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Tuesday, December 1, 2015

Ho Bee Land - Acquisition of Prime Office Building in London

I recently updated Ho Bee Q3 results here for those who are interested in the counter.
Today, they once again made an announcement that they have made their 6th acquisition of prime office building in London. It is a freehold property named Apollo House and Lunar House located at Croydon, London and they were purchased for a total consideration of £99 million, which is equivalent to about S$210 million.
The good thing about the property is they have a long WALE lease currently let out to the British government until 2023. The current rent reflects a very low average rent of £12.50 psf, which they believe is highly reversionary once the annual rent review is done at the end of the year. This represents a net property yield of 5.35% which is set to go up over time.
The management has not provided further details about how they were going to fund the acquisition, but since internal funds are limited, most should come from borrowings. Already, they have a net gearing of 0.50x prior to this announcement. This is set to go up once the acquisition is completed. Given their ability to cover the interest coverage sufficiently, I am not yet worried about their high borrowings.
Ho Bee's strategy remains clear and it appears they are going aggressive on building up their investment properties which will now ballooned up to more than S$3 billion once the acquisition is completed. This appears to be the way going forward that they are going for more recurring income in the midst of these global slowdown.

Monday, November 30, 2015

My Strategy (Update) During This Market Downturn

I wrote an article some months back about how I was planning to utilize my warchest strategy should the market trend lower. You can view them here. Since then, the market has gone down at one point to less than 2800 and many people were scratching their heads when would be a good time to enter.
Timing the market may look easy to the common naysayers. Some would look for macro events to take place while others are simply looking for directions to take place. Either way, it almost seems that one can predict the event that things would get cheaper before they decide to nibble on the stocks they were eyeing.
In the article I wrote previously, I mentioned that cash represents a call option for investors to purchase companies at a cheaper valuation when Mr. Market misprices them occasionally. Many people shun the value of cash at face value as they tend to erode over time due to inflation so they aren't willing to hold cash for a long period of time but I look at it in a balance. Sure, it isn't cool to hold cold hard physical cash but who wouldn't want to pounce on the opportunity given when it is time to do so.
On the other side, I also wanted to talk about opportunity loss. Missing a good opportunity for an entry is to me as bad as getting an entry at the highest. This is probably the reason why scaling the purchase and understanding the company's valuation becomes all the more important because good companies will eventually rebound back in value, even though they may go lower in the shorter term due to market weakness.
I personally do not advocate myself timing and entering the market at the bottom as part of my strategy and I probably do not have clue to where is the bottom anyway, but what I do know is that over the longer term, the stocks I am holding will be one which will rise in value and support my lifestyle till the day I leave this earth. At least, I have to make sure that conviction stays true. For instance, when the market went lower at below 2800, I have used quite a portion of my warchest to take opportunity of stocks that I think has value proposition. If it goes down further, then I would activate my next batches of purchase and this will continue. The strategy is clear, so the fear of missing out is exacerbated.
There are many other bloggers who are advocating different strategy that fits their own profile. Some like consistent dividend paying companies while others have a lower threshold before they start buying in. Regardless, I think the common theme is to have a strategy in place so that you won't panic when the real war begins. When that happens, you are already prepared and the battle is won halfway.

Friday, November 27, 2015

Dividend Income Update - Q4 FY15

I am attempting to tabulate the dividend income update on a quarterly basis from now onwards since I think it provides a better visibility comparison year on year.

The purpose of doing this is really just about forcing myself to consolidate the amount of dividend income received every quarter because this will ultimately be what I am going to depend on once I reach the state of financial independence. So the progress will be an important feedback to how close I am reaching the goal.


Regular readers of my blog would know that I am a heavy proponents of cashflow and dividend investing provides the root solution for that. The reason for that is because companies which tends to pay dividends allow shareholders to reap the rewards in the form of dividends that they can use to fund their lifestyle elsewhere. Sure enough, we can argue that some companies use the retained earnings to fund for their further growth, but it really depends much on the capability of the management to ensure that growth takes place which can be difficult to sustain especially if the growth has stalled in the latter years.
Think about it this way.
Many workers look for a job that ensures the company pays sustainable salary and increments every year, benefits such as medical leave and paid vacation. The company you are working for does undergo changes depending on the macro economic conditions and there will be a time when they will face difficulties and your increments and bonus will get compromised.
It really goes the same way if you are a shareholder.
Sometimes, the dividends of the companies you are vested in gets cut or stay stagnant when companies face some challenges but over the long run, strong companies will mange to bounce back and reward their shareholders.
If the theory stays true, then why are there are so many people who are willing to work until 30 or 40 years but unwilling to stay invested for the long term in a similar ways? It definitely gives some food for thoughts in a different light.

