Sunday 28 February 2021

Only 2 Things Certain In Our Short Life- Death and Taxes

I am sadden by the passing of the legendary actor Ng Man Tat at 70 years old of age. The talented veteran actor has acted with Stephen Chow in "Fight Back to School" (1991 & 1992) and "A Chinese Odyssey" (1995) and many folks literally grew up watching their movies.

While life expectancy is projected to be 85 years old due to advances in medical science, one should treasure every day with one's family & loved ones and live today like there's no tomorrow instead of getting bored down by the rat race. How much money to earn is considered enough to guarantee a "golden" retirement and also the guarantee to be able to live past 65? Strange that the official retirement age in Singapore keeps increasing. There maybe actually no end to it.

I guess only 2 things are certain in our short life, that is, Death and Taxes. 

Saturday 27 February 2021

Singapore Press Holdings Sudden Rally At End Of Feb 2021- IPO of Korean Coupang and New Media Law in Australia

Singapore Press Holdings (“SPH”) rallied by almost 10% in a single day on 26th Feb 2021 (Friday) when news of its investee e-commerce company, Coupang, is seeking an IPO worth US$50 billion dollars on the New York Stock Exchange was made known. SPH had invested US$3.9Mil in 2014 into Coupang. In 2015, Softbank also invested into Coupang and valued it then at US$5 billion. Based on this high-level analysis, this means that the valuation has increased by at least 10 times and SPH valuation of its investment stake in Coupang will grow from US$3.9Mil to a valuation of at least US$39Mil which is a cool gain of US$35 Mil in 7 years. 

If we look at the recent announcement on 27th Feb 2021 which states that SPH stake in Coupang is approximately 0.1%, then this translates to a valuation of US$50Mil. This exceptional gain in 2021 is no doubt a material contribution to its upcoming financial performance however, this is actually a non-recurring financial gain. There is also no cashflow impact unless SPH intends to monetize its stake in Coupang after the listing. 

New media law in Australia to get Google and Facebook to pay media companies
The whole world is watching how Australia is going to implement a world first legislation that will force Tech Giants- Google and Facebook- to pay for news publication. Under the proposed new law, called the News Media and Digital Platforms Mandatory Bargaining Code, Google and Facebook are required to negotiate licensing agreements with Australian publishers for the news articles that appear on Google search and Facebook's feed. Canada and Britain are watching closely and will be crafting up similar legislations in order to finance public journalism by local media companies which are all struggling with dwindling advertising dollars with more than 75% of the advertisement dollars now going into the pockets of Google and Facebook.

I have previously already mentioned in my previous post that such a move will benefit SPH greatly. Back then, I have mentioned either the Singapore government fund the media segment or follow the Australian innovative approach to level up the playing field. SPH is now still bleeding from its media segment business. With the new legislation being gradually adopted by every countries, SPH should at least break-even for its media segment. I am sure that our Singapore government is also closely observing the implementation in other countries and will eventually come up with its own legislation. This bodes well for SPH whereby its current property business is being used to unfairly subsidize the loss making media business.

Final thoughts
Many folks have prematurely dismissed SPH as an outdated business and that getting kicked out of the STI is the final nail in the coffin for SPH. However, SPH has already transformed itself into a real estate holding company. With the above fair value adjustment from its one-off gain in e-commerce investment as well as upcoming imminent change in media law, SPH business will still be relevant and at the same time, continue to contribute to local journalism. The share price of SPH has rallied strongly from a bottom low of S$0.990 per share in Nov'20 to close off at S$1.40 per share as at 26th Feb 2021.

P.S: Please  also see my previous posting on SPH being over sold on 16th Oct'20 here:

Friday 19 February 2021

Resilience In The Face Of Adversity- Prime US REIT Delivered Another Set Of Stellar Results That Beat IPO Forecast

Prime US REIT IPO ("PREIT") debuted on SGX on 19 July 2019 at a price of USD0.88 per unit. PREIT is sponsored by KBS Asia Partners which is one of the largest US commercial real estate managers with USD 28.3 billion under their direct investment and management belt. At one point in time, its market price even hit USD 1.050 per unit in the early part of 2020. Unfortunately, we all know what happened next. The March'20 stock market crash came along due to COVID lockdowns almost everywhere. PREIT share price struggled to break the USD0.80 per unit resistance level until recently. This was surprising given that its earnings has remained resilient during the COVID pandemic due to its excellent property Grade A portfolio, long WALE and good quality tenants. 

