Undervalued Gem Singapore Medical Group Adopted Dividend Policy- Maiden Dividend Declared

Singapore Medical Group ("SMG") just announced another set of excellent financial results for FY2019. Its revenue rises 11.3% relative to prior year to a record S$94.7Mil driven by growth across all business segments. SMG also reported a 5.7% increase in net profits to a record S$13.6Mil.  However, its share price performance for the whole year was disastrous as it plummeted from an all time high of S$0.490 per share to a low of S$0.0.275 per share range despite the excellent performance of a few years for no apparent good reason. During the year, directors also sold some of their stakes to the strategic Korean Medical Group CHA for S$0.605 per share. The current share price of S$0.310 thus reflect a massive discount to its fair value using the S$0.605 as benchmark and a 100% potential upside.   

The only reason that I can think of for the poor share price performance may be attributed to investor fatigue and the perceived unfairness by retail investors in terms of the recent capital raising exercise using convertible loans at S$0.423 per new shares and sales of shares to CHA at S$0.605 per share which is only opened to the senior management staff. 

1. Announcement of Dividend Policy-Finally!

During my last posting on SMG, I have mentioned that I have written in to the senior management team of SMG for them to seriously consider the immediate roll out of a dividend policy to support the undervalued share price. I think that many shareholders may also have voiced out the same thoughts. I am glad that the Board of Directors listened to shareholders and decided to roll out a formal dividend policy to reward shareholders.

Dividend Policy announced on 24 Feb 2020

For long term investors, the dividend policy which endeavors to pay out at least 20% of yearly earnings, should be rewarding enough to stop the relentless dumping of SMG shares by existing shareholders.  At a price of S$0.310, the current payout of S$0.008 per share translates to a 2.58% dividend yield while the remaining earnings is ploughed back into the SMG business for further regional investment and expansion. 

2. How "undervalued" is SMG?

Compared to other medical groups out there, SMG is severely undervalued. The P/E ratio of most medical group such as Raffles Medical Group, Q&M Dental Group & ISEC Healthcare is around 25 times. SMG P/E ratio stands at a mere 12.6 times only- please refer to below chart on "Peer Comparisons". 

3. Summary

With the introduction of a formal dividend policy, shareholders can patiently wait on the sideline to receive dividends while waiting for price to recover to its fair valuation of S$0.605 that is, a potential 50% to 100% upside of capital gain over the next few years.

Note: I have started to re-accumulate shares in SMG due to the introduction of the dividend payout policy.  Currently holding on to 60,000 shares with plans to increase it further. But the headache now is opportunities for other higher dividend yield stocks are opening up in view of the COVID-19 worldwide outbreak. 

Please also see my previous postings on SMG:

1.Is Singapore Medical Group Still An Undervalued Gem? Or Trapped in Downward Spiral Bottomless Pit?

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

Mahathir Checkmated Anwar- Singapore Still In Trouble

I was shocked beyond words when major news agencies began reporting that Anwar got betrayed by his coalition partners in  Pakatan Harapan. I was expecting Anwar to be eventually out-foxed by Mahathir and that he will never become the Prime Minister but did not expect it to be so soon.

Over the weekend, Azmin Ali and his supporters have quit the ruling coalition in Pakatan Harapan. Mahathir's party Bersatu had also decided to quit Pakatan Harapan. Both have linked up with UMNO and PAS to form the next coalition for the next government.  The very funny thing is Mahathir tells everybody that he is not involved in all this drama and that he disagrees with the move. So Mahathir resigned as Prime Minister and also as chairman of Bersatu to voice his strong objection over such a move that goes against the mandate of the Malaysian people.

The strange things about all these unfolding melodrama as follow:

1. Mahathir outfoxed Anwar

From my personal view, there is no doubt that Mahathir was the main plotter of the change in government. As a matter of fact, it was brilliantly executed and a world class act indeed. Give the man a Tiger beer! The whole thing became crystal clear when the Malaysian King accepted  the resignation of Mahathir as Prime Minister but still appointed Mahathir as interim Prime Minister. After so much drama, the Prime Minister is still Mahathir.

2. Mahathir unable to stop his party members from leaving Pakatan Harapan? Do you believe that?

How can Mahathir, as the chairman of Bersatu, be unable to stop the party from quitting Pakatan Harapan? To claim that he disagree with such a move and have to quit as chairman is absurd. Mahathir must have wield significant influence in his party to become chairman, so the party's decision to quit the ruling coalition must have his support definitely from my personal perspective.

3. But the people of Malaysia will scold Mahathir if he quit Pakatan Harapan like that which is a betrayal no doubt. 

Best way to avoid scolding will be to resign as Prime Minister and also quit being chairman to distance himself away by saying he was not involved at all.  Then arrange behind the scene for the great come-back. Brilliantly executed indeed by the great Mahathir. 

