Saturday 18 September 2021

Will Dasin Retail Trust Go Bankrupt And Be Put On Fire Sales? Annualised Distribution Yield at 12.9%.

Dasin Retail Trust (“Dasin”) is in financial crisis. SGX has raised queries regarding its weak balance sheet with cash on hand and other short term assets being unable to fulfill its current liabilities. Apparently, a huge sum of loan financed by local and offshore bankers had expired and granted only a temporary extension till 19 December 2021. The local China banker lender had withdrawn itself for new facilities and this left the offshore bankers shell-shocked and being placed on guard that there may be fundamental weaknesses or other “surprises” waiting to spring on them in Dasin. Not surprisingly, Dasin’s unit prices has thus plummeted from S$0.785 per unit as of beginning of the year to the current S$0.415 per unit (as at 17 September 2021) which is a whopping 47% plunge in valuation.
1.Quick financial recap for Dasin
As at 30 June 2021, Dasin’s net asset value is S$1.46 per unit. DPU for the 1st half of 2021 is 2.98 cents which gives an astounding annualized yield of +14.36% at the latest closing price of S$0.415 per unit as at 17 September 2021. Take note that there is also income support for Dasin which will no longer be available from FY2022. The normalized 1st half DPU (if we were to add back the distribution waiver to some units due to this) will be 2.67 cents which still gives a dazzling annualized yield of +12.9%. The higher distribution relative to FY2020 is mainly due to recovery from covid-19 impact as well as contribution from Shunde Metro Mall and Tanbei Metro mall which were acquired in July 2020.
Before one rejoice, we need to delve into deeper discussion on the key going concern risk from the impact of Dasin’s maturing huge debt of S$500Mil that may result in a forced liquidation.
Dasin has S$422.7Mil of offshore debts and S$79.2Mil of onshore local debt that matured in July 2021-approximately S$500Mil.The bankers have extended these to 19th December 2021. Classification of these are thus “short term” which resulted in a current ratio (current assets/current liabilities) of less than 1. Since Dasin clearly does not have enough funds to repay all the loans, this will mean a default of loans and an immediate lawsuits from the lawyers representing the bankers which can lead to a forced liquidation and an unfavorable fire-sales of all shopping malls at a very low price. Unit-holders will also face suspension of trading of their units and get their liquidity stuck for 1-3 years (at least 1 year) under such adverse turn of event.
2. Bankers spooked by Dasin. A repeat of the Eagle Hospitality Trust Saga?
Most of the investors of Dasin are extremely worried about the reason why the consortium of banks renewed the term loans for Dasin until only 19 December 2021 and did not extend them for 3 to 5 years as per the normal practices with other REITs. There were also market talks that a local China bank pull out of the syndicated loan earlier this year which spooked the hell out of the remaining bankers.
It was also reported that the bankers were so filled with anxiety that they resorted to sending out personnel and officials to visit Dasin’s malls. Good news here is that the shopping malls under its portfolio seems to be packed and doing extremely well.
Hence it does not seemed to be another case of Eagle Hospitality Trust saga where the sponsor did a lot of magic tricks to move the money around out of cleverly engineered financial valuation of assets which resulted in many current lawsuits being filed. Dasin has also been paying out distributions for the past few years unlike Eagle Hospitality Trust which failed to even deliver its first distribution.
3. Other points to note- Sponsor Mr Zhang Zhencheng seems to have financial difficulties.
One interesting point to note is that Mr Zhang Zhencheng and his investment vehicle Aqua Wealth have pledged 38 Mil Dasin’s units as collateral for margin facilities with CGS-CIMB for purpose of securities trading. He has been forced by the broker to liquidate some of his Dasin’s holdings due to margin call. The fact that Mr Zhang Zhencheng did not top up additional cash to his margin account suggests that he has encountered some financial distress personally.
While it is true that Dasin and Mr Zhang’s Aqua Wealth are different legal entities, the implication here, in terms of corporate control environment, is that it leads to higher risk or pressure of possible financial misstatement in order to ensure the financials of Dasin looks well. Investors have this lingering doubt that things are not as rosy as reported for the 1st half results and there are cans of worms that may surface soon. Many failed business such as Eagle Hospitality Trust reported unrecorded liabilities only when special accountants were appointed to scrub through their books.
In addition, once we add in exorbitant default interest rates on bank loans as well as professional service firms such as liquidator and lawyers, a huge chunk of the net assets will be burnt up quickly to feed these hungry sharks which may result in little or none being left for the unit-holders.
4. Light at the end of the tunnel?
The good news here is that Mr Zhang Zhencheng is a smart man. He has pulled in a HKE listed investment holding company Sino-Ocean Capital (specializes in property investment and development activities in China) to take up a 70% stake in Dasin’s Manager. It has also granted an option to Sino-Ocean Capital to buy up to 26% of the units owned by Aqua Wealth. Sino-Ocean already held on to 6.36% of Dasin which will make it one of the biggest holder of up to 32.36% if the option is exercised.
Sino-Ocean is a state owned enterprise in China which thus placed it in an entirely different league with other S-chips listed on SGX (which were beset by corporate governance and accounting problems).
It was reported that the entry of Sino-Ocean was instrumental in the bankers agreeing to extend the original loan facilities maturing 18 July 2021 to 19 December 2021. The new Trust Manager is working with the bankers to secure a longer term syndicated loan. Anyway, 3 months left for negotiation with bankers and we will know the fate of Dasin soon.
Parting Thoughts
So the key question at the end of the day is whether Dasin will survive this loan crisis. Phillip Securities, in July 2021, has issued a price target of S$0.780 per unit for Dasin which is an 88% potential upside. Personally, I think that this is a very risky time to enter into Dasin unless there are more information being released. Sino-Ocean Capital also has not exercised their option to acquire more units in Dasin hence they may still be doing their own due diligence and are uncertain. Henceforth, there may still be bigger surprises that are unrevealed yet.

