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Wednesday, December 7, 2016

Spackman (SEGL) - Presold Distribution Rights To More Than 30 Countries

This is a quick follow-up updates on the recent post I made last week on Spackman (Link Here) where I bought the shares based on a few catalysts play ahead.

The Group's upcoming premiere movie "Masters" is one of the catalyst play and the company announced yesterday that they had successfully sold their distribution rights to 31 countries.

The movie is expected to premiere in Korea on the 21st December and they are expected to do well, very well in fact as expectations are running high. Given the level of distribution rights sold to the various number of countries, I think we can expect the movie to be a big hit.

I mentioned in my previous post that we can take reference from their previous big hit movie produced, "The Priests". They managed to successfully earned a 50% margin on the production and distribution on rights and we can expect this to go a step level better.

If you'd bothered to notice the way they made the announcement on "The Priests", the company made 7 consecutive positive announcement on the successful production of the movie since it was premiered. The share price meanwhile has rallied double from the beginning of Nov (8 cents) to the end of Nov (16 cents). That's in 2015 and the share price tumbled again upon the announcement of their full year results.

For the record, "The Priests" has only managed to sold distribution rights to 5 countries.



My Take

I attended training outside today so I didn't really see the market movement today but I was told the share price went up 11% today on high volume.

I think we'll see a similar stretch of good news announcement coming towards nearer to the screening premiere of the movie and I feel there are still plenty of room to run up for the share price meanwhile. Being in a FP&A work myself, I know how easy it is for a company to announce some positive news which will delight the investors.

I spoke about what it means in terms of valuation in my previous post. At 22 cents, they are valued at around 15x PE. If we look across other competitors like MM2 and other Korean production company, they are all trading above 30x and some nearer to 45x.

I think the safest play for me is still to hold this on until the premiere starts on the last week of December but probably exit just before their full year results. We know how sensitive companies can be when they announce results so I probably don't want to take that risks.

This is just me thinking of the risk vs reward play.

I will never put my money into areas where I think the risk are higher than my rewards.


Sunday, December 4, 2016

Dividend Income Updates - Q4 FY2016

It's the time of the year again where I try to tabulate all the dividend income received in the quarter and see where I stand in terms of passive income cashflow.

I am terming it as passive income because it's the closest to passive as I can get. Naturally it means having the management takes good care of the company and then we reap in the rewards as a shareholders of what's left in the profits.

I'm also excited because I've geared my portfolio purposefully towards companies that pay out decent amount of dividends so some of them may look slightly lesser geared towards growth but they are designed this way according to what I want it to be.



Ideally, I hope this will one day overtake what I am earning from my active income so it'll give me a peace of mind financially towards having more option on what I can do with my money and life.

The goals of financial independence have always been about freedom to me. I don't seek an escape from my life today or appears to be running away from something. I look to it as a long term goal which everyone is involved having the same target. It is an admirable merits which gives me a lot of things to say or different actions to take.

Having different income streams is not a must but a nice thing to have.

Some day in our lives, we will be faced with certain unexpected things that we may be wary of and this could include financial means, and having that buffer of money that you have will help a lot. I just can't stressed how much helpful it has been to me over the past couple of years since I began investing.

Without further ado, I've tabulated the dividend income for Q4 below.

Dividend Income Q4

The last quarter of the year has not been the best in terms of dividend income. In fact, I think I suck in the last quarter of the year :)

There were some companies paying interim but they aren't usually as significant as the other quarters.



CountersAmount (S$)Ex-DatePayable Date
Micro-Mechanics600.004-Nov18-Nov
First Reit169.6025-Oct29-Nov
UMS150.0029-Nov15-Dec
Total919.60




With that, I'm ending the year with $16,505 of dividend income received. It's a far cry from what I'm expecting it to be but with the recent reshape of the portfolio, I think 2017 would be a good year in terms of dividend income.

What about you? How did you fare for the year in terms of dividend income?



Monday, November 28, 2016

Recent Action - Spackman Entertainment (SEGL)

I do these catalysts play once in a while.

The last time I did this was with Noel Gifts which went pretty well.

The idea is to ride on the catalysts ahead which I think there may be further upside to share price and gain from it. Of course, if it doesn't play out well, then I'd be staring at the dark sky. Pinpoint accuracy in reading their financial statement, studying their recent development and forecasting future outlook will be key in this one.




I bought the shares at a price of $0.137 for 150,000 shares.


