Wednesday 31 March 2021

Singapore Press Holdings Potential Corporate Restructuring- Possible Scenarios And Outcomes.

Singapore Press Holdings Limited (“SPH”) announces on 30 March 2021 that it is undergoing a strategic review to consider options for its various businesses as it believes firmly that it is undervalued by the market. Credit Suisse (Singapore) Limited had been appointed as its financial advisor for this purpose. This is coming straight on the heel of Capitaland. 

Scenario 1: SPH execute a same manoeuvre as Capitaland?
So will SPH also do a segregation of its property development business in Woodleigh Residences and shopping mall from its property management business of REITs and Student Accommodation, just like CapitaLand (please see my previous post)? I think not likely as the property development is a relatively small division out of the entire businesses of SPH. In addition, personally, I think shareholders will most likely laugh at the management team for being a copycat. 

Scenario 2: SPH privatize its loss making media segment and list property businesses out of altruism to shareholders
I think the best way with the highest probability of certainty in unlocking value straight away is to privatize the media business and just spin off the property arm into a new listed company call "Singapore Property Holdings". In this way, they can still retain the use of the acronym SPH. Also, for the media segment, they can choose to either (i) get government funding (since this is as good as a public good which the Singapore government will not allow shutdown despite long running mounting losses and it simply defies commercial logic) or (ii) learn from Australia and implement laws to force Facebook and Google to pay for the news from the old SPH. 

Scenario 3: Spinning off Seletar Mall into SPH REIT to unlock value in SPH
Anyway, I think the most likely outcome of the strategic review will not be something as big and drastic as what I had mentioned above. SPH will also not be able to do a public listing of its student accommodation business into a REIT as it just started some new acquisition here and needs to build up its stability. I think the most likely outcome is at most the spinning off of its suburban Seletar shopping mall into the portfolio of SPH REIT. A better bet would be to acquire more SPH REIT. Seletar shopping mall is coming off a bad year due to COVID's impact and its valuation would be lowered in the event SPH choose to sell off Seletar Mall. SPH on the other hand is still hanging on to its loss making media segment which is obviously its Achilles' heel dragging down its market pricing.

Parting thoughts:
SPH REIT share prices has been on an uptrend recently. I reckon many other investors have also foresee the possibility of the overdue spinning off of a mature asset of Seletar Mall to unlock value in SPH. Interesting move by SPH Senior Management team. I actually pray for something bigger than the selling off of Seletar Mall such as privatizing the loss making media segment and just listing the property businesses which is the real essence of the current SPH. Let's call a spade a spade.

Sunday 28 March 2021

Capitaland Restructuring- Pattern More Than Badminton

The talk of the week everywhere has been on the Capitaland restructuring plan. I am not sure why everyone is so excited by it but the fact that the Net Asset Value Per Share is around S$4.88 (if you exclude the one off fair valuation revaluation losses and impairment of S$2.49 billion due to COVID) while the offer is worth only S$4.01 says a lot about this deal which is not too fantastic in my personal opinion since there is still 20% off the intrinsic value mark once the economy recovers further. The additional risks here is also whether the deal will be approved by shareholders and whether the new Capitaland real estate investment management division is really worth its S$1 Net Asset Value, are the other main unknown factors. I have always been amazed by how those very clever corporate folks delist companies and then relist it in another form to so called "un-lock" market value.

Perennial China Retail Trust morphed into Perennial Real Estate Holdings
Another good example is back in 2014, Perennial China Retail Trust ("PCRT") also did a corporate restructuring. Back then, unitholders who choose to accept the buyout offer of S$0.70 per unit will receive 0.52423 shares in Perennial Real Estate Holdings Limited ("PREHL") via a backdoor reverse takeover of St James Holdings. This deal is from a pure China Retail Trust holding shopping malls into a real estate company which includes property development. The virtues of such a move at that time as marketed by the very clever corporate professionals is on the "diversification" into different growth businesses such as China integrated railway hub development and cost savings synergy from "economies of scale". Then even more recently last year, the storyline on Perennial is that they have been privatized but I am sure that Perennial will one day come back for another SGX listing again albeit in another form. 

