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.

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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. 

Conclusion:

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.