Sunday 27 January 2019

Cross Island Line First Phase Launch And Private Properties Nearby Snapped Up from the Excitment

The Land Transport Authority ("LTA") recently announced the 1st Phase launch of the Cross Island Line. 12 stations will be constructed initially. Soon after the news release by LTA, I got a few messages from property agent informing me that at least 15 units of Affinity at Serangoon were sold following the news. The Affinity at Serangoon was priced at an average of S$1,575psf. It turns out that the condo is just 350 meters away from the new Serangoon North Cross Island Line MRT station. The agent told me not to miss out and buy one as soon as possible before prices get adjusted upwards. Many folks seemed to place premiums in living near MRT stations. 

It has always been my dream to live in an apartment just beside the MRT station. Even better if it is a mixed residential and commercial development just right on top of an MRT station...but alas.... money always not enough and just can't seemed to catch up with the ever-raging property fever and perpetual out of reach property pricing in Singapore. However, seems that not everyone enjoys staying near the MRT. I used to have an Australian Expat colleague who preferred serene and remote environment close to nature rather than beside any MRT stations or shopping malls. Reason being that after a hard day's work, he wants to be away from the hustle and bustle of modern working life.

Is it better if one stay beside or on top of a MRT station for convenience sake? Or choose to stay nearer to nature such as more remote parts nearer to reservoir or areas with large parks such as the botanical garden?

Saturday 26 January 2019

Fu Yu Corp- Good Performance For FY2018 And Sustainability Of 8% Dividend Yield.

I am looking forward to February 2019. Well, not just because of the Lunar New Year but also because I am anticipating the release of the full year results of Fu Corp for FYQ4 2018 and its entire year financial performance towards the end of February 2019.

I have previously written on Fu Yu Corp being a dividend superhero. It virtually holds no bank borrowings on its statement of financial position and dishes out approximately 8% dividend yield. The revenue and net profit attributable to shareholders for the last 2 quarters have been shooting up.

I have always wondered over the sustainability of its 8% dividend yield and agreed that the huge cash on hand can no doubt sustain it for a few years. The only long term concern is that I do not see how the high dividend rate can be sustained perpetually if the results were like FY2017 of merely S$4.48Mil per year and the Company keep paying out from accumulated earnings. Sooner or later, it will be used up. Good news is that for Q2 FY2018 and Q3 FY2018, Fu Yu has performed exceedingly well. A cool S$8.4Mil earned in just 2 quarters relative to the whole year of only S$4.48Mil for FY2017. This is at least a 100% jump in profitability for upcoming FY18 barring unforseen circumstance such as unannounced substantial losses during Q4FY2018.
Things to watch out for:
  1. On 18 Sep 2018, Fu Yu Corp announced the resignation of its Group Business Development Director (last day with the organisation is on 7th October 2018) to pursue other personal interest. Now the strange thing about such announcements for resignations of key personnel is that the reasons given are usually those very polite responses such as "pursuit of personal interest" or "retirement".  Personally, I think one has to ponder more deeply into it. It could reflect internal disagreements among the senior management team or unhappiness over the political/cultural undercurrent in the organization. It can also mean an ex-staff setting up a rival company. Hence it can indicate future development for the better or for the worse. The still unannounced Q4 result is thus crucial to see whether the current wind blowing has changed direction.
  2. Again, another weird trait of mine is that my risk tolerance level is not high in particular for manufacturing business. Despite the huge jump in its net income for Q2 2018 and Q3 2018, Fu Yu Corp still made up less than 3% of my current stock portfolio. The business itself faced much competition from other rivals and is very dependant on marco-economic changes as well as the talent of the management team in resource control of daily operations. Look at the previous years of financial history as well as the principal activities which point to challenging business conditions at times.
  3. During my accumulation phase (bought 61,500 shares at an average of S$0.171) last year, I often find it hard to get my hands on the stocks of Fu Yu as it is thinly traded. Hence vice versa, if one wants to sell urgently, you may find yourself encountering a problem trying to liquidate it.
Parting Thoughts:
Keeping an eye out for the upcoming results announcement of Q4 FY2018 financial performance. Also, if there is no major deterioration in its future financial performance and business outlook. I will probably keep holding on to the current stock on hand for Fu Yu Corp. The debt-free balance sheet does offer some form of safety and security to one's overall investment. In addition, Fu Yu Corp is a potential M&A target by other industry players. Maybe the current management may decide to retire and sell off their entire shareholdings in another 4-5 years time.

