Saturday 27 April 2019

Will Recession in Italy Spread to Rest of Europe And Crash the Global Economy?

It is widely reported that Italy is currently stuck in an economic recession and there is a growing risk of a financial crisis emerging from there. Being on austerity drive also means their government cannot spend their way out of the economic slump. The country's debt to GDP has reached an astounding 130%. We may be staring at a repeat of the Greek financial crisis soon. The only difference is that as Italy economy is so many times bigger than that of Greece (around 10 times) and any banking collapse is going to be contagious and spread to the rest of Europe. From there, it may lead to a worldwide financial crisis.

Looks like I have to make some changes to my portfolio while keeping a close watch on the latest development. However, I will still be keeping most of my assets in income generating stocks but re-look into my other assets to prepare to raise cash on hand for further equity investment should there be a downturn. I believe that a lot of countries in Europe, China, and the US are taking up too much debt. It takes only a slight change in consumer and business sentiment that will spark off the collapse of the domino.  

Sunday 21 April 2019

Investment Portfolio Updates- 18 April 2019 (Allocation of New Funds To More Defensive Investments)

Due to the US Federal Reserve keeping a dovish inflation outlook, interest rates have been maintained at the current level and no further interest rate hike is expected for 2019. This is actually a sign that the US macroeconomic condition is weak. But strangely, the stock market, in particularly, REITS rallied in valuation.

However, my thoughts are that if one is investing mainly for income generation, then short term fluctuation does not have much meaning unless one is doing frequent buying and selling of stocks for allocation of funds to the most undervalued assets. One would need to overcome the issue of lack of diversification too. In addition, timing the market is actually very challenging unless one has a crystal ball that can peek into the future.

Key Highlights since my last updates on my portfolio
I have injected additional funds of approximately S$10K into Netlink Trust (S$5K) and Keppel DC REIT (S$5.2K) which are slightly more defensive in nature in view of my pessimistic economic outlook. Being in the supply chain industry, I am seeing a contraction in the volume of shipments moving in and out of Singapore. Oil and Gas business segment is in particularly bad shape and in doldrums in spite of the recovering oil prices to USD70 to USD 80 per barrel range which were way higher than the USD40 a few years back in 2016.

Also sold off Singtel and Parkway Life REIT and did a bit of asset re-allocation to First REIT, Mapletree Industrial Trust as well as Mapletree NAC Trust.

1. Netlink Trust
I actually do not like Netlink Trust due to the uncertainty over its future cash-generating ability over the threat of 5G technology implementation in Singapore. The key issue here is the effect of the gain in 5G base stations connecting fees over the loss in consumer/corporation subscription upon the switch to 5G. Have parked some funds into Netlink Trust for now due to the short term stability offered while waiting for more details on the charging mechanism.

Please refer to my previous post on "Upcoming 5G Network Technology and Imminent Threat to Netlink Trust Business".

2. Keppel DC REIT
The WALE is 8 years. This is a high technology business support segment on data hosting. Also, once tenant shifted in, much setting up cost would have been incurred. Any exit or migration to other DC requires very detailed planning and extensive resources. Overall low yield but relatively stable based on its historical performance.  

3. Singtel
Have sold off my stakes in Singtel. I do not like the recent rights issue which Singtel took part in for its India market Bharti Airtel associate. Singtel is also fighting a bruising battle with its competitors in Singapore market and Australian market. These are 3 key markets where Singtel derive most of its profits. I do not see how the profit margin will improve in view of the tight competition in this 2-3 years. Fundamentals of Singtel is good but my preference right now is to sell off and re-deploy to other stocks.

4.  Mapletree NAC Trust
The property management team has been diligent and disciplined in growing the asset under management.

5. Mapletree Industrial Trust
The reasons I bought into Mapletree Industrial Trust are listed in my previous posts here. Mapletree Industrial Trust has demonstrated earnings resiliency over the years and I like its new strategy of going into high tech data centre segment to exploit on cloud and internet of things. Please also refer to Pt 2 Keppel DC REIT with regard to the defensive attributes of a data centre business.

6. Parkway Life REIT
Sold off and took profits. Reinvested most of the proceeds into First REIT.

7. First REIT
Added more units for First REIT. First REIT is currently trading below its NAV. It has fallen more than 40% from its peak of S$1.42 per unit. Institutional investors and other retail investors have been busy selling of First REIT. 

The key risk in holding on to First REIT is that Lippo Karawaci will default. However, this is unlikely given that Lippo Karawaci has won approval from shareholders at the recent AGM held on 18th April 2019 to proceed with the rights issue. USD730Mil will be raised. Also sales of asset expected to bring total fundraising to USD1 billion dollars which will shore up its balance sheet and improve credit ratings.