4. Anwar no choice but to suck thumb to save face and also reserve political capital

Anwar is not giving up without a fight. At the same time, he cannot openly go to war with the old fox as he needs to keep the door open for any future alliance. 

Also, he can then declare to the people that the bloodless coup does not have the support of Mahathir and try to win back enough seats. 

Impact on Singapore

I have a feeling that Mahathir will still be around as Prime Minister after the political drama. Hence, the bashing of Singapore by Mahathir will go on. But good to have UMNO back. Not much of a change in the Malaysia political scene.

Updated on 26 Feb 2020, 9.45am:
Another stranger thing of strange things happen: On 24th Feb 2020, the supreme council members of Bersatu all came out together and unanimously reject Mahathir's resignation as party chairman. This is akin to a person tendering letter of resignation to leave the company but your company directors and senior managers all decided to reject your resignation "unanimously" and then force you to stay in the company. Hence how weird can this be? I doubt Mahathir will resign.

Both UMNO and Anwar's Pakatan Harapan need Bersatu's MPs seats to have enough number to form a majority to rule as government. Either way Mahathir choose, he will still reign as Prime Minister.

My Malaysian relative told me this well known saying: "Malaysia Boleh!" 

Eagle Hospitality Trust Announced Disastrous Quarter 4 Results- Distribution Per Unit Slashed by Whopping 24%

Eagle Hospitality Trust (“EHT”) delivered a set of extremely disappointing Q4 FY2019 earnings which represented a significant decline of 14.7% of their net property income against IPO projection. Consequently, EHT also slashed their dividend distribution by a whopping 24.4%. relative to IPO forecast. The first announcement I came across was an "Improvement to the Master Lease Agreement" which allows EHT to receive more rent from any outperforming properties that produce excess cashflow. 80% of the excess cashflow can then be applied against shortfalls from underperforming properties. To me, this seems nothing more than an appeasement policy to pacify unit holders. True enough, when I opened up the main results announcement, I was shocked beyond words against the disastrous results. 

Reasons for the poor performance

1. Displacement from its largest asset, Holiday Inn Resort Orlando Suites ("OHIR"). OHIR is currently still undergoing roof repair works on the heels of a cateogry 5 hurriance in 2nd half of FY2019.

2. Softening US market.  This is a major concern to watch out especially in the face of the COVID-19. Good thing is the virus has not spread extensively in US. 

Summary

Despite management claiming that they did better than competitors and performs well amidst market headwinds, I think otherwise and that EHT performed badly.  I believe the disappointing results against IPO forecast speak for itself. Fundamentals in the US hospitality sector seems to be worsening. With the slashing of distribution per unit by 24.4% in Q4 FY2019, annualised dividend yield has dropped to 10.9% based on unit price of US$0.525 per unit.

Netlink Trust Delivers Excellent 9.6% Increase in Net Profits for Q3 FY2020- Holding Steady Amidst The Novel Coronavirus Outbreak

Netlink Trust seems to have weathered the current coronavirus storm well and its price shot up to S$1.010 per unit from S$0.945 per unit just 2 weeks back (13 Jan 2020). For its Q3 FY2020 results, Netlink Trust reported a 9.6% year on year increase in profit after taxation from S$19.6Mil to S$21.5Mil. For the 9mths YTD FY2020 performance, it was even more impressive with a 14.5% profit after tax increasing from S$57.3Mil to S$65.6Mil mainly due to the higher revenue generated from residential connections from the shift of Starhub cable subscribers to fibre optic which was completed by period ending September 2019.

With the upcoming collaboration with telecom companies for the deployment of 5G infrastructure, Netlink Trust should be able to continue to deliver even higher revenue and profitability. Netlink Trust will be able to charge a connection fees for every new 5G base station being setup. The national 5G network deployment exercise has a downside risk to Netlink Trust, that is, it may lead to cannibalism of existing fibre optic network as well as the eventual retirement of the previous 3G/4G network base stations. If TPG decides to pull out of the current oversaturated telecom market, then there will also be some drop in the base station connection fees.

The improved net profit position has also resulted in excess free cashflow to sustain the current rate of dividend payout. 

Please see my other posts on Netlink Trust:

1. Upcoming 5G Network Technology and Imminent Threat to Netlink Trust Business -(8 Aug 2018)

2. Netlink Trust- Stable Cash Cow Or Just Another Time Bomb Waiting To Explode?- (11 Sep 2019)

3. Netlink Trust Finally Proved Itself- Free Cashflow Now Able to Sustain Dividends- (7 Jan 2020)

Amazing- Panicky Singaporeans Wiped Out Food, Sanitisers And Even Toilet Papers Off The Shelves of Supermarkets and Retail Shops

This is amazing- Singaporeans have outdone themselves again. With the Ministry of Health raising the Disease Outbreak Response System Condition ("DORSCON") from yellow to orange on 7th February 2020 (Friday) 2pm, many Singaporeans rushed to supermarkets and also retail shop to hoard up on all basic necessities. Some people queued for more than 1 hour with their over-sized trolley packed with food and even toilet papers before finally reaching the cashier. 