P.S: Please refer to my previous posting- "Fu Yu Corporation- SUPER Hero cash generating abilities".

Saturday 19 January 2019

Frasers Commercial Trust Roared Back Into Life With News of Google In Talks For 400,000sqft of Space At Alexandra Technopark

Fraser Commercial Trust("FCT") bounced back strongly this week with news that Google is on an expansion drive in Singapore and in talks with Fraser Commercial Trust for 400,000sqft of space at Alexandra Technopark. Its unit price which used to hover around S$1.36 to S$1.40 for the past 2 months shot up yesterday and even hit S$1.48 at its highest point for the week. It eventually closed off at S$1.45 as at 18 Jan 2019, Friday.

Completion of AEI at Alexandra Technopark and Google Expansion into Singapore
Alexandra Technopark is a high tech business space campus located at the prominent Alexandra business corridor. A $$45Mil asset enhancement initiative was announced on 23 January 2017 and is currently nearing full completion. It aimed to transform and reposition Alexandra Technopark into a contemporary, vibrant, and engaging business campus. A new 13,300sqft amenity hub has been added, which provides seamless connectivity to the two business space blocks and houses a wide array of food and beverage, social and other amenities. Its current occupancy rate is around 68.6%.
If Google were to really take up the 400,000sqft, this will drive occupancy rate to more than 90%. Market analysts have been suggesting the rental cost will be S$4 per sqft. This will mean S$1.6Mil per month or S$19.2 Mil per annum of rental income contribution.

Financial Results Review for Q1 FY2019 Announcement:
As we can see, the results show a deterioration mainly due to the divestment of 55 Market Street as well as the AEI work for Alexandra Technopark and also China Square Retail podium.

If FCT managed to sign up Google, its earnings will get boost up and support the unit price.

Note that FCT equity accounts for the UK Farnborough Business Park on a 50% stake basis. The current Brexit crisis might have some detrimental impact on the rental income but not expected to be significant due to the high-quality tenants and long WALE of 7.3 years at the UK Business Park.

Parting Thoughts:
With a healthy gearing of 28.4%, FCT will be able to tap on the opportunity to acquire new assets that are yield accretive following the divestment of 55 Market Street property last year. The completion of the AEI on Alexandra Technopark and China Square Retail Podium in this year should also further strengthen the REIT for long term growth.

Wednesday 16 January 2019

Health Supplements Better or Spend Money On Insurance Coverages Better?

Since my monthly earning is limited, I sometimes ponder over the question of whether I have been spending too much money sustaining insurance premiums from all the policies that I have purchased for myself as well as for the entire family.

I like insurance which is the transfer of risk to insurer for protection. However, insurance and the protection can only bring benefit once certain conditions are triggered which means the unfortunate event already happened. The money does make life easier for the family but it does not buy you any additional happiness at that juncture.

Health supplements are also very important especially as one aged and all sorts of funny ailments started kicking in. Most folks started to get high cholesterol issue. Other metabolism disorder due to aging means the risk of hypertension or diabetics shoots up drastically. Chronic diseases lead to a deterioration in the quality of life.

Osteoporosis is also becoming more prevalent these days….I have an auntie who slipped in the bathroom while showering and the bones in her right foot ended up shattering like glass and broke into hundreds of finer pieces. The shocking thing is she really merely slipped and did not even fall down as in slipped but managed to recover her balance in time….just that the extra impact of the foot landing during recovery seems strong enough to cause the bones in the foot to shatter into pieces. She told me that since I am still not as old as her, I better take more calcium so that I don’t regret it during old age.

So with unlimited wants but limited resources, which one is more important? Health supplements or just allocate everything into insurances and investments? 

Saturday 12 January 2019

Healthcare Stocks Are Resilient In Earnings? Fact or Myth?

There is an old saying that gets repeated like a broken old record that healthcare-related stocks are defensive in nature and are recession proof. This is mainly because of (i) the aging population which leads to more demand for medical services or medical drugs as well as (ii) inelastic demand as in if one falls sick, one will still need to visit a doctor for treatment regardless of whether the state of the economy is good or in the doldrums.

