which holds a Capital Markets Services License for fund management issued by the Monetary Authority of Singapore. GIL thus does not have any direct employees in its payroll. 

GIL is chaired by Mr Boon Swan Foo who is also the non-executive Director and Chairman of the Company. Mr Boon is the Chairman and Chief Executive Officer (CEO) of SICIM. He serves on the board of China National Offshore Oil Corporation. Swan Foo also served as CEO of ST Engineering from 1997 to 2001, was the Mananging Director of A*STAR from 2002 to 2006. He was also the Chairman and independent Director of Perennial China Retail Trust Management Pte Ltd from 2010 to 2013. 

Are the dividends sustainable?
GIL team has a very impressive record of delivering yearly profits for many years. Based on the financials dug out all the way back to 2012, it has been profitable in producing good returns to shareholders. The management fees paid to the Fund Manager is also structured in such a way that additional incentive payment (on top of base and fixed fees) is only paid out to the Fund Manager once they delivered 20% excess return over the bench-marked return. This aligned their interest to the shareholders.
P&L Trending
It is also interesting to note that in some years, the dividends paid out is higher than the earnings per share. But overall based on the stellar 2017 performance, the total dividends paid out so far are matched by YTD earnings. 

In the absence of major market turmoil, GIL should be able to produce another set of good returns in 2018 as the key management team remain intact to guide the deployment of cash and to evaluate market risks. 

Is GIL value for money at its current price and a hidden gem?
Well, the good news is that based on the net assets per share of S$0.206, the current pricing of S$0.145 as at 27 April 2018 means that we seems to be looking at a whopping 30% discount to NTA per share. 

Is GIL considered a safe stock as only a small percentage are in listed equities?
To answer this question, let's first take a look at the assets that GIL invested. It has over S$203Mil in Non-current assets and S$134Mil in current assets as as at 31 December 2017. Its debts is only a mere S$4.4Mil.

Statement of Financial Position as at 31 Dec 2017

It has a good spread of asset classes and is also well diversified in terms of geographical regions. 
As at 31 Dec 2017, total monetary amount of its asset is S$337 Mil and S$242 Mil are invested. The high cash position in 2017 was due to realization of investments and will be re-deployed out in 2018.

Saying that, my view of the asset classes held for Bank Contingent Convertibles (known popularly as "CoCo") and CLO notes are actually as risky as listed equities. The increasing global interest rates should improve yield of the assets deployed. However, the risk of losing the capital are actually high and not "minimal" risk. 

In conclusion, I viewed GIL as a risky investment for investors. My risk tolerance are low and while the management for GIL are good, I will only at most hold a small portion of my overall holdings in this particular counter. After being through the Global Financial Crisis in 2008, we all already learnt that big financial institutions are not impervious to financial collapse. High returns and high risk have always been the adage of investment. 

Thursday 26 April 2018

Super high yield SGX Dividend Stock-Global Investments Limited. STAR buy?

It seems that Global Investments Limited ("GIL") has been producing dividend yield of over 10% for the past few years. Now, this is where it becomes very interesting. Its principle activities  is actually an open ended balanced mutual fund launched and managed by Singapore Consortium Investment Management Limited. GIL invests in public equity and fixed income markets globally.

I first came across this "SUPER"" stock mentioned on some of the investment forums. Then recently, my curiosity was piqued when  a close friend told me that he had uncovered a "hidden gem" that had a track record of paying out over 10% in dividend yield and out of goodwill, revealed this secret to me. I found this claim incredulous as it means that GIL gross investment return on the assets purchased must be over 10% per annum in order to fund dividends to shareholders on top of paying remuneration and salaries for the Directors and permanent staff cost. The gross returns will also need to sufficiently cover administrative costs such as statutory compliance cost (Eg: Audit fees, Corp tax fees, Corp Sec fees).

Is this too good to be true? A secret stock with a double digit dividend yield per annum? 

Well, seems that the dividend yield part is true. But then the key questions that we need to ask ourselves are:

1. Are the super high dividends sustainable?

2. What is the risk profile and key business risks for this business?

3. Is GIL a value for money undervalued stock right now?

Will be digging up the financial statements and also glance into the annual reports of GIL to try to address the above mentioned questions in my next posting. GIL may in fact really be a star buy after-all. 
(Pls see published review of GIL- Global Investment Limited Financial Review)

Wednesday 25 April 2018

Will Asian Paid TV Trust tumble further downwards to less than 40 cents again?

