Saturday 27 July 2019

Gutter Politics-Mahathir Still Hanging On And Showtime

I am glad that Mahathir had temporarily stopped bashing Singapore over the raw water pricing issue. But not sure how long the fragile peace will last. Malaysia has stopped the export of sand to Singapore to curb Singapore's land reclamation expansion, in particular, the Tuas Mega Port project. It is of course not in their interest to see Singapore developing well. 

Many have forgotten how vulnerable our tiny Singapore is and have taken things for granted. Singapore does not have natural resources such as oil, tin, copper or large agricultural land. The only thing we have is our stellar reputation for getting things done. That is what attracts foreign MNC to set up base in Singapore. British billionaire James Dyson recently moved his organization HQ to Singapore and have spent close to S$100mil investing in Singapore luxury super-penthouse at Wallich Residences and a freehold bungalow next to the Singapore Botanic Gardens. His Dyson organization would have rented premises and also created jobs for many local Singaporeans due to this move to Singapore.

If our reputation fails, then our property prices and stock investments will all plunge in value rapidly. Destabilizing elements from external foreign threats can be severe in Singapore. The 1964 racial riots in Singapore as a result of Malaysia racial politics spillover which incited hatred among our main races then. Hence I am happy that Mahathir is now busy playing with his fellow politicians over the recent "gutter politics aka sex scandal" saga.

Wednesday 24 July 2019

Margin Account Opening- Gearing Up For the Storm

Almost a month ago, I went down to Maybank Kim Eng Customer Service Centre at Beach Road (Gateway West) to open a margin trading account. It was a struggle for me as I have given them a wrong CDP account (last digit typo) which leads to some administrative issues with getting the margin account setup. Just when I thought that the worst was over after the administrative hassle over phone calls and emails, I received news that some value-added services will no longer be free and become chargeable from August 1st, 2019 onwards.
Extract from Maybank Kim Eng Website

The main attraction originally was the low financing cost of 3.5% per annum as well as the free dividend handling charges coupled with no maintenance fees. But this has since changed with handling fees also for dividends. When I last checked with the  Customer Service Officer, Maybank Kim Eng may waive off any custodian charges if there is active trading.

Since I figured that the terms have changed to mediocre, there is no longer any incentive to commence trading with Maybank Kim Eng. I called up my usual trading representative in UOB Kay Hian for help with regard to their higher 5% margin financing relative to Maybank Kim Eng and DBS Vickers. I was surprised that her management at UOB Kay Hian is willing to offer a concessionary rate (subject to some additional conditions to manage their credit risk) in view of my long trading history with them. So moral of the story I learned is that you never know if you never ask.

Monday 22 July 2019

One Pearl Bank Averge Selling Price At 2400psf And Sold 160 Units At Weekend Launch!

One Pearl Bank and its close proximity to 3 MRT lines and other amenities say a lot about its superb location. The two curved towers design of One Pearl Bank is simply grandeur and will no doubt become the new iconic landmark of Outram and Chinatown area in 2023. Capitaland has once again shown why it is one of the top developers in Singapore.

One Pearl Bank has 774 units spread over two magnificent towers and the developer will raise it 21 metres above the ground level to elevate the greenery flow from Pearl’s Hill City Park in order to merge the continuity flow with the iconic building. Lush landscaping of 135,000 shrubs, plants and flowers will be planted throughout the development and a footpath will be built to directly link it to Pearl’s Hill City Park. Also, based on URA’s Masterplan 2019, Pearl’s Hill City Park will be connected to Fort Canning Park through the Singapore River. 

The facilities available are also impressive with 2 swimming pools (main pool and a children’s pool) among the lush landscaping. There is also the standard gym an 24 hours security. Concierge service is also available for residents. This is truly awesome and I am very impressed by the dazzling level of architecture that integrates all elements into this entire development.

Personal thoughts:
How I wish I could grab a unit at this luxurious & iconic development but alas, the price tag is at around S$ 2,400psf on average. Capitaland managed to sell an eye-popping 160 units over the recent weekend launch (considered a magnificent feat relative to the sales figures of other newly launched projects). Out of these, 87% of units sold are one bedroom and two bedroom probably due to the lower price quantum. The 3 bedders and above made up only 13% of sales. So I am not sure whether this points to an overarching weakness in the overall local property market. However, one thing is for certain, even if the price does drop 20% or 30% in the event of a recession, I will still not be able to afford it…haha. I still think that private property prices in Singapore are super expensive. 

People kept comparing Singapore to Hong Kong and some even remarked that Singaporeans are a lot luckier than Hong Kong residents as, at least, our local properties are so much more affordable. Well, I do not really agree, I think that it is crazy that Singaporeans need to work 25 years to 30 years to pay off the mortgage. We are more of a slave to the banks.