I think that the above beliefs are mere fallacies.  I have always subscribed to the belief that what the eyes can see is real and what the ears can hear are illusionary. I think that the defensive nature for a lot of medical stocks in our healthcare industry is over-rated. Yes, true for some companies but not factual for a lot of others. Amgen, the drug making company for cancer, amenia and other drugs that are essential to many consumers is a perfect example of a healthcare business that is indispensable.  It actually managed to grow its revenue by 3% in 2008 during the global financial crisis.

However, for other healthcare stocks based in Singapore, they have been hit by the softening of medical tourists due to the intense regional competition. Hospitals and specialist clinics in Malaysia and Thailand are catching up in terms of their quality and can offer them at a much lower cost relative to Singapore. Traditional clients from Indonesia have also been dwindling.  We have seen Raffles Medical and Parkway Pantai (IHH) venturing overseas to market the SG local brand in overseas setup.

To illustrate the illustration of so-called resilient earnings from medical care stocks, Sing Medical Group in 2012/2013 had been hit hard by dwindling medical tourism and the whole group was in the red. Only when their new executive CEO took over and started executing restructuring plans and new growth business strategies did it eventually turned around and back to profitability.
Please also see "The Enigmatic Case of Sing Medical Group- More Money Earned Lead to Lower Share Price."

Another example would be the case of FIRST Reit which owns hospitals in Indonesia. Recently, its unit price plummeted 25% to 30% due to high concentration risk of its largest debtor, Lippo Karawachi and also expectation that once the first batch of expired lease coming up for renewal in 2021 will be on unfavorable terms such as pegging rental payment to Indonesian rupiah. This is despite the case that there is still no major deterioration in its actual financial performance. However, the market has already priced in the future earnings negatively and repriced the current fair valuation of the REIT. Resiliency in earnings for healthcare-related businesses should thus not be taken for granted.

For the reasons above, while healthcare businesses offer good portfolio diversification, it is a misconception that the earnings are absolutely resilient. The healthcare stocks listed in Singapore are not public hospitals hence I have trouble seeing and linking the services provided as inelastic demand. The weightage of having a good senior management team as well as identifying the customer segment to grow the business is thus vital for the healthcare stocks to continue to grow and do well. This is no different from other industries. 

Tuesday 8 January 2019

The Enigmatic Case of Sing Medical Group- More Money Earned Lead to Lower Share Price.

Singapore Medical Group (“SMG”) share prices has fallen by a whopping 44.1% from its peak of S$0.715 on 17 July 2017 to only S$0.400 as at 8 January 2019. This is despite Q3 2018 YTD revenue growth of 27.8% and net profit after tax growth of 66.7% relative to FY2017 Q3 YTD. What is even more astonishing is that the share price has languished albeit the explosive growth of revenue and net profit attributable to shareholders over the past 3 years.

Taking into account the previous rights issue at S$0.48 on 4 July 2018, investors who bought in at the current pricing of S$0.40 would have gained an immediate discount of 16.7% to the fair value of cash on hand where the bulk of the recent S$6.6Mil cash raised is still held in bank and only S$2.2Mil were utilized as at 31 Dec 2018.   

Business Activities of SMG
SMG is a multi-disciplinary specialist and primary healthcare service provider. SMG had grown significantly year on year. The 3 main medical activities of SMC are (i) Healthcare (Obstetrics & Gynecology; Women’s Fertility; Dental; Oncology; Health screening), (ii) diagnostic imaging (fast-growing segment) and (iii) Aesthetics. It has also recently ventured into pediatric services and SMG has also been aggressively growing its footprint beyond Singapore to Malaysia, Indonesia, Vietnam and Australia in the region.

Financial Performance of SMG
The last 3 years of growth for SMG from FY2016 to FY2018 has been rather explosive since the change in senior management- please see below section on the management team led by Dr Beng Teck Liang.

For FY2017, SMG net profit jumped +250% from S$2.4Mil in FY2016 to S$8.5Mil in FY2017 on revenue of S$68Mil.

For Q3 FY2018 YTD, it has achieved profits of S$ 9.984Mil relative to S$5.988Mil which is an impressive 66.7% growth. This is on the back of growth of +27.8% in revenue from S$49.2Mil in Q3 FY2017 YTD to S$62.88Mil in Q3 FY2018 YTD.

I am anticipating good results announcement for Q4 FY2018 once SMG published their final results.