Please refer to my previous post on "First REIT- 5 Key Risk Factors".

If one believes in the long term prospects of healthcare services given the aging population, then I believe First REIT has a rather good growth storyline in place.

8. Thai Beverage
Took profit by selling additional units in view of the surge in stock price. Will wait for the announcement of the recent quarter performance in May'19 to decide on further action. Jan'19 to Mar'19 quarter results are expected to be even better than the preceding quarter due to the general election in Thailand.

"Winter is coming."
~House Stark

Friday 19 April 2019

First REIT- 5 Key Risk Factors

First REIT is currently trading below its NAV. It has fallen more than 40% from its peak of S$1.42 per unit. Even now, institutional investors and other retail investors have been busy selling of First REIT. From my analysis, the 5 key risk factors are as below:

(i) The default risk for rental payment due to a liquidity crisis faced by its sponsor and main tenant, Lippo Karawaci;

(ii) Non-renewal of master tenancy for some of the hospitals due in 2021;

(iii) As alluded to (ii), even if master tenancy were renewed, it maybe on less favourable terms such as being pegged to Indonesia Rupiah instead of Singapore dollars and subject First REIT to forex losses and

(iv) the new owner OUE Lippo might force upon First REIT to take up non-yield accretive asset healthcare assets. The track record isn't pretty given the outcry over what had happened to the REITS under OUE. As a matter of fact, when the Riady family are on a war path for fund raising, bad things may befall shareholders....look at Lippo Mall Indonesia Retail Trust.

(v) shareholders need to keep significant spare cash on hand for upcoming rights issue for M&A. The management has set a target to acquire OUE Lippo healthcare assets to diversify its Indonesia asset base. If the rights are set at a huge discount and one does not have the sufficent fund to subscribe, then the holdings in First REIT will be severely diluted.

The key risk in holding on to First REIT is that Lippo Karawaci will default. However, this is unlikely given that Lippo Karawaci has won approval from shareholders at the recent AGM held on 18th April 2019 to proceed with the rights issue. USD730Mil will be raised. Also sales of asset expected to bring total fundraising to USD1 billion dollars which will shore up its balance sheet and improve credit ratings.
Extract of Press Release of AGM of Lippo Karawaci
I also believed that the Riady family has invested a lot in the medical equipment and doctors staffing the hospital healthcare segment for them to give it up easily. Renewal of the upcoming expiring master lease in 2021 should not be an issue.

This leaves us with issue (iii), (iv) and (v) to worry about. Victor Tan (CEO of  Manager of First REIT) had shared some of his invaluable insights on a radio talk show before on some of the above-mentioned issues.

Anyway, if one believes in the long term prospects of healthcare services given the aging population, then I believe First REIT has a rather good growth storyline in place.

Monday 15 April 2019

Rich Dad Poor Dad Story Fact or Fiction? Why Are So Many People Inspired By It?

Every once in a while, Robert Kiyosaki and "Rich Dad Poor Dad" will either get mentioned in my daily conversation topic with friends and relatives or emerge in some websites or blogs that I am reading.  Hence the purpose of this post is just to write down my own personal view.

I first got introduced to the famous financial literacy book "Rich Dad Poor Dad: What The Rich Teach Their Kids That The Poor And Middle Class Do Not" by the great Robert Kiyosaki during my University days. My school mate from Indonesia asked me whether I got read "Rich Dad Poor Dad" while we were working on a project together. I replied to him that I had not heard of it let alone read it and my entire group of friends all looked at me with disgust as if I am a "SuaKu" (Mountain Turtle)

Feeling absolutely embarrassed by my own ignorance that there is this great legendary financial literacy book, I went to purchase a copy of it from the bookshop. It was a good and informative book no doubt, but from my personal perspective, I was rather put off by Robert Kiyosaki worshipping the "Rich" Dad (I think) excessively and instead portrayed his own Dad who gave him life as someone so much more inferior due to the traditional mindset on work and financial literacy. 

The essence of the book was that it was supposed to be a non-fiction book to enhance its credibility and how it played a role in defining Robert Kiyosaki life to later become the successful man who is financially savvy due to his interaction with "Rich Dad". However, many folks have questioned whether "Rich" Dad" even existed in the first place. Below are so of the interesting articles/Video for one's reading pleasure with regard to this controversial book:

I would take what was written in Rich Dad Poor Dad with a pinch of salt. There are a lot of good pointers mentioned but don't just take it as if everything is true and invaluable. While I was impressed on the overall ideas presented, nevertheless, Rich Dad Poor Dad never had a significant influence on me. It is more of like the famous "Chicken Soup For The Soul" series for the feel-good effect. I simply could not discern facts from fiction written in the book based on so many critics doubting the authenticity of the "Rich Dad". Furthermore, this kind of undermining one's own Dad and putting the "Rich Dad" on the pedestal makes me wonder whether this is just a marketing technique to gain maximum attention. Read it for can either choose to love it or hate it....but the fact still remains that this is one of the most read financial literacy books that have sold over 58 million copies worldwide.