So do you think that the launch of One Pearl Bank and its sales of 160 units reflect the beginning of an upbeat property market or the sales will splutter with the emergence of more bad news from the Singapore economy? Will you rush in to buy a unit for investment before all the 1 bedder and 2 bedders sell out?

Saturday 13 July 2019

3 Reasons Why I Am Not Taking Part in Prime US REIT IPO

The recent talk of the town is the upcoming Prime US REIT IPO. Prime US REIT is a US-based office REIT that offered an attractive yield of 7.6% at the offer price of US$0.88 per unit. The other plus points of Prime REIT are that its office properties are freehold and have long WALE of 5.5 years. The public offering will end on 15 July 2019 (Monday). Despite the many star attributes, I will not be taking part in this office REIT IPO due to 3 main reasons.

1.   The US economy is weakening with the ongoing trade war
James Powell just gave an indication of a possible Federal Reserve interest rate cut in view of weak US economic fundamentals. Global economies are in the doldrums. Singapore is already facing technical recession due to the close association with external export.

Deutsche bank worldwide 18,000 job cuts in investment banking, clearly shows that not all is good in banking these days. The bulk of the axe is believed to be falling on Wall Street (US) and Europe. Such grand-scale layoff closely resembled the loss of banking jobs in the aftermath of the failure of Lehman Brothers during the Global Financial Crisis days in 2008.

The increasing amount of bad economic news is worrying and will definitely dampen investors and consumers sentiment. I prefer to take a wait and see approach on upcoming quarterly/mid-year financial reporting of major companies first. There is no need to rush in to grab any IPO as if they are selling hotcakes at this juncture.

2.    Long WALE of 5.5 years does not mean that the profits of Prime US REIT will not drop.
The theoretical point here is that the WALE of 5.5 years is an “average”. If the recession kicks off next year and drag for another 1 to 2 years, chances are some of the tenancy of units in the portfolio will be expiring. Given the possible bad state of the economy and lack of business activities in the event of such a pessimistic scenario, most of such tenants will either be reducing their office sizes or closing down offices. Any successful rental reversion will also most likely be negative for the landlord.

3.   Prime US REIT is denominated in USD- Forex exposure for Singapore investors
Forex is always a double-edged sword. If you believe that the US economy and widening annual deficit will lead to an eventual weakening or even possible collapse of the USD, best to stay away. However, if one believes US economy is ever innovating and have sufficient resources such as shale oil to fund the deficit and recover, then it should appreciate steadily.

I actually like Prime US REIT a lot for its many good attributes as well as good geographical diversification for my investment portfolio. However, in view of all the bad news emerging in the global economies as well as locally, I thought I will give this interesting IPO a miss for now and see whether there are better opportunities opening up in Q3 2019.     

Monday 8 July 2019

Will SingMedical Group Opt For Privatisation By Following The Footstep Of Thomson Medical Centre And Health Management International?

In order to unlock the undervalued business of SingMedical Group (“SMG”) which I mentioned briefly in my post on 9 June 2019, I have suggested the possible option of privatization using the example of Thomson Medical Centre which had previously been acquired by the local business tycoon Peter Lim before doing a “future relisting” on the SGX 6 years later. Thomson Medical is close to my heart as I used to be involved in part of its accounting and financial work many years back. Also interestingly, another medical group, Health Management International recently announced a privatisation initiative after years of languishing share price performance amidst good financial results.   

1. Acquisition of Thomson Medical Centre by local business tycoon Peter Lim and eventual privatization and “relisting” it on SGX.
To recap, Thomson Medical Centre (“TMC”) was founded by Dr Lim Cheng Wei Chen in 1979. It was listed on SGX in 2005 and was the fourth healthcare services provided on SGX after (i)Parkway Holdings, (ii) Raffles Medical Group and (iii) Health Management International. In 2010, Peter Lim made an offer to buyout TMC based on a valuation of approximately S$513 Mil which was a whopping 60% premium over the last traded price. TMC was subsequently delisted from SGX in January 2011.

Of course, there were some critics then who thought that Peter Lim might have overpaid for TMC by paying such a colossal premium over the business. It turns out that the astute businessman Peter Lim had the last laugh as he sold the TMC business (along with TMC Life Science) in 2017 to Rowley shareholders for S$1.9 billion which is multiple times (3.8 times) the amount he paid initially. Peter Lim’s bet on the aging population and booming healthcare services via the building up of healthcare portfolio was simply right on the spot and brilliant. Also, by injecting the assets into his public investment vehicle Rowley, Peter Lim looks set to participate further in its future growth. Rowley later changed its name to Thomson Medical Group.    