Aztech privatisation and relisting on SGX
More recently, Aztech also came back for a SGX listing of its Internet of Things ("IoT") & Data Communication products,  LED lighting products and Kitchen appliances electronic manufacturing business. Back in 2016, Aztech was previously listed on the SGX before getting privatized in a not too fantastic deal on. Aztech's share price had fallen drastically from S$1 per share in May 2015 to S$0.32 per share on 16 September 2016. The Aztech Group was then subsequently taken private with the co-founder and CEO offering a S$0.42 per share but now they relisted their new business for S$1.28 per share. 

Parting thoughts- Pattern more than badminton?
Personally, I see a pattern in these sort of corporate actions. I will not be too surprised that in another few years down the road, Capitaland may announce a re-merger of its property development business and then calling it the forming of a "combined power house into a dominant global real estate player". I will prefer to stick to my pure vanilla of Capitaland Integrated Commercial Trust, Ascendas REIT and Capitaland China Trust.

Thursday 18 March 2021

Ascendas REIT Acquisition of 11 European Data Centres- Disappointing Distribution Yield

I am deeply troubled by the recent announcement (released on 18 March 2021) by Ascendas REIT with regard to the acquisition of 11 European data centres at a cost of S$960Mil. Make no mistake, the venture into acquiring more data centres here is definitely good news for Ascendas REIT and also something that I have always been looking forward. For clarity here, I am referring to the non-user friendly disclosure by both Ascendas REIT as well as SGX which leaves me feeling extremely frustrated as an investor.

1. Confusing financials and distribution yield
Being an investor, the confusing part sets in when I try to do a quick forecast of the new distribution yield. The SGX dividend page for REITs is a real nightmare because it only depicts dividends and does  not account for capital distribution. Now, capital distribution for most REITs is actually not a one-off payout item and for most part, are actually recurring and sustainable- please see my write-up for Manulife US REIT (basically, these are actually a form of tax planning for most cases to minimise withholding tax).
Extracted from SGX Ascendas "Dividends"

You will end up with only a distribution yield of 3.5% which is totally wrong as the capital component should also be included. I have sent out an email to SGX Customer Service to state that for REITs, the essence is actually total distribution to unit-holders and not just "dividends" in view that a number of REITs are using capital return in their setup structure to remit earnings back to Singapore unit-holders in order to minimize withholding tax leakage. However, SGX simply just brushed this off as saying this is already present in the announcement and investors should go manually extract out themselves- they will not be publishing a one page summary tab for this set of information. 

The frustration is not solely from SGX. You will see that brokerage firm such as Maybank Kim Eng and their platforms are also misleading when it comes to sharing distribution yield information for REITs. You will end up with a distorted view similar to the above. The only consolation is that StocksCafe seems to be accurate in its current yield projection feature. Anyway, enough of my ranting. For the projected new distribution yield for Ascendas REIT, please see below:
Self computation of distribution yield before and after

Took some mental acrobatics to read and interpret Ascendas REIT's  release and was wondering whether the 0.189cents is it increment or referring to total distributions.

The disappointing thing here is that the distribution yield only improves by a mere 1.3% post acquisition from 4.82% to 4.88% assuming a closing price of S$3.050. This is actually only a tiny amount despite the deployment of S$612.5Mil of the proceeds from the rights issue on 9 Dec 2020 (remaining S$347.5Mil will be funded by debt) which was previously unproductive capital. Saying that, if we normalise for one-off COVID rental rebates granted to tenants, I reckon that the overall distribution yield will approach 5% which is excellent for a REIT with such a well diversified portfolio as well as having a strong sponsor in Ascendas which is a member of Capitaland.   

2. Target Price for Ascendas REIT
Well, I can only say that this is quite a circus. Analysts prediction range from S$3.30 per unit to S$4.00 per unit- kind of ridiculous projection akin to guess work in my personal opinion. This is mostly irrelevant to me as my approach is still mainly a dividend focused strategy and I intend to hold Ascendas REIT for the long term, so long as there is no major deterioration in its business fundamentals. 

Newly acquired Data Centre in Amsterdam- The Netherlands

Parting Thoughts
The acquisition of the data centres barely make an impact to Ascenda REIT due to the colossal size of the overall properties under its portfolio. However, this is definitely a right step forward and I hope that Ascendas REIT will keep adding on data centres such that it holds at least 30% of its portfolio in this resilient business.