Company's Overview

Spackman Entertainment Group Limited (SEGL) is a leading entertainment production company that is primarily engaged in the independent development, production, presentation, and financing of theatrical motion pictures in Korea.

Below is the structure of the company's overview:


One of the Group's main gem is Zip Cinema, one of the most recognized production labels in Korea and has originated and produced some of Korea's most commercially successful production. For instance, movies such as "The Priests (2015)", "Cold Eyes (2013)" and "All About My Wife (2012)".

The Group is also a strategic shareholder (27.3% interest) of Spackman Media Group Limited (SMGL), a company which is now incorporated in HK. SMGL is a leading talent agency and entertainment content production company in Korea, collectively managing 50 artistes including some of the top names in the Korean entertainment industry such as Son Ye Jin. Through its wholly-owned subsidiary, SMGL owns a 51% majority stake in Breakfast film Co. Ltd, a leading marketing and media company and a 99% interest in Demedia Co. Ltd, a leading variety show and entertainment program production.



Catalysts (Why I am buying)

There are a couple of catalysts which I am awaiting for them to crystallize:

1.) On April 2016, SEGL announced a proposed restructuring of its loss making assets pursuant to which the company would sell its entire 100% equity interest in Opus Pictures Limited and its 51.5% equity interest in UAA Korean Co. Ltd. The divestment has just been completed recently.

The restructuring will allow SEGL to streamline its core operations and better focus its resources on its better profitable production in Zip Cinema and Novus Mediacorp. The restructuring will also enable them to save an estimated overhead costs of around $2.5 million (by working backwards) and I calculated that it will bring them back to profit in FY2017.


2.) The company is also releasing major hit blockbuster in Dec 2016, a movie titled "The Masters".

Since the company is listed 2 years ago, their released movie have been rather lackluster. These were mostly produced via Opus, which thankfully they have divested now.

One of the decent movie is titled "The Priests", released in 2015. From here, I am able to use the margins as a case study example.

The idea with the movie production business model is they earned revenue not only from the production of movie, but also through distribution of the movies to regional countries and earned the royalty from the distribution, rights and documentary sales.

If they are successful, they are able to earn a gross margin of around 50% which is extremely decent.

Unfortunately, not all movie can be a blockbuster so if the movie doesn't appeal, then the company will be in loss making position or if slightly better at a low single digit margin for most of the time.




The movie starred heavyweight actors like Kim Woo Bin, Kang Dong Woon and Lee Byung Hun. If you ask your crazy movie fanatic friend, she'll be already shouting "Dong Woon, Saranghaeyo" even before the release. 


3.) The third catalyst is the likelihood to divest Spackman Media Group Limited (SMGL), a leading talent agency and entertainment content production company in Korea, collectively managing 50 artistes including some of the top names in the Korean entertainment industry such as Son Ye Jin.

The company's stake in SMGL stands at 27.3% and may be worth at about $45 million.

Management has already guided that they are in a talk with a potential private equity investors who are looking to take a stake into SMGL.

Son Ye Jin <3
Risks

One of the main risk with the business model is they require huge capital commitment upfront to make and produce the movies. I'd equate this to something similar to developer's model. Managing working capital would be key in this one.

The other risks is with the key-man risks.

A good movie production is usually credited to the top producers, who will be key in retaining their services.

Then there are also the industry and business risks with competition and low entry to barriers.

Summary

This should be a short term play for me until the catalysts are played out.

Only then I'll be able to see if the thesis proves to be right.

At the moment, the company is still making losses, so it's hard to put a valuation up there.

If they can return to the black (which is my main thesis), then we'll start looking at what their valuation might justify. Some of the peers are trading in at about 40x earnings and that's how high it can go in terms of the industry. 

I'll check back on how I am doing on this.


Friday, November 25, 2016

Recent Action - FLT

Happy Thanksgiving Folks!!!

I was busy surfing around for deals in the internet for the kids edition of the fire kindle when I suddenly found a deal in FLT instead. Alright, I'll talk more about the Amazon buy in my next post.

I added 20,000 shares in FLT today at a price of 91.5 cents. I bought them earlier on the 15th Nov for 93.5 cents, so I'm just adding my tally to it.

I'm just going to write through briefly what I like about this company.




Pure-play Australian Industrial Portfolio

Let's face the truth.

The Singapore industrial properties are going to have a glut of supply in the next few years. Together with the poor economic forecast, this is going to get worse for the demand.