Things are not good with Asian Paid TV Trust ("APTT") market price again. It tumbled down below the 50 cents support level this week. Strange thing is that there were no major news announced by APTT and there were huge volume that involved millions of units being sold off. This probably represented some selling by institutional investors.

I have previously mentioned in my other post that APTT is a risky stock due to its current business fundamentals. The share drop this week is a reflection of the volatility and investor risk perspective of this business trust. Please see Asian Pay TV Trust Review (Part 2) -Future Business Outlook  

Thursday 19 April 2018

Steady Pom Pi Pi - First REIT DPU Q1 2018 Up 1 Cent

First Real Estate Investment Trust ('"First REIT") announced a good set of Q1 2018 financial results. It has an excellent management team and Sponsor.  

Property revenue increased 5.8% to S$28.7 million while coming off the recent acquisition exercise in Q4 2017. There were additional financial contributions from Siloam Hospitals Buton & Lippo Plaza Buton and Siloam Hospitals Yogyakarta. In addition, there were also improvements in rental income from existing properties of First REIT in Indonesia and Singapore.

I have always love First REIT management team for their long-term strategy of making yield accretive acquisitions which has allowed First REIT to grow its returns steadily over the years. 

Steady Pom Pi Pi First REIT! Way to go for 2018! 

Monday 16 April 2018

Asian Pay TV Trust Review (Part 2) -Future Business Outlook

I actually have a love and hate relationship with Asian Pay TV Trust (“APTT”).
For those of you who have been with this business before its maiden spin off from the Macquire Infrastructure Fund days, you will know that this has long been a cash cow that has over the years been delivering and bringing in lots of cash for the unit holders as well as the banks which provided the financial leverages via borrowings.

I have made close to 46% return from capital gain and dividends back in 2012. But have since lost most of it after accumulating new units from the spin off. Its IPO price debuted at S$0.97. I even accumulated more units when its price drop after IPO. But eventually, I was forced to cut loss and sell off at various prices ranging from S$0.60 to S$0.80 due to the worsening cashflow position and declining earnings with the exception of 20,000 units. I figured out that as long as the business does not collapsed within 10 years, the high dividend yield will still compensate for any further decline in unit price and also to retain the opportunity to participate in any business development upsides in future. Ok, enough said, let’s go back to do some financial assessment based on the latest published 2017 Annual Report.   

Before we dwell into mental acrobatics on the financial statements interpretations, let us recap on key developments for previous financial year 2017:
  • TBC first large cable TV Operator in Taiwan to complete the digitalization of its subscriber base and switch off analogue TV broadcasting in 2017.
  • Management of APTT did mention that for 2018, they will be offering discount TV packages to grab market shares as well as to  continue to build on the business strategy of up-sell and cross sell of services across Taiwan Broadband Communication’s (“TBC”)  subscriber base to drive growth in future cash flows.
  • Management has re-affirmed in February 2018 that the distribution guidance remains at 6.5cents per unit for the year ending 31 December 2018, unchanged from 2017, subject to no material changes in planning assumptions.
Key questions that we need to ask ourselves will be:
1    1. Can the dividend going forward be maintained?

2. What are the risks associated with holding units in this Business Trust? Is it not a stable business that will continue to generate stable cashflow for unit holders?

3. Is the current price of S$0.510 (after the plunge over last 2 weeks) the right time to go in? Will it go down even further?

Key Financial Concepts- Why APTT management keep using EBITDA instead of Net Income when reporting on its financial performance?
EBITDA refers to the Earning Before Interest, Tax, Depreciation and Amortisation. The cash generation prowess is what APTT business represents due to the nature of its business.

Taxation refers to corporate taxation as well as the accounting concept of deferred taxation which is a very abstract concept. I do agree that taxation is irrelevant in measuring the performance of the management. Hence when the Taiwanese government announced that going forward, they are going to increase Corporate Tax Rate from 17% to 20%, the EBITA if ceteris paribus, will mean that nothing in terms of the business has changed fundamentally albeit the drop in distributable free cash flow.

Interest refers to financing cost of borrowings. This is arguably not within the management control as rates can fluctuate even if the borrowing quantum remain the same. However, there is still a cashflow impact for this item similar to Corporate Taxation.