Tuesday 16 March 2021

Equity Portfolio Updates (15 Mar 21)

1. Write off remaining estimated residual value for Eagle Hospitality Trust ("EHT")- S$20K
I have done a full write off of S$20K of my remaining investment in EHT. Latest update from DBS Trustee is selling off of most of the hotel properties (15 out of 18 properties) via a "stalking horse" bid. The stalking horse bid is a technique use to reserve a minimum floor price during upcoming auction.  The opening bid is way below even the recent market valuation and stapled securities owners will not get anything back after paying off bankers and creditors at such a low price. Good news is that the 3 remaining hotels do not need to be sold off immediately under duress pricing as apparently, they can still be operational and not under chapter 11. 

Clearly, the only viable option was to appoint a REIT manager during the last EGM to re-start hotel operations but this was voted down by unitholders and unable to gather the required 75% in Dec 2020 (only 55% obtained). Frustrated and irrational voting by unitholders during EGM thus lead to Chapter 11 bankruptcy protection and restructuring with the US courts which is as good as a forced liquidation at one of the worst possible time. 

Anyway, this is water under the bridge. Stay away from weak sponsor. Personally, I think there are a few conflict of interest operational decisions being made by 2 of the directors as well as multiple counts of breaches of the Securities and Future Act. Even the Monetary Authority of Singapore stepped in to sack the previous REIT manager. 

2. Purchase of United Hampshire REIT
I started accumulating units in United Hampshire US REIT. Its main tenants are blue chip companies dealing with grocery and seems resilient enough to withstand any recession and downturn. IPO price was US$0.80 per unit but current unit price is at only US$0.65 per unit.

Results so far so good but trading liquidity for this REIT is poor. Good point on United Hampshire US REIT is that if it continued to report good results going forward, the dividend yield will be close to 9% per annum along with potential room for capital appreciation.

3.Accumulation of Ascendas REIT and Mapletree Industrial Trust ("MIT")
I have taken advantage of a momentary weakness (due to concerns over steepening US yield curve) in recent market pricing to accumulate units in Ascendas and MIT in both my cash and margin portfolio respectively. Ascendas and MIT provides good exposure into data centre businesses. Looking forward to the additional M&A by Ascendas as well as MIT acquiring remaining 50% stake in their data centres. 

4. Building up position in Singtel of my margin portfolio
I have raised my stakes in Singtel in view of the turnaround in India Bharti Airtel and also the winning of the digital banking license. With COVID vaccine being rolled out worldwide, I expect the further opening of the world economy as well as gradual lifting of travelling restrictions by end of the year. Singtel will thus logically perform well again. With the Singapore government as the main stakeholder in Singtel, this adds further resilience and diversity to the margin portfolio. 

5. Opening of trading account with Tiger Brokers and new Portfolio
I have created a new portfolio to invest in riskier assets such as FSL Trust or overseas market using Tiger Brokers. Basically, I will be tweaking my current investment allocation and diverting a small portion of my future funds into buying overseas stocks for capital growth and diversification as well as those riskier investments here. However, the main focus of my investment approach will still be a dividend focused one.

Looking forward to receiving my dividends of around S$10K (derived mainly from Lendlease, United Hamsphire REIT, Manulife US REIT & Prime US REIT) by end of March'21 for additional deployment. 

Monday 8 March 2021

Aztech Global IPO- 5 Reasons Why I Am Giving It A MISS!

Aztech is back again with a new IPO of its "Internet of Things ("IoT") & Data Communication products,  LED lighting products and Kitchen appliances electronic manufacturing business this time. Why did I use "back again"? Well, Aztech was previously listed on the SGX before getting privatized in a not too fantastic deal on 20 September 2016. Aztech's share price had fallen drastically from S$1 per share in May 2015 to S$0.32 per share on 16 September 2016. The Aztech Group was then subsequently taken private with the co-founder and CEO offering a S$0.42 per share. I have a personal bad feel about management buying out retail investors at a low price and then repackaging a few years later to come back with an IPO at S$1.20 per share. What if the same tragedy happens again?

I will just do a quick sum up of my personal thoughts on why I am avoiding Aztech Global Ltd:

1. Aztech Global has disclosed the key business risk that its manufacturing facility in Dongguan do not have the necessary certification in right of use which may lead to disruption in supply and also potential breach of contract for late delivery due to the potential disruption.
Wow, this is an extremely risky event and a bad omen to kick off the IPO with no better certainty. Shouldn't Aztech Global delay the IPO till this issue has been settled? They seemed desperate to launch the IPO to raise funds. 