Valuation Assessment-Comparison of Current Financial Benchmark to Competitors
For the purpose of the benchmarking exercise, let’s use Raffles Medical Group and Q&M as a proxy. SMG is trading at around 14 times FY18 PE relative to other Healthcare Group of approximately 25 times FY18 PE. This is a steep discount in terms of valuation based on PE in the medical services industry.

Strong And Experienced Management Team Led by CEO Dr Beng Teck Liang and Chairman Tony Tan
When Dr Beng took up a 20% stake in SMG in June 2013, the group had been recording huge losses for close to 2 years. Dr Beng was instrumental in restructuring the business through cost-cutting measures, getting good doctors to stay on and re-negotiated contracts.

Technology had featured prominently in the transformation of SMC. Dr Beng who worked before as Managing Director for Hewlett-Packard (HP) Thailand and Chief Medical Officer at Novahealth, was the one who introduced electronic medical records digitalization, a web based, cloud based Radiology Information System (RIS) as well as Picture Archiving and Communication System (PACS) into SMC.

SMG announced the appointment of Tony Tan Choon Keat as non-executive chairman on 2 December 2013. Tony has vast experience in the healthcare industry. He was the founding managing director of Parkway Holdings. During his tenure at Parkway Holdings, he made acquisitions and development by Parkway Holdings both in Singapore and overseas to build up its healthcare franchise to one of the major healthcare players in Asia region.

Future Growth
SMG planned to upscale and expand their aesthetics services to Vietnam and Indonesia markets.

Things To Watch Out For When Investing In SMG
Most investors seem not to have noticed SMG. The daily volume being traded are still razor thin. One might not be able to easily liquidate for conversion into cash if required.

In addition, SMG currently does not pay out any dividends hence this may be another reason why many investors shun it. However, it has been announced on 3 July 2018 that the Company is seriously looking into a formal dividend policy in FY2019 along with a share buy-back mandate. The risk here is that this is just verbal talk and it does not materialize.

Also, the current M&A strategy also comes with high execution risk. There will also be more rights issue given that the management seems to be very aggressive in pursuing inorganic growth.

Last but not least, it is a fallacy to think that medical earnings are resilient. The adverse impact of dwindling medical tourism has been negatively affecting all medical players such as Raffles Medical Group as well as SMG.

Parting Thoughts
I think that SMG is well positioned for another year of good growth in FY2019. Based on its PE against its peers, a conservative estimate will be that there is at least a 50% upside potential in its share price. I am projecting a 20% increase in its share price performance annually in FY2019 and FY2020 respectively due to the splendid leadership of their Board of Directors which has delivered 3 years of solid financial results. I am sure the pro-expansion mindset of SMG Senior Management team through organic and inorganic growth will steer SMG forward and turn it into a premium regional healthcare provider.   

Saturday 5 January 2019

The Art Of Bootlicking- Are You Thick Skinned Enough To Do It?

I am a bean counter by profession. Many people think that most bean counters are introvert in nature and do not like interacting with others. So bean counters generally lose out in terms of knowing how to please their boss.

Since ancient China time, all court officials swamped around the Emperor like bees to honey. Even wise Emperors such as Qian Long (1711-1799) from the Qing Dynasty, also favored those bootlickers such as He Shen who was notorious for being the most corrupted official in China history. 

Even in modern times, such practices are still in abundance. You will see many of the staff of an organization flocking around the Chief Executive Officer (CEO) telling him/her how awesome or great he/she is. There are also staff who gladly tramped over colleagues or junior level staff or refuse to lift a finger to help out in work request but if the request is from the CEO, they will become super pro-active and rush faster than a speeding bullet to fulfill the request. The art of bootlicking thus has several levels of competency akin to basic, medium and advanced bootlicker skills. 

I can still recall an amusing incident whereby one colleague ask another one to help buy some famous Bak Kwa (Lim Chee Kuan) in Chinatown as the latter colleague is staying near the Chinatown area. The colleague staying in Chinatown said that the queue is always damn long and bluntly told off the requesting colleague to be more considerate and not to waste other people's time. But strangely, when the CEO wanted to buy some for his wife, the Chinatown colleague immediately volunteered to go down and queue for him....really OMG!   

It is good to be marketing oneself in order to let the Boss know more about you and also so that they will treat one favorable in terms of career progression. But too much of such bootlicking do create a serious problem in an organization. There are always a group of people who do not contribute much in terms of actual work deliverables to the organization but still managed to survive by being an awesome bootlicker to their Boss. 