Are you one of the folks who swore by everything taught in "Rich Dad Poor Dad" or do you belong to the skeptical group? 

Thursday 11 April 2019

Singapore Press Holdings Transformation Into Property Giant Almost Completed

Singapore Press Holdings (SPH) recently announced its 1st half results and its property segment now contributes to almost two-third of SPH’s “Profit Before Taxation”. This is a significant contributor to operating profits and marks the close completion of its transformation from a Media Group into a Property Holdings Group.
Nevertheless, from a revenue generation perspective, the Media segment is still bigger in size than the Property segment. Traditional Media remains profitable but is still declining and we just could not see any signs of the rock bottom being formed yet.  As such, traditional Media will most probably continue its decline over the next few years and remain a drag on the overall profit margin.

My thoughts are that investors would be better off investing in SPH REIT if the preference is for a pure property rental income play. In the era of Google, Facebook and other online media, it is increasingly hard for SPH to hang on to its traditional advertising revenue. But overall, I quite like the announced results for SPH which clearly shows the transformation exercise from media into property bearing fruit.

New star jewel acquisition- student accommodation business
The student accommodation business is the most interesting part of SPH new business growth strategy. It has been proven that this business segment is virtually recession proof as evident in the performance of this class of property asset during the 2008 financial crisis. The additional acquisition of student accommodation properties will thus strengthen the recurring income stream in all economic environment. 

Area of concern to look out for
The sales of only 30 units out of 667 units (only 4.50% sold at VVIP preview) of Woodleigh Residences during the first weekend soft launch in late October 2018 is also extremely worrying. Clearly, the market has slowed down since the various cooling measures rolled out by the government. Trying to sell off units at 2,000psf in the face of diminishing pool of buyers has become extremely challenging. The longer this drags on, the higher the chance that SPH property development will enter into an economic recession with many unsold units. All eyes will be on the planned “official launch” of Woodleigh Residences by end of May 2019. SPH and its partner Kajima had invested S$1.132 billion to acquire this plot of mixed-use site in Bidadari.
Artist Impression of Woodleigh Residences
Interim dividend cut and parting thoughts
The slightly disappointing aspect from this recent announcement is that SPH management team had again cut the dividends. Interim dividends got cut from S$0.060 in FY17/18 to S$0.055 in FY18/19. Based on the closing share price of S$2.44 as at 11 April 2019, the projected dividend yield for this financial year will be 5.07%. Summarising, I think that the new growth path lead by its property investment remains intact and will eventually make up for the declining traditional media segment.  

Saturday 6 April 2019

First REIT- Important Upcoming Events And Accumulation of Units (Will First REIT Soar Or Crash Further?)

3 key upcoming events to watch out for First REIT for this quarter. (1) The AGM for FY2018 will be held at Mandarin Orchard Hotel on 9th April 2019. There is a resolution tabled on top of other routine resolutions such as re-appointment of auditors. The additional resolution sought to change the Trust deed and proposed that the distribution payment period of First REIT be amended from 60 days to 90 days. (2) The other major event is the announcement of 1st quarter results on 10th April 2019. (3) The third event would be the AGM of Lippo Karawaci on 18th April 2019 to approve the US$730 million dollars worth of rights issue to resolve the liquidity crisis. 

1. Additional resolution to change the distribution payment period of First REIT from 60 days to 90 days during AGM on 9th April 2019.
The rationale for the proposed amendment was due to the change in ownership of the REIT manager which have been effectively bought over by OUE Lippo Group. Based on the Manager's post-completion review to synergise operations with other OUE Lippo entities, if the distribution period of First REIT were to remain at 60 days, First REIT would have to operate on a different payment cycle and operating cycle from OUE H-Trust and OUE C-REIT. The change in the distribution payment date will thus streamline the operations of the REIT manager and generate savings in time and resources.

It was further made known that unitholders are not materially prejudiced by the change in timing of First REIT's distribution payment by this extra 30 days as First REIT can earn interest on the distribution amount during this period.

I think that great emphasis was placed on the elaboration that this is purely operations planning due to the takeover so that investors do not make wild guesses that this is due to cash flow difficulties. 