1. Evaluation of Operations and Financial results Released For 2nd Half 2020 And Full Year.
PREIT outperformed Net Property income IPO forecast by +7.7% and DPU also exceeded IPO forecast by +3.6%. This is a remarkable achievement in the face of the COVID pandemic. 

225,222 sqft of space was renewed with positive rental reversion of 7.2%. Also 2021 48,603sqft of space was renewed with positive rental reversion of 6.9% which is an excellent start. 

Properties are diversified sufficiently with no property contributing individually more than 15% to Net Property income.

99% of rent was collected and there were minimal deferrals throughout FY2020. Hence only a tiny amount of expected credit loss was provided in the full year comprehensive income. 

In addition, high occupancy of 92.4% by PREIT relative to market benchmark of 86.8% with long WALE of 4.4 years.

2. Free Cashflow and Payout Sustainability of PREIT
This is a complex issue. Many REITS have been using leverage to finance capital expenditure for investment properties including PREIT. Hence if this continues indefinitely, the gearing ratio may breach the MAS regulatory requirement unless the capital expenditure can enable PREIT to generate additional rental income in future.

Conserving cash and bringing down the dividend payout to a 7% yield instead of 8% maybe more prudent- personal opinion. 

3. Quick comparison PREIT with Manulife US REIT.
1. Dividend sustainability- free cashflow analysis- please refer to point 2 above. Both REITs are similar in this aspect. 

2. Manulife US REIT has relatively larger bad debt provision as at 31 Dec 2020. PREIT performed significantly better in terms of tenant credit management with 99% rental collected.

3. Due to the above, US Manulife US REIT cut DPU relative to prior year but PREIT increased their DPU relative to forecast.

4. PREIT has a relatively stronger balance sheet than Manulife US REIT. Its gearing ratio is at around 35% while Manulife US REIT is approximately 40%.

5. Personally, I think Manulife has a better branding locally than PREIT as it is more well known. An established name will ensure the REIT has a solid backer which cares about its reputation to ensure success and also easier on the relationship front to get funding from bankers during crunch time.  

Overall, PREIT has performed exceptionally well for FY2020 despite the economic downturn caused by COVID. Let's hope the Biden administration does not come up with any changes in tax rules which may wreak havoc on the share price if withholding tax structure exemption for retail investors becomes an issue again. 

Note: I am currently vested in both PREIT and Manulife US REIT .

Saturday 13 February 2021

Private Medical Shield plan Insurers Flip Flop and Making Customers On Full Coverage Rider Co-pay Medical Fees Now

NTUC Income has begun informing policyholders on private integrated enhanced shield policies ("IP") that they will soon have to co-pay part of their bills when their policies are renewed starting from April 2021. As a matter of fact, four other insurers (Aviva, Prudential etc) having IPs with such riders say  that they are moving policyholders to co-payment riders, or considering doing so.

From 2018 to 2020, cost of IP has increased by almost 40% as policy holders on such full coverage riders plans have been overconsuming medical services and doctors have been over-charging according to the Ministry of Health ("MOH"). I reckon that the mindset of many such policy holders and private doctors are that it is ok to do so as "rich insurance companies" are picking up the tab. Such ugly behaviors lead to free riding on other policy holders who have to pay exorbitant yearly increase in hospitalization and medical premiums.

With the revert back to co-payment for policy holders on previously full paying riders, the insurers in return will reduce the premiums. NTUC Income will reduce its insurance premiums by up to 50%. 

Such flip flop by the insurance companies do not look good on them. MOH also should never have allow the private insurers to do away with the co-payment concept in the first place.  Economics theory (as well as basic common sense) have all along states that giving products and services free will lead to over-consumption. Churning out new products to grab market share at the expense of rationality has led to losses in offering IP and an unsustainable spiraling rise in premiums. In short, the insurance companies will be perpetually chasing after their own tails due to this ugly creature that they themselves have created hence they now need to extract themselves out of this mess.

Sunday 7 February 2021

5 Potential SGX High Yield Dividend Stocks with High Liquidity And Profitability

Recently, I have started looking around for other potential high dividend yielding stocks with good liquidity and profitability for inclusion into my future equities portfolio. The strategy is to sell off some of the stocks/REITs position that I maybe overly concentrated (such as Lendlease REIT) once their prices increases over the next 1-2 years (it is only a matter of time the covid vaccination succeed in lifting the devastating full/partial economic lockdown in different countries)  so as to embark onto further diversification- the ideal situation is not to have more than S$50K in any stocks going forward as I figured out that is the maximum permanent capital loss I can afford to replace or top up annually in the unfortunate event of a business failure. 