Depending on how you see it, this can also be a risk as the properties are concentrated in a single country risk. But already a few companies like Ascendas, Mapletree, AIMS and Cache are all already venturing into diversifying their assets moving into the Australian market. If this is not a sign of what is to come, then I don't know what else.

FLT's properties are concentrated in Victoria, New South Wales and Queensland, three of the major states in Australia where they are currently seeing more demand influx than supply.

Melbourne - Demand outweigh supply
Sydney - Demand outweigh supply
Brisbane - Demand outweigh supply

Long-WALE with positive rental reversion (built-in)

The current portfolio of assets are young with an average portfolio age of only 6.5 years, so there are hardly the need to go over for maintenance AEI capex.

The lease built-in are fairly long at a current WALE of 6.5 years. Compare this against the local industrial assets we have and you will see that most of them have less than about 3 years WALE running. AIMS has about 2.6 years while MINT has about 2.8 years. You see the same pattern running for Cache and also Sabana. The only exception is probably Ascendas, our big blue-chip player.

In addition to the longer WALE, FLT also has a 3.02% annual rental escalation built-in which gives a natural growth income to their current properties leased out. Comparing this with the other industrial reits, we can already see that most industrial assets in Singapore are already building in negative rental reversion, especially for flatter factories and Hi-ramps up building type. AIMS is venturing into a BTO, which probably gives them quite a good edge in terms of creativity and diversification.


Dividend Yield

I think this is a good base case to make my point on this article I wrote previously.

FLT dividend yield currently stands at about 7.1% while most other industrial reits are yielding a lot higher at 8 to 9%. Yield hungry folks would have run straight for the higher yield but the more pertinent question is what has not been accounted for.

In my case above, I am looking at a 7.1% + 3.02% annual growth reversion while most are looking at a potential 8% - Y negative reversion. What is better for you has to be decided on what you are comfortable with.

Cap Rate

Most of FLT's freehold assets are on a cap-rate of about 7%. 

When we compare this against the other industrial reits which has a leasehold of about 30 years in general yielding a cap rate of 8+%, it's good to start thinking which is the better return for the investor.

This also explains why most industrial reits are yielding higher than their other compatriots like retail or offices.

Gearing

I guess this is straightforward.

Most of the gearing I've seen for industrial reits are at a comfortable level and hardly anyone is gearing above 40% at the moment.

FLT is currently geared at about 28.2% with a cost of debt of 2.8% and an interest coverage of 7.5x. That's a rather good level for me.

Mapletree companies typically have a lower cost of debt and they tend to gear up more.

Forex

I used to be skeptical of foreign exchange risk in the past because of the fluctuations.

These days, management have largely hedged their exchange risk so the fluctuations would be minimal.

Even so these days, with the SGD generally weakening, it appears that being Singapore concentrated is not necessarily a good thing.

Summary

All in all, I'm likely to hold the company for the yield play since it's fairly stable which doesn't need me to monitor the company too much.

Operationally, they also deliver on their performance that are better than the forecast during the IPO so that gives me a lot of comfort knowing what they put out there in the prospectus is not some hard selling numbers.


Tuesday, November 22, 2016

Assigning Each Significance To An Event

There is a pretty good article which I read this morning and wanted to share.

We can relate this to our daily activities, individual agenda and even personal finance. They become so relevant in our daily lives that we have almost always taken it for granted.

The below X and Y axis graph will detailed everything in a nutshell.


Suzy Welch adopted the 10 / 10 / 10 rule when making decisions how to place each event into the right categories. The rule puts us in a situation by raising questions like this:

  • What is the level of significance of the event 10 minutes from now?
  • What is the level of significance of the event 10 months from now?
  • What is the level of significance of the event 10 years from now?

In our investing world, many of us are tempted by short term gains because of the proximity of time that they can feel these gains. 10 minutes is obviously an easier reach than 10 months or 10 years because all we need to do is go for a smoke, comes back and you reach where you want to reach. 

Unfortunately, most of the benefits are only realistic enough in a longer time frame.

Take for instance as we are trying to work on muscles in our abs, we will begin the first step by ditching the usual junk food we ate and thereafter spend another reasonable period of time working out in the gym. For the benefits to shine, it usually takes time before something can work out.

Often, we like to delay and procrastinate things that we are uncomfortable doing. One way to avoid this is by scheduling a time bucket for these things instead of simply chalking it away for an excuse.

This is where the bucket of the top left hand corner comes in.

You may not be prepared mentally for doing some of the things, but you promised to give yourself a chance at a shot to do it. One good example is organizing your personal finance checklist. Perhaps this week you could focus on the expenses and see which of the items you can eliminate. On some other day, it could be some other things.

