Friday, August 22, 2014

"Aug 14" - SG Transactions & Portfolio Update"

No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
FraserCenter Point Trust
SembCorp Ind
Ascott Reit
Mapletree Greater China Commercial Trust
China Merchant Pacific
FraserCommercial Trust
ST Engineering
First Reit
Ascendas Hosp. Trust
Second Chance
Stamford Land

Total SGD


It almost seems like infinity since I last updated the previous month portfolio update (Jul 14 Portfolio Update) as I've started my new role in the new company and it was a tough first month to endure to be honest. Henceforth, the income that was invested for this month investment was memorable and reminded me once again how not easy it is that money came along. There are definitely much tougher jobs out there so I should really look on the brighter side. The rat finally gets his meal.

For this month, I have added 2 lots of Sembcorp Industries on recent price weakness heading southwards at $5.08. To me, the fundamentals of the company is still as solid as ever and the recent price weakness seems to be an entry opportunity. The utilities segment might have seen some tough growth in the Singapore sector but their overseas sector should be contributing and outpacing the local sector soon enough. The marines segment are doing fine in line with previous year so it is something that I am personally satisfied of. The urbanization is something that will be a dark horse for the next future years to come as this segment is becoming increasingly strong and optimistic.

The recent 5 cents interim dividend from Sembcorp seems to be a little surprising, considering that they don't usually gives this out at this stage. I think the reason why they do this is perhaps they've been repurchasing lesser share buyback at this stage as compared to the previous year. Based on the graphs below, it appears that year on year (annualized for FY2014) they have approximately the same amount of profits and CAPEX and it is only because of the lesser repurchase done this year that they have included the interim.

Based on the recent price weakness, it appears that the earnings multiple has become somewhat attractive to me at just around 10.14x. If you check out the earnings multiple based on the past 52 weeks, it seems to have hit the lowest at this stage. So I'll take that for now.

I have also decided to trim half of my investment in Second Chance this month as there are lesser directions on what the company is intending to do for the next 12 months or so. The latest news coming out from them was instead of selling all their properties units they decided to trim a third of those. I'm not sure if there are any near term catalyst for this stock to be honest as price seems to move almost sideways peak at $0.46. I'll have to hold the rest of the few lots and see where they go from here.

The portfolio now stands at 14 stocks and I may be looking to trim off one or two more which I have identified as potential weaknesses.

There are no changes to my Child Portfolio for this month as lao bei didn't receive any angbao money for him since. Well, I'm sure he is fine with it :D

There are a couple of stocks that I'm keeping a close look on e.g SIAEng STEng so maybe there will be a chance to add them for next month.

Until then, please stay safe and vigilant and look out for potential noise that might present good opportunities ;)

Thursday, August 21, 2014

Why replicating another person's portfolio can be dangerous?

All of us wants to earn good returns in the stock market.

While some retail investors do their diligent fundamental analysis about the company they are invested in, some others are simply taking the short cut by replicating other's portfolio - usually the person they admire.

A quick look at the hardwarezone forum and/or facebook and you can see many people either asking for advice or simply just replicating the portfolio for almost every stock they are invested in without having any justification for doing so.

For those of you who are guilty of doing so, note that doing this can be inherently dangerous for you.

1.) You are not aware of the average price the person bought the stocks. For example, I own 6 lots of Vicom in my portfolio and so can you, but if we are buying at a vastly different price, then you might be taking a much lower margin of safety (if there is any in the first place) should price heads south.

2.) You might be underestimating the different strategy between the party you are replicating and yourself. One might be inclined to go for growth stocks and highly cyclical stocks while another might be going for a slower pace dividend style of investing. The same strategy might not fits both parties.

3.) You might not aware of the portfolio allocation of the party you are replicating. Usually, financial bloggers would list down only their equity holdings in their blog and leave out the rest (e.g CPF, Cash, Gold, Bonds, Property) unknown. While he has some cash holdings and hedging at hands, you might not have one to mitigate your risks.

It is too easy and tempting to look at someone you really admire and photocopy the same portfolio as what he did. Nevertheless, the outcome is always going to be different. The risk and returns you undertake by doing that will be much more dangerous than what it really is.

Anyone you know that are doing that? Pls share your thoughts.

Saturday, August 16, 2014

Job Vacancy - Accountant and Portfolio Analyst

This is going to be a very unusual post that you do not often see in my blog.

Frequent readers of my blog would know that I am currently working in one of the Reits company listed in Singapore and since I've been in the company, I've been covering a number of roles including the two mentioned roles above.