This does lead to an issue of perceived unfairness arising in terms of performance appraisals and leads to more and more bootlickers appearing in the organization. Such organizations eventually got permeated with such a toxic environment that became flooded with incompetent employees who cannot value add and will lead to the demise of the business. Hence the tone set by the management of a company is always vital for any successful business. One should keep an eye or ear open for market news when investing in companies.

Last but not least, I think to say out all those mushy mushy stuff to the Boss does require great courage. It is ok to do it but don't overdo it. Focus on the actual deliverables instead of taking such short cut in life. 

Tuesday 1 January 2019

Investment Portfolio Updates- 31 Dec 2018 (Dawn before Global Recession 2019?)

As I have mentioned previously, I am having a strangely familiar vibe similar to the one before the 2008 Global Financial Crisis with the frequent dead cat bounce at the stock market. Investors and consumers sentiment in the economic situation can change very fast and lead to drying up of economic activities with the blink of an eye. Other worrying signs such as low oil prices and narrowing of the 2 year US Treasuries bond yield against long-term 10 year US Treasuries bond yield (indicating the formation of the infamous "Inverse Yield" curve) signs have appeared. Once we entered into a depressive state, the stock market will crash followed by property market. Keeping my fingers crossed that the US-China trade war will be resolved in the upcoming few months so that we will escape any severe economic downturns. 

Who dare wins- Do you dare to invest during an economic downturn?
If that dread recession do come and stock market keep plummeting, the key psychological barrier will be whether you will dare to put in additional money into the stock market or property market amidst the nightmarish scenario whereby news of financial institutions, manufacturing companies, and service firms commence laying off their staff or start cutting pay. Will my firm also start retrenching staff and whether I will be on the "next list to go" will be on everyone's mind. Many folks have old parents, young children and also housing mortgage to service. The stress and fear of sustaining these daily supporting activities along with uncertainty over how long or how severe the economic situation may worsen will prevail in the mindset of most folks.   

One will also be worried about catching a falling knife as the market just keep getting flooded with pessimistic news and stock & property prices keep dropping. No one likes to invest and then ended up the following months with prices still spiraling downwards.

Hence it is easy to say and talk about buying when prices go down. But in real life, it will never be easy. 

What happens if it turns out to be only a correction in the stock market?
Well, this is the best scenario and I am praying that this will indeed be the case. With the US government heavily in debt and the interdependency of global economies, the chain effect may be something akin to the Great Depression of the 1930s. Ben Bernake, who studied and put together papers on the Great Depression, is no longer the Federal Reserve Chairman. His study of the biggest calamity to hit the US and world economies led to his belief in rapid government actions to intervene. Not all economists have such strong beliefs. I do not like the way the current Federal Reserve Chairman, Jereome Powell keep raising the interest rates aggressively based on some charts instead of having a more thorough understanding of the macro economies fundamentals and the wilful disruption of market confidence in such a high handed manner are simply disastrous on the global stock markets. 

Of course, if it turns out to be only a mere stock market correction, then folks who have already exhausted every single available spare dollar on hand to buy into the current stock market would have benefited once the market recovers. 

Companies in medical related fields have more resilient earnings?
This is absolutely not true and one of the greatest myth out there. Medical related businesses are also risky investments to put your money. The usual adage of good management team and the entry price (relative to perceived intrinsic valuation) are more important -which is similar to non-medical related businesses. Raffles Medical Group and Sing Medical are examples of the volatility in share prices as well as earnings growth decline which were previously hit by a decline in medical tourism due to intense regional competition. 

First REIT (which I am vested) is another good example. There are major concerns voiced out by many analyst and investors about (i) the new renewal terms of 2021 expiring lease contracts which will lead to worsening contractual terms such as no longer being able to lock into USD fixed rates and be subjected to IDR exchange fluctuation and also (ii) the credit risk of the major debtor & sponsor,Lippo Karawaci, which is suffering from a worsening financial position. I will probably do another blog on this topic relating to the myth that companies with medical related businesses have more resilient earnings. (Updated: 12 Jan 2019-  "Healthcare Stocks Are Resilient In Earnings? Fact or Myth?")

New year and new hope
I do hope that the current trade war between US and China are resolved amicably so that free trade can prevail. In the meantime, I have made some adjustment in my current portfolio to position it through the current bearish market mainly with the accumulation of Thai Beverage and Singtel.