Without further ado, these are the dividends that I have received or will receive in the 4th quarter of FY15.

CountersDividends (S$)
FraserCenterpoint Trust171.5
Silverlake Axis259.2

The total amount of dividends received for the 4th quarter amounted to $1,312.30. I used to have a traditionally strong dividend income for the 4th quarter in the past due to a couple of more reit holdings but it has since tapered off. I guess they are still a very good amount of money that I will mostly likely be using it to reinvest in the market given that there seems to be a couple of nice opportunities recently. I'll update that shortly in my next portfolio update for Dec.

Friday, November 13, 2015

Blog Leave - 14 to 30 Nov 2015

I am going to take a short 2 weeks break away from blogging as i will be traveling with my family to Thailand this time round for leisure purpose.

The market hasn't been very kind the past these days so there could be another round of opportunity for long term investors. Crises represent opportunities but please do it safely knowing your situation.

Till then :)

Thursday, November 12, 2015

Ho Bee Land Q3 FY15 - Review and Thoughts‏

There is a wave of companies reporting results traditionally in today’s busy market and I’ve got a few results to look at on my hands but let me pick Ho Bee Land for this time round.

Ho Bee Land reported a very impressive 3rd quarter net profit increase of 50.3% year on year while YTD they have managed a profit increase of 61.4% year on year. This includes a one off divestment for their industrial building they made in Jun which gives them a $6.9M gain on the book. However, if we compare them against last year, they also have a one off write back accrual which they have recognized in the 3rd quarter. So the two one-off would net off against one another for comparison purpose.
Do note that this impressive results was on the back of a decision by Mr. Chua to go via the rental income strategy given the muted outlook of the residential. None of the income came from the sale of a development property so far yet. This is important because while the company is waiting for the market cycle to recover, they are building themselves up to operate like a Reit where there are recurring income to support the company’s bottomline. They have been fast and furious in purchasing more buildings in the UK, which pushes their net gearing up to around 0.50x. It’s starting to get really high now compared to the other developers like Bukit Sembawang, CDL and Wing Tai, though evidence shows that their interest coverage ratio are still at a comfortable 6.3x.

In my earlier post, I estimated their full year EPS after these acquisitions to come in at around 10 cents. It does look like it is going to materialize. At current price, this gives them an earnings yield of around 5%.
The company does have a few launch in China and Australia which they will recognize revenue upon TOP sometime next year, so we can expect earnings to contribute positively into the book.
The company’s net asset value at $3.96 remains a huge deep value play at current price while the earnings are contributing positively into the net asset value over time.
The other thing that I am also watching out is on the provision of fair value on their development/investment properties for developers. Just yesterday, I saw UOL reporting a huge provision loss on their financial assets, not sure if this is related to their properties. There's also a couple of translation losses for companies like Stamford Land. Good thing I do not see anything for Ho Bee Land. I’ve also noticed none so far for Bukit Sembawang and City Development.

UOL Financial Statement

Final Thoughts

I like what I see as part of their evolving strategies to venture into the UK and building up recurring rental income to mitigate the poor outlook of their development properties.
The earnings yield is a tad too low for my liking, and if we compare against other overseas commercial properties reit, I think we are getting a higher earnings yield than this one. We'll have to see over time if it gets better.
This is a slow build up play where you get to buy the business and ignore the share price and over time it'll do well. But if you are expecting a firework, you may be disappointed by the development.

*Vested with 6,000 shares as of writing.

Wednesday, November 11, 2015

Vicom Q3 FY15 - Brink of Slowdown?