In this regard, I am here to look if there are anyone with the right criteria and skillset who would be keen to explore more on the Reits industry to apply for the roles. I do not have the specific JD at the moment, but for those who are genuinely interested and have the right skillset, I can forward your resume right to the hiring manager to arrange for an interview. In any case, both positions require approximately 3-5 years of relevant experience and accounting/finance background and the candidates must have the passion to learn about the Reits industry.

For those who are interested, you may leave me your email in the comments section and I will get back to you so that you can send over your JD.

* I do not wish to disclose the name of the company over here so if you are genuinely interested and qualified, we can discuss more in our email exchanges.

Thursday, August 14, 2014

Reits - Aug Update

Following up on my last post regarding how credit ratings would play an impact on the Reits listed in Singapore, it is also important to look at other metrics that would determine your choice of the investment.

Using this post, I will also share on what factors that I feel it is important to look at before deciding to invest in the Reits. Note that this is my personal choice of factors so yours can be different.

Corporate Ratings
This is the ratings based on what I have discussed in my previous post. As you can see, most of the reits are in the B range ratings while more notable CMT and Ascendas Reit are in the A range. For the investors, people may tend to overlook this factor but for the management of the Reits, this becomes a very important factor. For example, if you drop to a no rating, your cap for the gearing allowed by MAS would only be 35% as compared to others at 45%. There are other repercussions beside this as well.

Costs of debts
This is the average all in costs of the debts they currently have outstanding. As you can see, some of the more recent listed Reits such as MGCCT and SPH Reit managed to get it down at the lower 2+% range as compared to others who are in the higher range. This factors are important as it will impact the reits bottomline earnings and ultimately your DPU. Surely you would want to keep this as low as possible.

% of Fixed Debts
With impending news that FED tapering will finally be here, it is important for Reits to lock down the amount of fixed vs floating interest rate early, lest the uncertainties. For example, Croesus and FCT have locked it down 100% and 75% of their fixed debts at 2.15% and 2.49% respectively. This will ensure no surprises to the earnings when management are doing their budget. And investors will ensure that your DPU will not be impacted too much by the volatility of the interest rates.

Interest Coverage Ratio
Linking this back to the Interest Coverage Ratio, this factor is determined by using the NPI / Finance expenses. The greater the ratio, the better the ability of the company to repay its debt. Companies like Plife Reits leads the charge at 10.4x interest coverage ratio!!! Incredible.

Debt Expiry
Last but not least, it is important to look forward at the debt maturity profile to ensure that the company has no short term obligation to refinance their debts. If there is, then it is imperative that the company needs to be able to refinance it at low interest rates to not impact their earnings distributions.

My Picks
When I choose Reits to invest, I usually use a few metrics that I take a closer look at. 

1.) DPU Growth - I like to see how the management grow the company's bottomline from the past to present. Most of the listed Reits here will have no issue regarding this.

2.) Short-term catalysts - I look for Reits that have potential short term catalysts as this will mean re-ratings from analysts that will positively impact the shares. For e.g FCOT will have a rental reversion from its Alexandra office which expires in Aug this year. What this would mean is the next few results would see them doing better than previous year and hence this would enable positive re-ratings.

3.)  Costs of debts and debt maturity profile - I like companies that have an all in costs of around 2.5% and below. For companies with a higher costs of debts, the yield would have to compensate even much higher.

There isn't really a hard and fast rule as to what metrics you should look at when investing in Reits. With companies balance sheet doing much better now as compared to GFC period, I do not see the yield to shrink much even at times of higher interest rates. As always, do your homework and make sure you can justify your investment.

Monday, August 11, 2014

Credit Rating methodology for Reits - how it can help you choose the right investment

The investment community in our globalized world has grown ever so bigger each day and it is easy to see why some investors can get lost when picking their investments.

One tool that can help you decide is the credit ratings assessed by the credit agency. The three top agencies - Moody, S&P and Fitch are the world's top rating agencies which provides assessment on companies accredited ratings. Different rating agencies give you slightly different framework but from the broad view they generally serve the same purpose - the higher your risk profile, the lower your ratings and vice versa.

For the purpose of the post, we will take a look at the framework from Moody in determining the credit rating for Reits listed companies in Singapore.

There are generally 4 main factors used by Moody in analyzing a company's internal and external characteristics. These factors are:

Factor 1 - Liquidity and Funding (24.5%)
Factor 2 - Leverage and Capital Structure (30.5%)
Factor 3 - Market Position and Asset Quality (22.0%)
Factor 4 - Cash Flow and Earnings (23.0%)

Factor 1 - Liquidity and Funding

Under this factor, it covers the ability of the companies to hold ample liquid assets under their books. This includes things like debt maturities, dividend payout ratio and the amount of unencumbered assets.

