Friday, April 26, 2013

Review of Neratel Q1 2013 Results

Nera Telecommunications reported their Q1 2013 results under their new management team which saw their overall profits for the quarter drop below the S$6m mark.

 
 
Revenue for the quarter dropped from S$43.5m to S$36.4m due to decline in their "Telecommunication" business segment. The decline was mainly attributed to lower sales of their microwave radio equipment and Satellite equipment in the Asia Pacific and Middle-East/N. Africa markets. There was also a delay in projects related to their network infrastructure equipment that resulted in lower revenue for the quarter.
 
The good news however, is that gross margin has improved from 35.5% to 41.6% in both the "Telecommunication" and "Infocomm" business segment due to more competitive sales mix-in products and services. Operating and other admin expenses increase marginally year on year.
 
Earnings per share (EPS) has dropped from 1.79 cents to 1.62 cents this quarter.
 
  • Healthy balance sheet - If there is one thing I like about Neratel, it is because they keep their balance sheet simple and safe. The company is in the net cash position and debt free for a number of years now. Their cash equivalent and retained earnings made up almost 60% of the entire balance sheet and you can see how that they can keep up giving 4 cents dividends for the past couple of years.

  • Payment Solution business is expected to grow in the market driven by the increasing spending and transactions and government initiatives to promote cashless payment. The growth is evident with an increase of 55.2% this quarter alone.

  • Growing Myanmar story - Entry of the telecommunication infrastructure and payment solution business into the growing Myanmar market signifies growth potential for the company. This is evident just by looking at how Singtel bid aggressively for the license to operate in the Myanmar market.

  • Risks - New management team. It is interesting to see how the new management team drives the direction for the company. Personally I would have preferred that the new management focuses more on expansion into the geographical neighbouring market rather than M&A activities.

  • Risks - Increasing competition from its "Telecommunication" and "Infocomm" segment, in particular the wireless and network infrastructure.

Conclusion
It's going to be hard to see any upside to the stock at this moment. The company is going through a transition period in terms of the future direction the new management wants to set. At current closing price of 67 cents, the yield is close to 6% which looks to be sustainable given the strong balance sheet they had. Profits look to have dipped below the S$6m mark and is worrying if this trend continues in the next quarter. For your info, OSK DMG issued a report on Neratel in Feb 13 with target price of 72 cents which I think look terribly unlikely given that the optimism to project a 10% increase in profits in 2013. For investors, I would rather adopt a wait and see attitude to monitor the next few quarter results to determine whether I will go long for the stock.

I am vested with 20 lots of Neratel at the moment.

Home of Chairman of Biosensor International

Like most business travellers, Yoh-Chie Lu would stay in a hotel whenever he came to Singapore for work. Unlike other travellers, he did that for over 30 years. Finally, the chairman of heart stent-maker Biosensors International has decided he's had enough of living out of a suitcase.
 
 
"I am spending more time in Singapore and with a permanent base, my family can come visit too," he says. His wife, Kimino, and their two younger daughters, Raena and Yuka, live in the United States, and visit at Christmas. Eldest daughter, Julie, who manages her father's investments and assets, lives with him in Singapore. The family knew what kind of home they wanted to have: not a bungalow because that would require high maintenance, but "something cosy and easier to maintain that would suit our living style," says Mr Lu.
 
Whereas he would spend about three weeks each time in Singapore, now he stays for "months", spending half the year here. Their home in Singapore is a four-bedroom apartment in Nassim Road. Apart from the US, the family also has a home in Japan.
 
"At the end of the day, it is more comfortable to come home and sink into your favourite chair, instead of facing the four walls of a hotel room," says Mr Lu. Roy Teo, founder of The Mill, a group of interior design companies was brought in to turn the apartment into a home. The look is contemporary, and yet soothing.
 