Sunday 12 September 2021

Keppel DC REIT- Growth Story Intact And Supported By Visible Pipelines

For unitholders who bought into Keppel DC REIT (“KDC”) from Aug’20 to Apr’21 at the range of S$2.55 per unit to S$3.04 per unit, the recent downturn in price from May’21 till Sep’21 has been rather disappointing. This is despite many good news being released for KDC such as over 12.5% improvement in 1st Half FY2021 DPU, joint investment with M1 into digital network assets, maiden foray into China Data Centre market as well as acquisition of its third new data centre in Netherlands. The price as at 10th September 2021 is at S$2.56 per unit.

1. Some investors view KDC as a risk free bond.
Well, this is a very strange assertion being made by some investors indeed. I think let’s not get confused, KDC is a REIT and is equity in nature. Let’s call a spade a spade. It is definitely not a bond. It is also not “risk free” bond. I mean just take a look at its wild fluctuation in pricing over the past one year.
KDC is still subject to the normal business risks faced by all REITs. For example, venture into China data centre may turn out to be a bad thing if a tenant went bankrupt. The same business risks applies albeit perceived lower risk than other REITs. In the event of liquidation, all unit-holders of KDC will rank behind bond-holders and other creditors in claims.

2. Some investors view KDC as a “growth” stock.
This is a very interesting assertion in that KDC is a growth stock. Growth stocks to me are those that has the potential to grow its business exponentially like Tesla (Cathie Wood of Ark Investment is crazy over Tesla). KDC on the other hand is growing but at a gradual stable pace- I do not think its unit price will increase 6 times over in 1 year. The slow and gradual expansion path is very unique among the Temasek government linked REITs such as those in the Mapletree family. After acquisition, (i) stablise the performance, (ii) then market price increases which brings down the current distribution yield and after that,(iii) aim for another new yield accretive acquisition to maximize the play-out of this virtuous REIT cycle.

3. Slump in price for KDC makes it slightly more attractive for investment accumulation.
Good thing here is that the resistance price seems to hang around S$2.53 per unit. Also forward yield for the next year in view of new acquisitions made recently mean that distribution yield will be around 4.1% plus. This is so much better than the previous year of approximately 3.2%-3.5% distribution yield on very high prices of KDC at up to S$3 per unit.

Of course, for those waiting for KDC to drop further to S$2.30 per unit region, personally, I think it may be a tough and long wait. This is because KDC has strong pipelines from its sponsor Keppel Corp as well as the right of first refusal for another 5 data centres under development in China Guangdong province. Its net asset value will only grow over the next few years barring any unforeseen circumstances.

Parting thoughts
Personally, I still do not find KDC’s current pricing super attractive to enter as it offers a low yield of a mere 4.1%. Nevertheless, being a data centre focused REIT and with an impressive track record of its performance during the worst of the COVID induced market crash in early part of 2020, I think that there may not be any good time to grab KDC at a huge discount to its intrinsic value given that the local market has now grown more familiar with this class of asset. I have accumulated another 10,000 units in KDC as I like the “slow and steady growth” story with visible pipelines.

Friday 10 September 2021

Historic Moment for Singapore Press Holdings Group- Goodbye to Media and Press Business!