For instance, under the debt maturities, the higher the amount of weighted debt maturities out of the total debts, the lower will be the ratings.

Factor 2 - Leverage and Capital Structure

This probably takes the highest weightage out of all the four factors and you can see why they have placed a huge importance on leverage assessment.

Under this factor, items such as the gearing ratio and whether the debts are secured or unsecured does play an important factor in assessing the company's ratings.

For Reits, the gearing probably is capped at 45% out of your total assets and if you exceeded this, then you are probably screwed by the MAS regulators.

Factor 3 - Market Position and Asset Quality

This is probably the factors that are most subjective as you really need to assess external environment if your assets are in other locations of the world. Another item that falls under this factor is the company size, so the bigger your total gross valuation of assets the better your credit ratings.

Factor 4 - Cash Flow and Earnings

This factor covers the ability of the company to provide earnings, positive cash flow and cover costs such as the interest coverage ratio.

For instance, the better the company is at covering their finance expenses, the better their credit ratings will be.

These ratings might not be important to you right now but it definitely gives you a checklist to see which areas are companies weak in. As investors, we need to be vigilant on the companies we want to be invested in, lest any weaknesses might upset what happened back then during the gfc.

Sunday, August 10, 2014

Dividend Income for August -- The reality of dream

National Day is here and it means it's another month of dividends for investors.

This has become one of my favorite section as I continue to build my warchest while at the same time able to reap the fruits from the existing portfolio. Dividends are basically rewards to investors without having active work that you have to do like in the office. The best part is it gets really automatic now and it keeps on piling up till the day you retire or leave the earth, whichever is later.

Dividend investing continues to play a big part in my plans to retire from the corporate world early as time becomes more precious as each day past. I have colleagues who are still working at the age of 60+ and it is easy to see how frail they are at the mercy of the employers. When retrenchment comes, they are usually the first to go, leaving much uncertainty to how they will cope with their daily lives. I certainly wouldn't want that type of uncertainty when I get old and the earlier I settle this issue the better it is for myself and family.

Receiving $6,132 in dividend income in May earlier this year was a fantastic feeling, August is another fantastic month with dividend income coming in at $3,239. Even if the amount is unable to cover the full expenses for the month, it still prove to be useful. I certainly think dividend investing will continue to be my strategy for this year and the next as my portfolio looks to grow bigger.

CountersDividends (S$)
FraserCenterpoint Trust188.00
Sembcorp Ind250.00
FraserCommercial Trust240.00
First Reit200.00
ST Engineering90.00
China Merchant Pacific665.00
Stamford Land90.00

With SGX loosening from 1000 to 100 per lots from 2015, I hope this strategy could be useful to those who are starting out. As always, it is a nice cycle to be in, whenever national day comes, your dividend comes in as well ;)

Friday, August 8, 2014

Treat your bad debt as your greatest sworn enemy

We know that debt can be classified as good or bad.

While it is possible to live completely debt-free for most of your life, it is not necessarily the best move you will make.

Good leverage can be a form of investment that will multiply your income and generate greater returns. Bad debt, however, can do exactly the same - the opposite way in fact and it will harm you over the course of time.

There was an article that was posted a couple of days ago about a person named Ken Ilgunas (Article link) of how he managed to save 95% of his income by living in his van and eating some simple food to repay off his student loan debt of $32,000.

A few of the highlights from the article was:

- He managed to repay off his student loan debt of $32,000 within 2.5 years while making less than $10/hour and $18,000/year.

- He mentioned about not being an expert of personal finance but it was clear to him that the more money he could allocate towards savings the earlier he is going to be debt-free.

- Never at once was he deprived of food - he had oatmeal for breakfast, banana and peanut butter sandwich for lunch and spaghetti for dinner.

- He took on jobs that provided him with food and lodgings, so he has technically zero life expenses.

- Think of your debt as your greatest sworn enemy. Think of indebtedness as a life and death situation. He advocates not to put 8% income towards it but rather 100% if possible. Obsess over it. Despise it. Murder it. Kill it. Grand tasks require grand thinking.

In his spare time, he wrote a book called the "Walden on Wheels" which is a day to day experience during his toughest times. 

When you've got past that toughest times, you began to realize how strong you have emerged, how things look much simpler in this world.