Temper also flared up when I saw a man acting blur and slowly squeezing himself in front of an Auntie while cutting the queue. Not surprisingly, the auntie who had queued for over an hour exploded like a volcano eruption. The Auntie stared at the man and then shouted at the man to join the queue behind. The poor man's face turned a crimson red from the embarrassment at the failure of his plot to insert himself to the front of the queue and for his poor decision in picking the wrong Auntie to bully. 

I can understand the rationale why people stocked up on rice, instant noodles and tinned food. But why do people need to stock up on so many toilet papers? Weirdly, I saw another Auntie with a trolley with 6 rolls of toilet papers at NTUC. I asked my friend this and he was equally puzzled at this phenomenon- he replied to me that he used water at home to wash- I told him to spare me from further details and end the conversation. 

Even more puzzling, I saw another Uncle who had 7 whole watermelons in his trolley. Maybe he Pu Zua (Heaty)?

I also saw a super long queue for Dettol hand sanitisers and wet wipes at the retail shop Venus in shopping mall which stretched 50 metre all the way to the outside of a toilet. Credit to Venus owner which only allowed one person to buy 3 hand sanitisers each to ration them so that more of the general public can get their hands on it. 

Hope that with our Prime Minister coming out to reassure the public this evening, sanity will prevail and be restored by tomorrow.

Wuhan Coronavirus Impact So Far- Shorting SREITS?

This week has been interesting with initial market sell down on 3rd Feb 2020 (Monday) immediately upon market opening and then stocks regaining much of their lost value over the next 2 days. It had only been a minor correction so far despite the worsening Wuhan Coronavirus epidemic and slowing down of economic activities in East Asia countries. Also, there are many online postings by different investors discussing their strategies during this health crisis. I am not sure why some people are viewing this crisis as a dooms day scenario that will lead to wide spread and prolonged economic shambles.

1. Selling off Frasers Centrepoint Trust ("FCT")
This is a defensive REIT which focuses on suburban retail malls. The price per unit has been surging and close to S$2.90 at one point in time. I have sold off 10,000 units of my holdings in the S$2.80+ range. However, I am of the view that for the long term, FCT will continue to grow due to strong pipelines from the sponsor and thus keeping the other half in my cash portfolio.

2. Accumulating ComfortDelGro.
ComfortDelGro is near its 52 weeks low at the current pricing down from a record high of S$2.90 per share during the past year. This is attributed to disappointing prior quarter results release as well as the expected worsening results due to disruption to its transportation services in nine China cities and closing of driving centres. Singapore taxi operations continue to face pressure from ride hailing apps operators as well as an expected slowdown due to the rapidly worsening coronavirus situation in Singapore which has a second day of new local community spread being reported.

My view is that the coronavirus is not as deadly as SARS or MERS. Fatality rate should be further reduced with better anti-viral treatment being developed by the medical practitioners and drug companies. Also vaccine development are in place and should be out in another 6 months. Please see my previous post on "Will The Spread of The Wuhan Coronavirus Led to East Asia Recession Similar to SARS in 2003?"

Nevertheless, with its strong financial and other defensive business segments, ComfortDelGro will recover in the longer term. Its current dividend yield is around 5%. I have thus started accumulating more of its shareholding and happy with the the current dividend payout while waiting for its share price to recover from future improvement in business operational results after the current health epidemic crisis.

3. Selling off Capitaland Retail China Trust ("CRCT") and repurchasing it
This is a hands itchy situation as I have  decided to make some quick bucks. Sold off 10,000 units at S$1.63 when I noticed the selling off momentum and then a few days later, managed to re-purchase 10,000 units of CRCT at S$1.54 per unit. The question as always to me is whether the current epidemic spells the end of China or will China bounce back?

In the long run, I think that CRCT will definitely recover after the Wuhan crisis. Hence will just hold on to it.

Parting Thoughts:
I am looking forward to accumulating more of ComfortDelGro and CRCT if the current health crisis worsened. My thoughts are so far, we have not seen the worst of this current Wuhan virus outbreak. Cases have not peaked yet but I remain optimistic on medical advances as well as upcoming warmer season in China which should bring the virus under control.

Another interesting observation I have noted is some investors began placing huge bet on shorts for REITs as such group perceived SREITs to be severely overvalued and will crash in value within this year. Maybe this will come true during this current coronavirus crisis?