What an exciting day it has been for the shareholders and management of Singapore Press Holdings (“SPH”). The results of the EGM has finally been announced. Goodbye to Media segment….what a historic moment indeed for SPH milestone! Despite seemingly fierce resistance put up by the minority retail investors asking that Media business be either sold to an interested party or to simply just shut down the media business [instead of paying S$80Mil in cash and other assets for transfer over to the newly formed Company Limited by Guarantee (CLG)], the objections turned out to be only pinpricks in the vast ocean. An overwhelming 97.6% of shareholders voted “Yes” for the first resolution to transfer the Media business out to the CLG while 97.5% voted “Yes” for the second resolution to adopt a new constitution for SPH.
Why can't the CEO close down the Media segement? Reason is simply that it is a public good despite SPH being a listed company
The thing about Media business is that it is actually a public good. If it can be so easily shut down just like a normal commercial entity, the CEO of SPH, Mr Ng Yat Chung, would have already shut down the business 2 years back instead of trying to do various rounds of Media staff restructuring exercises. As for selling to 3rd party, I have already explained in my previous post why this option would not work.
Only option left is to unwind the Media segment by paying a divorce fee
Consequently, the only way out of the loss making Media business is to pay a fair divorce fees to appease our Singapore Government. Ultimately, the current property business is being built using the enormous profits of Media segment back in its glorious days.  With the transfer of Media segment and removal of the restriction of the Newspaper and Printing Presses Act, SPH can now finally function like a normal commercial entity and many corporate actions can be pursued by SPH besides the Keppel Corp offer.
Will SPH became part of Keppel Corp?
The next major milestone would be whether SPH becomes a member of Keppel Corp in December’21. Even if that fails, SPH can definitely survive on its own. Its student accommodation business is the new growth driver which also provides resilient recurring income. I hope for a rally in SPH share prices next week after the trading suspension is over so that it more closely reflect the offered consideration of S$2.099 per share.

Thursday 9 September 2021

Singapore Press Holdings- EGM And D-Day For The Fate Of Media Business

Singapore Press Holdings ("SPH") will hold its EGM this afternoon (10th September 2021) at 2.30pm. Finally, the much anticipated EGM will be convened. Will Media business be successfully transferred out of SPH? Will the special resolution on a new constitution be also approved by more than 75% of shareholders in order to be eligible for the Keppel Corp buyout? 

If it goes through, will SPH share price finally hit S$2 per share or will it plunge dramatically by end of the day or next week due to the deal falling apart?

Updates as of 10 September 2021 (5pm)-Results of SPH EGM:

Previous posts on SPH:

Saturday 4 September 2021

Fu Yu Corporation (Super Hero Cash Cow)- Special Dividend of 10.15% Yield Declared and New Business Segment Acquired

It has been a very long time since I last took a detailed look at Fu Yu Corp in my investment portfolio. I was surprised recently when the projected dividend tool from Stocks Cafe indicated that Fu Yu Corp will be crediting S$3.3K of dividends (11.38% yield) on 7 September 2021. A special dividend of 3.3 cents per share had been declared on top of interim dividend of 0.4 cents per share for the 1H 2021 results. Hence I decided to do a quick review of its current business operations.

Apparently, for 1st half results announcement,  Fu Yu Corp had announced net profit improvement of 20.1% to S$8.9Mil in 1H2021 relative to S$7.4Mil in 1H2020. Fu Yu Corp financial position remained sound with cash of S$100.2Mil and zero borrowings on its balance sheet. 
To demonstrate appreciation to existing shareholders for their continued support of Fu Yu Corp, the management has thus decided to declare a special dividend as a reward.  

New Business Acquisition to Fuel Growth Path
Earlier this year,  the trio co-founders has sold off the majority of their stakes to a private equity fund, Pilgrim Partners Asia. The co-founders have sold off 29.8% of their stakes, around 224.4Mil shares of Fu Yu Corp, for S$58.3Mil to local fund management firm, Pilgrim Partners Asia which worked out to a valuation of S$0.26 per share. So far so good, the new management team appointed by Pilgrim Partners Asia have done well in terms of cost optimization and getting new projects from its business development efforts. 

Perhaps, even more interesting is that the new shareholders of Fu Yu Corp wasted no time to do an M&A to acquire a new business. To diversify the Group’s business beyond the core manufacturing business, the management have recently formed a new business arm by acquiring 100% equity interest in Avantgarde Enterprise Ptd Ltd (“AGE”). AGE is engaged in the business of providing supply chain management services for commodities. This is effectively financial trading activities. 

In addition, there is actually synergy with the AGE acquisition as Fu Yu Corp hopes to lower the purchasing cost of its key raw materials (resins) with direct purchase via AGE. 

As a result, Fu Yu is currently back on a potential rapid expansion path with a new growth engine in place.  

Parting Thoughts
With the near completion of Fu Yu Corp Singapore factory by end of 2021, there is thus another potential catalyst that could boost the gross profit margins of its existing manufacturing business besides the new business arm of AGE. As at 1st half of 2021, Fu Yu Corp's cash balances made up 58% of shareholders' equity. Normalized dividend yield of around 5% also makes Fu Corp an attractive business at S$0.29 per share as at last trading price on 3 September 2021. 

Previous Postings on Fu Yu Corp