2. Risk of Illiquid Shares- Deja Vu of what happened in the previous Aztech Group version. 
There is a possibility that even if one wanted to sell the stocks, there will not be sufficient buyers just like the good old days a few years back in another listed company called Aztech Group before it was privatized cheaply. 

3.  Strange low NTA of S$0.2598 per share post IPO share capital of 773,720,000 shares relative to IPO asking price of S$1.20 per share.
This is the weird part. Aztech Global's NTA per share is only S$0.2598 relative to IPO price of S$1.28 per share. In the case of immediate liquidation, it's a huge drop in recoverable amount. I am unable to ascertain whether this was due to investment property at historical issue and not marked up to fair market valuation.

4. Customer concentration risk and unknown customers to assess quality of clients and potential bad debt
The customers here are very secretive. While this is fine due to commercial and operational rationale, it does not appear transparent or informative for assessment on credit risk especially when these 3 top customers made up such a huge chunk of Aztech Global's revenue generation. 

5. Kay Lee Roast Meat acquisition did not workout in 2014- From Targeted 10 Kay Lee Restaurants to only 1 outlet
Aztech used to venture into F&B businesses. It made headlines in 2014 when it bought over the secret recipe of their roast meat and premises from Ha Wai Kay and Betty Kong for a whopping S$4Mil. The biggest Kay Lee restaurant opened in Suntec City which could seat 100 diners anytime. However, all Kay Lee Restaurants had since folded with only the original one at Upper Paya Lebar Road.

Now you may ask what has roast meat got to do with this IPO being good or not? Well, my personal thoughts are that it does matter. It depicted the track record of building up a new business by the Aztech management team.

Parting Thoughts:
The Aztech Global new IPO will cut off by 12pm, 10 March 2021. Based on the above, I will be staying far far away from this IPO.

Friday 5 March 2021

Online Stock Brokers Good and Bad- The Way of The Tiger

I finally opened up my first online brokerage account with Tiger Brokers ("Tiger") a few weeks back in February 2021. The trading fees is super cheap at only 0.08% per trade and currently, there is no minimum fees for SGX trading. This means that for every S$1,000 invested, one only need to pay 80 cents. The platform is relatively easy to use and familiarize. Tiger also allows one to buy into selected Unit Trust funds on Tiger Fund Mall. Going forward, I will be tweaking my current investment allocation and diverting a small portion of my future funds into buying overseas stocks for growth and diversification. However, the main focus of my investment approach will still be a dividend focused one.

1. Problems with online broker
(i) However, not all is perfect. For example, the claim by Tiger to be able to open and account and trade within the same day is actually not true. When I tried buying stocks on SGX, system keeps rejecting my trade. It turns out that the system will only open a sub-CDP tracking account when one initiates a first trade. The wait for me took almost 2 full days before I can start trading on the 3rd day. 

(ii) The second issue is that the Customer service sucks. If you use the online chat, it can take you more than 2 hours to get through to ask for assistance or clarification. 

(iii) The third challenge has to do with that the stocks purchased are not transferred into one's own CDP account but deposited into Tiger's CDP nominee account whereby your stocks are being held in custody. If you are those who always has a passion to attend AGM/EGM of listed companies, then you will be disappointed that you will not be able to sit in anymore. I am not sure whether one can write in to Tiger to ask to represent them for AGM/EGM attendance, but even if they allow, I guess this process maybe tedious. 

2. Margin Trading- Tiger broker and Interactive Brokers
(i) I did not activate the Margin Trading account opening  for Tiger because the interest rates for financing are 3.553% per annum and 4.07% for SGD and USD respectively which are higher than what Maybank Kim Eng is offering. 
(ii) There was previously a recommendation by a kind folk (please look at the bottom comments section of my last portfolio updates post) to look into margin trading account by Interactive Brokers which offered the lowest interest financing rate in town of 1.553% and 1.57% for SGD and USD respectively. While the super low margin financing rate are damn attractive, note that unlike traditional brokers, in the event of margin call, Interactive Brokers do not allow time to add funds to your account or allow lead time to transfer stocks from CDP into their nominee account to avoid position liquidation. These are handled quite instantly and mercilessly based on some of the reviews. 

3. Parting Thoughts
The substantial savings during trades using online broker is very attractive to me as a retail investor. Digitalization and IT advancement have reduced the role of a traditional stock brokerage firm. Depending on one's own requirements, it maybe good to maintain a mix of both traditional brokers and online brokers.