The same goes for most financial bloggers folks like us out here.

Achieving financial independence takes a lot of mental test and determination and often it takes long planning to churn out the results. Building a dividend investing wealth machine takes years to build and often the results will be mercenary when it comes to the day. There is a lot of organizations being played out in my mind every single day on how to improve things and that's just the way how the mind works these days for me.


Thursday, November 17, 2016

"Nov 16" - SG Transactions & Portfolio Update"‏

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
IReit Global
73,000
0.73
53,290.00
12.0%
2.
ST Engineering
15,000
3.20
48,000.00
11.0%
3.
Kingsmen
45,000
0.62
27,900.00
6.0%
4.
Fraser Logistic Trust
20,000
0.92
18,400.00
4.0%
5.
FCL
10,000
1.51
15,100.00
3.0%
6.
Micro-Mechanics
15,000
0.84
12,600.00
2.0%
7.
Singtel
3,000
3.67
11,010.00
2.0%
8.
Ascott Reit
10,000
1.13
11,300.00
2.0%
9.
M1
5,000
2.00
10,000.00
2.0%
10.
First Reit
8,000
1.30
10,400.00
2.0%
11.
OCBC
1,134
8.83
10,010.00
2.0%
12.
CDL Hospitality Trust
7,000
1.32
  9,240.00
2.0%
13.
UMS
15,000
0.61
  9,150.00
2.0%
14.
Warchest*
210,000.00
46.0%
Total SGD
456,400.00
100.00%

This has been a very eventful month as we witness a rather surprising event in the US Presidential election earlier in the month. When we have such an important macro event, it means that there are volatility in the markets which translates into opportunities.

Who would have known that the markets would surge higher as Trump is elected the new President. It also appears that interest rates are finally moving into the territory that everyone is waiting for.

From a personal lifestyle front, I didn't lose sleep onto all the events taking place. In fact, I'm taking advantage of the cheap Ringgit by heading into a 3D2N Weekend Staycation at the KSL Resort & Hotel. It was a really nice, refreshing and cheap short holidays given that my wife is unable to travel due to her pregnancy.

Meanwhile, back on the portfolio, I have added a couple of new additions into the portfolio on some of these opportunities I have identified for this month.




First, I added 15,000 shares of UMS at a price of $0.605. This is a company which I have always been rather skeptical off in the past despite yielding very good dividend yield and a clean state balance sheet. There is a concentration risk in the form of their main customer, AMAT, and this is probably one of the main reason the company has been shun for many years. Still, year after year, they are proving its worth and everyone's wrong. AMAT has recorded their biggest order book to date and this has somewhat been reflected in their performance, though I am secretly hoping that UMS get a pie of that share. The main thesis comes from the prediction that semiconductor demand will be growing in the next 1-2 years at least and that means it'll be relatively safe for UMS to retain their current earnings and cashflow and pay out their 5-6 cents dividends to shareholders. That translates to almost 10% yield at current price.

I have also similarly added 15,000 shares of Micro-Mech at a price of $0.84 on the same thesis. I had the luck of adding them right before they went ex-dividend so I am entitled to that 4 cents dividend (that's $600 in absolute amount!!!). The difference between this and UMS is that Micro-Mech covers different segmentation of the semiconductor in a separate segment, e.g Medical, trans-robotic. Should they remain their 6 cents total dividend, that still translates into 7.1% yield, so it's another solid dividend yield play for the portfolio.

I also added 7,000 shares of CDL Hospitality Trust at a price of $1.31 which I blogged here in more detail. This is one which I am still keen to add on to my position, be it now at current price or if it goes lower.

I have also used the recent result weakness to add onto ST Engineering by buying additional 2,000 shares more at a price of $3.13. The recent result was weakened mainly due to the impairment impact and a rather lackluster Land and Aerospace division. I doubt things are going to move fast from here but I have conviction in their long term prospects. It is also currently trading at their lower end of the valuation. The USD is also getting stronger as compared to the SGD and this should also translates into stronger earnings for STE.

I have also recently jumped on the crowded bandwagon of M1 trade by nibbling 5,000 shares at a price of $2.05. My thesis for M1 is more blended towards because I find the recent selling way too oversold given that they still have strong operating cashflow and are able to pay a dividend, which will seemingly be cut but still decent yield at current share price. The 4th telco news have also recently been confirmed and while M1 will be affected, the impact will not be as immediate and severe as what many people would think. Not at least in the initial 2 to 3 years impact. Data center is also on the go which I think M1 would strategize into these area more.