I am running through the Vicom quarterly results as part of my usual keeping up routine with the company.
You can view the past quarterly results I have covered here.
Vicom results have been pretty much straightforward in the past couple of years. However, there has been a couple of recent growth stocks who have gone down the path of downhill - Super Group, Sarine and Osim have all suffered similar fate recently. Will Vicom be following their footsteps?
Topline growth has finally dropped year on year and if I remember correctly, this has been the longest time ever the company has reported negative growth on their topline. The management did reiterated and gave a guidance that their non-vehicle segment would slow down so this shouldn't come as a surprise. Still, it's interesting to see how investors would react to this. It's pretty evident slowdown there at 6% negative growth.
Fortunately, the company is able to mitigate their bottomline by reducing their operating costs correspondingly to counter their topline slowdown. The most obvious reduction was in the salary related costs where the company is able to reduce by 8.1% year on year. A friend of mine who has friends working in the company told me that the staff were getting 5 months variable bonus during good time. If the source is true, I think it's good that the management did pare that down in the midst of global slowdown. I think that's prudent management set up there.
Net Profit managed to creep up slightly 3% year on year and this should be maintained in the last quarter as well I predict.

I changed my full year EPS estimate to come almost flat at 35 cents for FY2015. Dividend should remain same as previous year at 27 cents, giving investors a 4.4% yield at $6.05. Payout would also be similar at around 77%.

Final Thoughts

The problem with valuing this kind of company is people tend to value them using discounted cash flow because it is the most common method given their cashflow predictable nature. When topline growth stalls, we assume that cashflow growth stalls as well and this can have an impact to their intrinsic value as part of the valuation exercise.
The company isn't exactly cheap at this price at a forward PER of 17.3x and with global storm coming fast and fury now, we wonder if it's finally the end of the journey for this long term darling company.

*Vested with 6,000 shares as of writing.

Saturday, November 7, 2015

"Nov 15" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
China Merchant Pacific
Accordia Golf Trust
ST Engineering
Stamford Land
Ho Bee Land
Fraser Centerpoint Trust
CapitaCommercial Trust
IReit Global
Nam Lee Metals
First Reit
Silverlake Axis
Dairy Farm*
Total SGD

I am doing the update a little earlier than usual because I will be traveling with my family away on a holiday trip shortly for about 2 weeks sometime next week. It's a long awaited trip I am excited about because this will be the first time we are traveling with a kid on a plane. It'll be a well equipped experience I'm sure. I'll try as much to disconnect from the real world and the stock market, though I'll be interested to find out about how my companies are doing when they report their results next week.

The market continues its ascend towards the consolidated range of around the 3,000 point and I've seen most of my holding gaining momentum from the previous month, especially my top 3 holdings. Meanwhile, I've also accumulated a few counters for this month.

First, I accumulated another 16,000 shares of Accordia Golf Trust at a price of $0.64 to make this into my top 4 holdings. The investment thesis remains similar to what I've blogged about previously here and I remain confident on what I see in their operations in the last quarterly results. They will be reporting their updates on the results shortly and the distribution would most likely be in around December.
Second, I also took the opportunity to purchase 8,000 shares of First Reit at a price of $1.17 after the stock price plummeted due to rumors that the Lippo group were going to delist them. I wrote a detailed post on it here. Given the company's strong fundamentals, I think this would be a good candidate to own when people are generally more bearish towards its uncertainty aspect.
For all the transactions listed above, you may refer to the "recent transactions" for the details.

Nov has been another good month in terms of the overall portfolio networth.
First, net savings for the last two months of the year would be very favourable because we will be doing most of the traveling and expenses have previously been prepaid and taken care of in the earlier months. So unless any unexpected expenses cropped up, income would go straight to the investment warchest. In addition, there are also the dividends in Nov/Dec (which I will report once all numbers are in) and aws in Dec which will be a big boost for extra funds. I am quietly confident about the rest of the year aspect.
The portfolio has increased to $356,316 (+3.1% month on month; +26.8% year on year) mainly due to the much better performance from CMP and Silverlake this month and increased funds. It's another step into the right direction towards the big goal at the end of this whole thing.
The warchest has now gone down to below the 30% point and I'll be working to increase this over the next few months to where it should be. Ideally, my preference would be looking at somewhere along the 33% to 35%, but it really depends on how strong the cashflow is. My recent addition towards Reits would mean that I will have a stronger cashflow in favour of cash. That would do for now.
With job numbers coming in strongly last Friday, it does look like we are finally (FINALLY) going to see a hike in the interest rate. I still have some more rooms for reits in my portfolio, so that would be my main focus going forward. I am also eyeing on one big growth addition into the portfolio, but I'll have to see if the share price fits my preferred profile.
Thanks for reading.
How are you doing in the month of Nov? Would you be looking at any strategy changes towards the last 2 months of the year?