Depreciation and Amortisation represents cash paid up-front for acquisition of Property, Plant and Equipment and Intangible assets. Intangible assets here refer to Cable TV Licenses, Software, Programming rights and goodwill from acquisition of an acquiree’s business. Out of S$2,391Mil, Cable TV licenses to operate in Taiwan from government forms the bulk of this item with value of S$2,372 Mil. Interesting thing is that this license does not have any expiry hence the cost will never be amortized as it grants APTT perpetual rights to be in the business in Taiwan. Rest of the items such as Programming rights will be amortized according to their useful lives.  There is no cashflow impact from effect of depreciation and amortization.
Extraction of the breakdown of Intangibles that made up the bulk of the Assets of APTT
Borrowings Risk to finance CAPEX
A key point to take note of over here is that the management team is relying heavily on bank borrowings to finance any major CAPEX such as the rolling out of digital TV broadcast. Since equipment do get worn out eventually, there should by right, be cash set aside yearly for future CAPEX. Hence a significant problem resulted from the current business operations is that it will run out of cash at one point in time when such need arises.

A business cannot be borrowing indefinitely and then just keep paying financing cost. This unplanned CAPEX depending on its urgency and also quantum will eat into the distributable free cashflow or even worse, it can lead to rights issue if the quantum is significant.

The second point is that the management team has always been using leverage on bank loans to pay out high dividends to unit holders. Also, the banks do not grant indefinite borrowing. Business is all about sentiment. If market condition worsen, there is risk that APTT cannot get the S$1.4 billion of onshore loan facility renewed. Good thing is that APTT had concluded a re-financing agreement with its banker in October 2016 which extend the loan facility for 7 years expiring on 26 October 2023. But do take note that the loan taken from this facility needs to be repaid in various tranches over the years and not just at the end of the facility term.

There is still another S$125Mil offshore multi-currency term loan facility due in 2019. However, APTT as of 31 December 2017 only have S$80 Mil of cash and trade receivables. Since it paid out most of its free cashflow as dividends, it will run the risk of default should the bank decided not to renew this facility. Even if it does not pay out any dividend for 2018 and reserve the cash for the off shore loan repayment, this may still not be adequate in view of uncertainty over the ability to sustain the current level of cashflow in view of competition. Of course, APTT can still tap on its other onshore loan facility to draw down more cash to tide them over but you folks get the gist of what I am saying here: APTT is running heavily on leverages for its survival.  It has a very weak statement of financial position in terms of actual cash on hand.

But it does have cashflow to pay out dividends if management is successful in the execution of the strategy to at least stabilize the current level of earnings coupled with the assumption that there are no future change in Macroeconomics conditions that will force bankers to withdraw and stop debt renewal. Although past financial performance does not equate to future performance, it does give us some insights into the state of the Paid TV business in Taiwan.
Note that Net Income has been decreasing over the past 5 years. This is a worrisome trend.

Is the dividend sustainable? Earnings per share significantly less than the dividend per share declared.
The cashflow from the APTT business model is actually more substantial than what a lot of people think. The reason being that the net income number already includes a high CAPEX upfront depreciation as well as deferred taxation which has no cashflow impact immediately. I did a very high level adjustment to illustrate why the operating cashflow is actually a lot higher than the net income as per below:  

Hence to look just at the net earnings per unit, many analysts concluded that the dividends are not sustainable. This is not true unless there are drastic changes to the way APTT operates through the financing leverage model or the business conditions worsen as per mentioned above. 

I view the APTT business as a high risk model with high leverage. In addition, there is market disruption arising from the popularity of illegal android TV boxes, legal content provider Netflix, Viu etc. I do like the high dividend yield based on the current unit price for compensation of high risk undertaken by investor to provide equity funding. 

There is no net tangible asset value left from the statement of financial position in the APTT business. The guide to its perceived survival depends on the outlook of its future cash generation ability. Since investment is also about capital preservation, in the absence of earnings upgrade visibility, I will not suggest anyone putting all their eggs in one basket. The high dividend yield is really to cater for the high risk premium for this business. Probably, investors should make it just a small percentage of one's overall stock portfolio until things become clearer that the business strategies can bear fruits for FY2018.

Wednesday 11 April 2018

Asian Pay TV Trust Review (Part 1) -3 Myths to Debunk.

The Asian Pay TV Trust is a business that seems to have created a sense of confusion among various investors on investment forum. Without scrutinizing the financial statements, it would be hard to assess the future and the risks associated with this business. Let me start with debunking some of the assertions made by some forummers.

Myth 1: “Target: $0.595 soon!!!  Good investment for income by collecting dividends!!! 12.7% Dividend Yield at current price of S$0.510…Hurray!”
Blade Knight: The revenue and distributable income may go down based on historical trending due to more competitive pricing to retain existing TV subscribers. This decrease coupled with the financing cost for unplanned CAPEX for digitalization of TV upgrade led to repeated revision downwards of the dividends over the last few years.