Last but not least, I also added my position in Fraser Logistics Trust by purchasing 20,000 shares at a price of $0.935. I identified this as one of the stronger (top 3) industrial reits around that we have (the other two being AReit and MINT) and it is not difficult to look at why. The Australian market is a huge market which most industrial reits are fighting to go into at the moment to get a piece of the pie. My fellow blogger, Kyith has written an extensive detailed analysis of the company here which you can study in more detail.

The Reits boast a 6.9 years WALE, a decent dividend yield of 7% and a rental reversion built in at 2.8%. Their gearing is also low at 28% and it paves the way for more acquisitions in the future. In addition, the forex seems to also favor the AUD against the SGD.



The portfolio is tracking back in the right direction again this month after a slight dip last month.

The portfolio has increased from the previous month of $441,867 to $456,400 this month (+3.3% month on month; +28% year on year).

In terms of cashflow, I have got to start saving up as there are a few big expenses are coming up - mainly the hospital and caesarian fees (which I will blog more in further details) and also the cost of hiring the nanny. The school fees is also starting to come, so it'll be a hell lot harder to maintain a positive cashflow in the next 3 to 4 months. Still, I'm making sure my working capital works decently fine. Luckily, the dividends are coming in the next few months ahead, so it helps alleviate and mitigate the higher expenses.

With only a month left to go, let's see how we are faring as we prepare to close the year. This year has been a very successful year in terms of how the portfolio fares in the difficult market and I hope it'll keep to be the same for many more years to come.

Thanks for reading.

How is everyone positioning their portfolio allocation these days? More cash on the sidelines than before and waiting for the crash? Or followed the trajectory Trump leads in the stock market?


Monday, November 14, 2016

Reits Get Trumped!!!

It's just been 4 days since Trump was elected as the new President and he's done what the current term politicians cannot do in 8 years, i.e increase inflation.

Trump policies are pro-growth businesses and it is forecast that inflation and interest rates will rise in tandem accordingly.

This is probably the main reason why defensive counters like telcos, utilities and reits are getting hammered since Trump won the election and you can see that from my watchlist below.




A lot of people are speculating that the drop is due to the possible rate hike in December. I think it's way a lot longer and deeper than that. If you look at how the 2, 10 and 30 years US treasury yields are moving, it's saying a lot on the dynamics of what we are entering as a new environment phase of normalized interest rates.

The higher risk free rate is going to go, it would require a similarly higher yield on the equities to trade the premium difference. 


Look out for the 30 year yield as it attempts to hit 3% soon

If you are an income-focused investor like me, this is absolutely great stuff going on because now we can finally expect higher yields to come for many risk-off assets that we are owning on our plates. If my lifestyle requires 6% in the past and I can get higher than that in the new environment phase, then I'd be a happier person.

Is this now a good time to enter?

Again, it depends on how much comfort are you willing to hold for that income yield right now. This is a lot different from the bargain we see back in January this year because that is based on a China fear and today a whole new phase is taking place.

It also depends on how much warchest we are currently holding in our pocket to take advantage of the situation. I am currently at about 52% cash so I might nibble quite a bit along the way and increase the yield on my portfolio. But if you are almost dry, I'd reckon you wait until the 30 year treasury rate hits 3%, which could happen almost anytime by end of this week given the rate it is running.

What To Nibble?

I had someone asking me this question.

It's difficult to choose across the sea of reds since many seem lucrative from an eye level.

Personally, I am on the queue for CMT to nibble at a range of about $1.86 to $1.88 as it is currently right at their 1x book value, which is a great valuation to buy over the last 10 years. Again, we've been in the low interest rate environment almost for the last 8 years, so it's difficult to adjust to the new normalized valuation. FCT is also another one which almost hits their book value, so I'm most likely camping in the first round at 1.90, which is right at their book value.

I'm also likely to add my second round for FLT if it hits $0.86. I have initiated a position last week at $0.925 in what I thought to be a great long term addition to the portfolio. I'll speak more about why I buy this in my separate posts.

Someone asked me about CCT today but I doubt I like it at current valuation for now. It's still currently hovering at a rather "not cheap" valuation, relatively short lease for their office and a rather competitively low cap rates for their Singapore office. Add that together with the supply glut and you can see why they'd be in a lot of trouble in the near term.

I guess no point guessing where the market is going to go, let's see from here if we can turn that into an opportunity instead.


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