2. Health Management International partnership with private equity firm EQT and proposed privatization offer of S$0.73 per share
On 5th July’19, Health Management International (“HMI”) had also announced a proposed privatization by offering S$0.73 per share via a partnership with private equity firm EQT. This represented a premium of 24.8% over the volume-weighted average price of HMI over the last 1 mth. Existing shareholders of HMI can choose to sell their shares directly or swap them for new shares in the offeror.

One of the main reasons cited by HMI management for privatization is due to the challenges in raising capital is because it is highly dependant on the market conditions. This draws a similar parallel dilemma to what SMG is facing too, that is, rights issue at an ever declining prices due to the undervalued business by the market.

After privatization, HMI will build up the current business with new funds of up to S$150Mil from EQT for investments and acquisitions. The target is to work towards another IPO within 18 months after the initial 4 years of repackaging at a higher valuation. This is clearly another business plan that resembles the billionaire Peter Lim’s strategic investment into TMC in 2010 and the partial exit in 2017.

3. Is there the possibility that SingMedical Group will also be privatized and shareholders offered a premium to last traded price?
This is only a remote possibility at this juncture as CHA Medical Group had just provided an equity convertible loan of S$10Mil to SMG to fund new acquisitions.

However, if share prices still languish as it had been over the past 2 years despite the turnaround of its business and better financial performance by Dr Beng, future capital raising exercises will be detrimental to the shareholders of SMG as only a very low amount can be raised which forms a vicious downward cycle on the share price. The substantial shareholders will not be happy with such perpetual share price spiraling downwards after every rights issue.

SMG can choose to either work with the Korean CHA Medical Group or partnered with a private equity firm (just like HMI) to buy out the current shareholders and then do an IPO or business injection into a shell company already on SGX to realise its intrinsic value.

 4. Will retail shareholders of SingMedical Group benefit from such privatization attempt?
The answer is actually a resounding “NO” based on its past few years of excellent financial performance and also rapid business expansion. The offeror can make a low ball offer of just a token 25% more (say S$0.50 per share) than the last traded price of S$0.395 per share. However, many retail shareholders may have no choice but to take up the low offer as once the firm delisted, they may be stuck with the shares on hand with no buyers since it is no longer trading on the stock exchange.

The last valuation of SMG business was just recently concluded by CHA Medical Group valued the business at a price of S$0.605 per share. Hence “privatization offer” may not necessarily be a good thing for retail shareholders but it does enable investors to cash out at some premium if the undervaluation in market price situation has been prevailing for many years.

5. Summary
Summarising, I hope that Dr Beng and his management team will consider the implementation of a Group dividend policy as a mean to try to narrow the current significant gap between market pricing and the intrinsic value (current earning multiple benchmarking to the other medical players on SGX is way too low). If this still does not work, a strategic review of options such as privatization should be considered to unlock the intrinsic value of the SMG business.  

Please also see my previous postings on SingMedical Group:

Thursday 4 July 2019

Frasers Commercial Trust Finally Snagged Google as Major Tenant

The much anticipated Google deal at Alexandra Technopark finally went through and was formally announced on 25 June 2019 by Frasers Commercial Trust (“FCT”). Since my last posting on 19 January 2019, there has been no more news after the Business Times announced that FCT and Google Asia Pacific Pte Ltd were discussing taking up space at Alexandra Technopark. For the past few months, I thought that Google Asia Pacific had walked away from the lease negotiation and was very worried over how FCT would fare should the global economic downturn happen by end of this year. When I saw the price hitting a record high of S$1.66 per unit last week, my sixth sense tells me that FCT must have announced some major news on the Google deal and quickly checked their SGX announcement. True enough, Google had signed up with FCT.

It is simply wonderful that Google Asia Pacific has decided to expand further into Singapore and to take up 344,100sqft of space which represents 33.3% of the current total net lettable area of Alexandra Technopark to drive the committed occupancy rate to 93.7% as at 25 June 2019. What sweetens the deal, even more, is that Google has committed to a 5 years long lease term. It is widely believed that the average price achieved is around S$4psf which translates to an annual contribution of S$16.5Mil and a total contractual value worth a staggering S$82.6Mil. FCT Management team has scored a major victory in winning this major tenant. The tenancy agreement will commence in the 1st quarter of 2020.

With such a high-quality tenant win in the portfolio of FCT, its earning sustainability will be greatly enhanced even in the event of an economic downturn. As such, its share price may continue to soar and hit S$1.70 per unit as the market should re-rate it closer to the yield spread by other commercial REITs such as Capitaland Commercial Trust. Anyway, I will not be selling away FCT anytime soon unless there are significant changes in its earnings visibility and business fundamentals.