There is always the downside risk that the net income will be insufficient to cover for operating expenses and to also pay off the mammoth financing cost from the S$1.5 billion debt. Unit holders may even have to play the White Knight in such scenario by subscribing to rights issue to raise cash to ensure business continuity and to stave off immediate liquidation law suits by creditors.

Myth 2: “The unbelievably high yield sounds too good to be true, which prob isn' t, if you know what' s really underneath the hood. Might work for a short punt though”.

Blade Knight: But management of APTT did mention that for 2018, they will be offering discount TV packages to grab market shares as well as to  continue to build on the business strategy of up-sell and cross sell of services across Taiwan Broadband Communication’s (“TBC”)  subscriber base to drive growth in future cash flows.

Depending on your outlook, if one thinks that TBC is a stable business that is well positioned for future growth and one likes the business strategies, then this is a sound business well worth the risk undertaken by investor.

Myth 3: “No more CAPEX. So cash paid out reduced and dividend increase.”
Blade Knight: This is not true. The financing or the CAPEX was mainly through additional borrowings. Hence a reduction in project CAPEX will not lead to an increase in dividends available for distribution. It does however stabilize the pool of distributable income as financing cost will not increase from additional drawing down of credit line. For 2018, there will be an overall decrease in financing cost due to 0.3% decline in interest rate payable from the Onshore Facilities followed by the completion of the sale of the Trustee-Manager.

So is Asian Pay TV Trust an up and coming rising Star? Is the current share price excessively discounted right now such that there will be inevitable favourable upside gain? Or the current price has not hit rock bottom and will slide down even further?

P.S: Please stay tune and go on to the analytics on the latest 2017 financial statements as illustrated in the Part 2 Review for Asian Pay TV Trust once it is out.

Tuesday 10 April 2018

Passive income at over S$24K per annum- Portfolio update of S$400K

With the dividends paid out ploughed back and capital growth over the last few years, I am heartened to see my Portfolio grew from S$200K in 2012 to the current S$414K size in 2018. It has been an amazing 5 years journey with many lessons in investment learnt along the way.  

Tweaks were made to the previous portfolio such as: 
  • the removal of Telecom stocks due to the uncertain entry of TPG into the Singapore market by the end of the year; 
  • selling off of Singapore Press Holdings due to disruption in its traditional advertisement revenue stream by online media;
  • buying into the more defensive retail REITS such as SPH and Frasers Centrepoint Trust;
  • accumulation  of commercial REIT Frasers Commercial as it is back on expansion path with  its maiden foray into United Kingdom;
  • addition of growth stock Perennial Real Estate Investment Trust. The numerous project pipelines and building up of recurring income made this an undervalued stock;
  • acquisition of Starhill Global REITS during the recent all time low selling price. The asset enhancement work completion at its overseas property should improve its net distributable income;  
  • purchase of bank stock OCBC and then selling off  when sentiment improved for profit realization;
  • purchase of Comfort Delgro below S$2 during the recent market low point and then selling off when its price recover.  
I no longer subscribe to the traditional buy and hold forever strategy advocated by many mainstream investors. Buying and selling at different market cycles is also important in capital preservation and realization of profits. Also, I learnt that one cannot time the market perfectly hence it is important to always have ready available cash on hand for immediate deployment in times of opportunity like the recent price correction of REITs.   

Sunday 8 April 2018

Perennial Real Estate Holdings Limited

There have been 2 interesting developments for Perennial Real Estate Holdings Limited ("PREHL") in 2018.

1. In January 2018, the deadlock with co-owner Pontiac Land over the Capitol integrated development was finally broken. PREHL paid S$528 Mil to buy out Pontiac Land to become the sole owner. This bode well for the generation of recurring income from the hotel operations of Capitol which has remained close due to dispute over the future direction with Pontiac Land. There will also be synergy for the retail component of Capitol from the resulting higher traffic. 
It is expected to bring in S$40Mil to S$50Mil per annum in recurring income if the execution goes on smoothly as planned. 
2. On 4 April 2018, PREHL and China based Qingjian Group entered into a 40-60 joint venture to jointly develop the former Goodluck Garden freehold residential site in Singapore. Goodluck Garden was previously en-bloc and acquired by Qingjian for S$610Mil. The site area has an land area about 360,130 sqft and is located at Toh Tuck Road. This bodes well for its Singapore property development profitability over the next few years.
Analysts targeted price for PREHL is around S$1.05 to S$1.18. Its current share price is at S$0.86. PREHL represents a unique business that is fast growing with many projects in its development pipeline. The future recurring income from medical services and properties rental income will also increase the dividend pay-out.