2. The announcement of Q1 FY2019 financial results and amount for distribution on 10th April 2019.
Looking forward to the release of the results on 10 April 2019 (Wednesday) after the end of its closing and the upcoming dividends payment distribution. 

3. AGM of Lippo Karawaci on 18th April 2019 to approve the US$730 million dollars worth of rights issue to resolve the liquidity crisis
This is a closely watched event by the entire market that will determine the fate of the entire fortune of Lippo Karawaci as well as First REIT. Once the shareholders approve the rights issue, it will guarantee rental payment for FIRST REIT for the next 2 years from funds being set aside for this purpose. 

Final Thoughts:
I think that to me, point 2 and point 3 as alluded to the above mentioned are very important and I will be monitoring them closely. I have sold off 20,000 units previously in Feb'19 at an average price of S$1.10 to reduce my concentration risk. With the announcement of the rights issue at Lippo Karawaci, I think that the holding risk has become more palatable and have begun accumulating 45,000 extra units of First REIT at around S$0.990 to S$1.00 per unit.

As at 5 April 2019, I am holding on to 71,000 units of First REIT which is around S$70K. I rationalized that with the completion of the rights issue and appointment of 3rd generation leader John Riady as new Lippo CEO to improve the tarnished image, the risk premium required by the market will go down and there will be at least a 10% capital appreciation over the next year. In the meantime, the 8.5% dividend yield should compensate for holding on to First REIT and hopefully, cover for the plunge in price (during the lead time from bad news announced and selling off of units) should things go awry.

Friday 5 April 2019

Hyflux Saga- PUB Turns Out To Be The Real White Knight

In an interesting turn of event, PUB- which I previously posted that it had single-handedly stopped the Salim Medco rescue package- turned out the be the real white knight because most stakeholders have mistaken its good intention. By taking away the loss-making Tuaspring desalination plant, PUB has let Hyflux off the hook on the business unit that is making its business bleed profusely. In addition, PUB added icing on the cake by further waiving off compensation claims for breach of contractual KPIs. What a dramatic week it turns out to be with the latest development.  

Even though the government insisted public fund cannot be used to help retail investors, I now view the above as a partial bailout by the government. By foregoing the rights to the very low water tariff rate locked in with Hyflux, the government has released Hyflux from its Achilles’s heel. Meanwhile, Tuaspring power plant still resides with Hyflux. Hyflux has made a statement that given this turn of event, many buyers which have previously stayed away might make a bid to rescue Hyflux now.

From the public perspective, taxpayers are the ones losing out as we are actually funding the plant with the increased cost of running it now borne by PUB at prevailing material and labour market rate instead of the “discounted rate” that Hyflux was initially contracted to provide. Hence no bailout as asserted by PUB and government but in fact, personally, I rationalized that it is actually a form of partial bailout due to “the need to safeguard the security of our water supply”.

Salim Medco and Hyflux blaming each other- Fight for the S$38.9Mil in escrow
The S$38.9 Mil in question is a lot of money. The irony of this is that if Salim Medco had not made the offer of rescue in the first place, Hyflux will not even be able to get a single cent. Now that the rescue deal is off (as good as never offer in the first place), Hyflux suddenly stood to gain S$38.9Mil. This is good money for Hyflux. I am sure that this sum of money can be used to finance legal fee payment and reimbursement for aborted booking fees incurred for the credit restructuring meetings that never took place. This does help the creditors to have some spare change in the event of liquidation.

Who are the legal team lawyers representing Hyflux? They are damn good in their work!
The legal team advising Hyflux are damn good. First, they argue that Salim claim of material breaches is not valid and hence the White Knight cannot just walk away from the deal. They bite on and refuse to let Salim Medco escape from the deal.

Subsequently, when more clarity arises from PUB on Tuaspring, the legal team of Hyflux swoon in and wrote formally to Salim Medco demanding to know whether the white knight will still honour the deal with a clear and unequivocal written confirmation. Since there was no confirmation on this, the Hyflux legal team is now arguing that it is Salim Medco which repudiates the deal. Accordingly, Hyflux will be entitled to retain the S$38.9Mil kept in escrow.

The legal team seems to be from Wong Partnership. One of the top law firm in Singapore with many of the brightest in the legal profession also there. Manoj Pillay Sandrasegara is the partner of the Restructuring and Insolvency Practice who is advising Hyflux in its US$2.3 billion restructuring exercise.

Parting thoughts on the latest development
The legal advisor will probably be filing for an extension of court protection for at least another 2 to 3 months for Hyflux to find another shining white knight by arguing on the better slate of its business operations with the loss-making Tuaspring desalination plant out of the way. Oliva Lum will be fighting hard to save her baby.