The top 5 potential high yield dividend stocks with good liquidity attributes on their balance sheet and are profitable are as follow:

1. FSL Trust
FSL Trust appearing on my screening list of top 5 stocks was a great surprise as it has been mired in financial trouble since 2011. FSL Trust has dropped off my radar for quite some time as the last I recalled it was close to bankruptcy many years back. Apparently, the new management team managed to turn around FSL Trust in 2019 and produced a net profit of USD10.9Mil as well as announced the resumption of distribution since 2012.  
FSL Trust has been able to sell off some of its older ships at a very good price and giving generous high dividends. It gave out US0.045 (S$0.0594) of dividends which translates to approximately 67% dividend yield on last traded price of S$0.082 per unit. Saying that, this is a very cyclical business in shipping and many previous investors have got themselves burnt badly. One will also need to be well versed in FSL Trust to know the history and the current strategic plan to decipher the sustainability of the dividends instead of blindly rushing in to buy at whatever prices. 

2. Axington
Axington, together with its subsidiaries, provides integrated professional services mainly in Malaysia to government-linked entities, private and public listed companies, and multinational corporations. Its four key business segments are tax advisory, business consultancy, enterprise management system application and business support.

Axington share price has performed strongly in 2020, gaining an impressive 400% over and is definitely one of the top 10 performer on SGX. 

3. Powermatic Data Systems
Powermatic specialize in the design and manufacturing of wireless connectivity devices. Their services include the provision of OEM, ODM, and JDM for wireless solutions.
The product range of Powermatic Data includes high performance wireless radio modules, embedded boards, indoor and outdoor access points and wireless antennas. Our products are used in various industries such as Factory automation, Healthcare, Hospitality, Security surveillance and many others.

Most importantly, Powermatic is in a strong partnership with Qualcomm Atheros (QCA). Their subsidiary Compex Systems Pte Ltd is officially appointed as Qualcomm Authorized Design Centre in South East Asia. As a Qualcomm design center, Powermatic provides wireless knowhow in both hardware and software services to many multinational corporations.

For Powermatic Data, its topline and bottom line have been performing impressively. Only issue I have is that it is a company with a small market capitalization. Saying that, Powermatic Data is currently on the top of my potential investment watchlist. 

4. Lung Kee Bermuda
Lung Kee (Bermuda) Holdings Limited manufactures metal products. The Company, through its subsidiaries, manufactures and markets mold bases. Lung Kee (Bermuda) Holdings also trades metals and parts. Lung Kee has a primary listing on the Hong Kong Stock Exchange since 5 March 1993 and has a dual secondary listing on SGX on 23 July 2002. 

Lung Kee has been giving out high dividends which seems to be more than profits at times but if looking at free cashflow perspective, appears alright. Unfortunately, trading liquidity is extremely low for this counter. Will also need to do more deep dive with regard to its operational profits trending to know more about its businesses. 

5. PNE Industries
PNE Industries is principally engaged in the design, development, manufacture, marketing and distribution of transformers, electronic controllers, emergency lighting equipment and electronic ballasts. Its emergency lighting equipment and electronic ballasts are sold under the "PNE" brand name, whereas the transformers and electronic controllers are non-branded products.

The key operations risk is that Malaysia is a key location for the Group's manufacturing facilities and that the recent COVID-19 outbreaks may lead to labour shortages or mandated shutdown.

FY20 dividends was at S$0.08 (dividend yield of 8.6% based on last traded price of S$0.920) while EPS is at S$0.074. According to the management of PNE Industries, despite the generous payout, they are confident of the having sufficient funds on hand for any investment opportunities. 

Some of the electronic businesses such as manufacturing wireless connectivity devices are essential for the new digital economies. As such, I think they will still be relevant. High risk high return does apply to many of the above mentioned businesses. 

Wednesday 3 February 2021

Chinese Zodiac Fengshui Forecast For 2021- Good Fortune In Investment and Career This Year?

Lunar New Year is coming again.....wishing all folks here a Happy New Year and good health always in advance. May the new year of 2021 wash away all the misfortune of 2020 and bring bountiful of investment returns for all fellow investors in capital gain and dividends....Huat Ar! 

