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