It is interesting to see the various Chinese Zodiac and Fengshui forecast being put up at shopping malls and community clubs. For the fun of it and to see your "fortune & destiny" for this year, please see below:

1.Rat 2021

2. Ox 2021

3. Tiger 2021

4. Rabbit 2021

5. Dragon 2021

6. Snake 2021

7. Horse 2021

8. Goat 2021

9. Monkey 2021

10. Rooster 2021

11. Dog 2021

12. Pig 2021

Monday 1 February 2021

Personal Updates: Singaporean Venture Into Cambodia Property Investment Horror Story

I guess the horror story began back in 2014 when my wife came back home one evening and told me that she had purchased a USD220K 2 bedroom condominium unit jointly with her sister in Cambodia at a road show. The property agent (let's call her Ms M) was a close friend of both of them and has extolled the virtues of overseas property investment because the quantum involved is so much cheaper than getting an investment property in Singapore. Ms M is a successful property investor who currently owns 3 condominium units in Singapore and has accumulated a high net worth from buying and selling Singapore properties. She has also invested in this particular Cambodian project being jointly developed by Singapore based Oxley Holdings and their Cambodian partner.

My initial reactions
I was rather shocked as my wife did not consult or discuss with me on this big ticket item purchase. Her argument then was that she was using her own money. Basically, it works like that, the money she earned is her money but the money I earned is also her money and need to consult her on major item purchase together (unfortunately this is a 1 way street and how it works in my family.....haha).

In addition, Ms M had mentioned 5 "convincing" reasons to wifey for recommending the purchase:
1. Cambodia is an upcoming country in development;
2. The quantum involved to get a condonimum in Cambodia is lesser than a 5 room HDB flat;
3. Oxley Holdings is a well known developer listed in Singapore;
4. The are 3 years of guaranteed rental at 6% per annum by Oxley Holdings & partner;
5. Ms M herself had already purchased 1 unit of the new project in development.

1. Beginning of horror story- USD bank borrowings is around 8% at that time.
The financing rate quoted by the  Cambodian banks for bank borrowings is incredible. No one sane will dare to borrow from them. This seems to have caught my wifey and sister in law by surprise. When they called up to ask Ms M, she brushed this away as saying that she thought the purchase amount is not a large sum and she has all the way plan to finance it by paying in cash for the instalments and assume they will also do that hence it did not cross her mind.

No choice, wifey and sister in law coughed up the USD220K over in hard cash over the course of the work in progress till completion of the project.  

2. Property agent Ms M does not seemed to have reminded her clients/friends that there is withholding tax in Cambodia. 
The selling point seems to have been overemphasis on the 6% guarantee rental by the developer for 3 years. Netting off withholding tax on rental, the amount repatriated is a lot lesser. Also, future capital gains (if lucky and not a loss) made by non-residents is subjected to withholding tax of around 20%. 

3. USD rental return subject to much unfavorable forex conversion costs 
To opt for cash received in SGD back in Singapore leads to additional losses in forex markup. The local bank exchange rate is also another interesting weird point. I told my wife and sister in law to open up USD bank account and then use SingX (started by an ex-Citibank banker) for the conversion to reduce the forex conversion loss due to inferior rates.

4. Guaranteed rental scheme ending soon- Oxley Holdings will not renew it due to poor market conditions.
The rental guarantee scheme will come to an end as informed by developer upon its expiry as COVID has wiped out tourism and many expats and the Cambodia economy is in a virtual standstill. An alternative profit sharing scheme maybe rolled out pending indication of sufficient interest from other Singaporean owners to help pay for the monthly maintenance expenses. 

Also, who will help go to the Cambodian government agency to pay for property tax or other administrative matters? 

I guess the matter of exit plan and contingencies were not addressed during the purchase. "Buy first then see how later" will normally lead to eventual headaches.  

5. Lack of networking to find trustworthy property agents in Cambodian market
In the event that the developer "washed their hands off" the renewal of the rental management scheme, investors will need to either find their own tenants or sell off the property on behalf. The problem is the property agent market in Cambodia is not well established yet and there seems to be a lack of regulation. So how does one find a trustworthy agent? 

Language is also a major barrier for effective communication with the Cambodians agents.

As for selling off the property, I was told that even if one lowers the price significantly, there is currently not a lot of expat buyers due to the COVID situation in Cambodia.

Parting Thoughts
I think that property investment in a developing country is a real headache and will not recommend it...simply too much hassle and risk. For those who also have investment properties in Cambodia, maybe can help share your thoughts on the current predicament and possible solutions or networking referral of a good property agency in Cambodia.