Finally, the chairman of heart stent-maker Biosensors International has decided he's had enough of living out of a suitcase. "I am spending more time in Singapore and with a permanent base, my family can come visit too," he says. His wife, Kimino, and their two younger daughters, Raena and Yuka, live in the United States, and visit at Christmas. Eldest daughter, Julie, who manages her father's investments and assets, lives with him in Singapore.
The family knew what kind of home they wanted to have: not a bungalow because that would require high maintenance, but "something cosy and easier to maintain that would suit our living style," says Mr Lu. Whereas he would spend about three weeks each time in Singapore, now he stays for "months", spending half the year here. Their home in Singapore is a four-bedroom apartment in Nassim Road. Apart from the US, the family also has a home in Japan. "At the end of the day, it is more comfortable to come home and sink into your favourite chair, instead of facing the four walls of a hotel room," says Mr Lu. Roy Teo, founder of The Mill, a group of interior design companies was brought in to turn the apartment into a home. The look is contemporary, and yet soothing.
The zen garden blends well with the estate's landscaping, which was incidentally designed by Japanese landscape architect/priest Shunmyo Masuno. The bespoke ceiling lamps in the dining and living areas resemble modern Chinese lanterns. Timber sliding screens by the balcony are great for blocking out the tropical sun. Mr Teo kept the apartment's colour palette neutral so that the apartment would still look stylish many years down the road. Shades of beige, white and khaki-browns fill the rooms. Having grown up in the US, where her home is much bigger, Ms Lu was initially surprised by how small her bedroom is, made even smaller by the bay windows. To maximise the space, Mr Teo designed a table to fit over the bay window, so that the space can be used as a desk. He also designed for the side console to be lower than usual. "Somehow by making things smaller, the room looks bigger," says Ms Lu. For another bedroom, Mr Teo designed seating over the bay window, alongside a linear cupboard. The Lus reflect their background not only through their apartment but also in their choice of artworks. An installation by American artist David Datuna hangs on the wall. Part of the Viewpoints of Million series, from afar it is a picture of the American flag, but up close the installation depicts things that symbolise the US. Over on another wall, hangs a painting of Mount Fuji, by Tamako Kataoka, who is known for drawing the Japanese icon.
"The art you see is very personal. Roy told us to pick the pieces that we wanted, and he would design the apartment around them," says Mr Lu. Perhaps because the apartment is still fairly new, it looks more like a luxurious hotel suite than a home, but there are little details that prove otherwise. Mr Lu's "Tree of Life" ornaments dot the shelves around the apartment, while his collection of watches is on display in the study. Then there is his pride and joy - a pair of Steinway speakers in the living room. The avid audiophile enjoys listening to classical music and jazz.
 
"Not so much pop, but I like the occasional Jason Mraz," he says. His two other homes also have quality audio systems, and he adds that he no longer needs to go to concerts. "I always carry my music with me" says Mr Lu. "At the end of the day, I can enjoy the music the way I like, something that I cannot do in a hotel room."
 
Source: Business Times
 
Now we know why Biosensor is reluctant to issue dividends :D
 

Wednesday, April 24, 2013

Sembcorp Industries AGM - 25.04.13

This is my 1st attendance for the Sembcorp Ind AGM which was held at the 30 Hill Street. As part of my experience, I will try to summarize and recap what has been discussed during the questions and answers section so that fellow investors who missed the AGM can keep up with the update.



I arrived at the place quite early around 30 minutes ahead of the scheduled time. As expected, there were not many people yet in the room so I went to register, grab my annual report and the voting call and picked a good spot to sit down. Not long after, there is an uncle who came and sat in front of me and so we began exchanging talks about the company, even to the extent of comparing Keppel with Sembcorp.



At 11am sharp, Mr. Tang Kin Fei (Group CEO) commenced the AGM by summarising the results for the year 2012. As we began the first resolution, there were many questions raised from the shareholders to the Chairman, CEO and the Board of Directors.
 
The first question asked was from an ahpek shareholder. He grinned about why the screen was placed at the side and not at the center and that he could not see properly after being directed to sit in the middle. He also gave feedback about how Capitalmallasia (CMA) gave a better handout than Sembcorp. Finally, he asked why price for Sembcorp has been trading sideways in recent months and whether it is due to the miserable dividends they gave out (i.e 15 cents/share). All the Chairman and CEO did was to nod their head in agreement. A very light start as usual!!!
 
Then some serious questions began when the uncle beside me started asking regarding the competitiveness of the energy market and how it will dampen the profits margin for Sembcorp in the future. The Chairman responded by saying that they have been in the business for many years. Any energy prices that are set are not in relation to what the other competitors are setting. The supply and demand are what that determines the price but nevertheless they are confident that the energy market will stay strong in the next couple of years.
 
The next question was from another shareholder who asked regarding the intangible asset which has either been depreciated or amortised. The question was not exactly very clear to the Chairman but all he responded was that they are in accordance to amortising it in respect with the FRS guidelines.
 
Next it was my turn to ask. My first question was pertaining to the increase in the impairment losses for trade receivables on Notes 9 of the Financial Statement. The group CFO took over to respond to this by saying that the increase was marginal given the corresponding increase to its revenue so nothing much to worry about. He gave the assurance to the shareholder that risk management is taken care of. I wasn't too impressed with the answer given as it increases quite a bit in my opinion from S$19m in 2011 to S$26m in 2012. Nevertheless, I didn't pursue it any further.
 
My second question was relating to the dividend payout policy (~35%) which if compared to fellow conglomerates like Keppel (~40% payout) or ST Eng (~90% payout), is a little on the low side. I asked the Chairman if they would consider increasing the payout ratio at some time in the future when its utilities business hit a maturity stage eventually. The Chairman responded by saying that such comparison should not be made, even with the likes of Keppel as Sembcorp is operating at a much different business nature than the others. For now, what Sembcorp will do with the earnings is to use them to grow their utilities business aggresively, like the utilities in Oman and a few other projects scheduled for completions at the end of 2013. This is done to ensure that the utilities business will earn higher recurring income which will then provide greater shareholders' return.
 
My final question was pertaining to the overall business directions for Sembcorp in the future. I asked that since its utilities business has now grown to a stage where it is able to generate sufficient and sustainable cashflow on its own to pay dividends to its shareholders, would they consider either reducing their stake in the marine business (like what Keppel Corp did with its K-Reits through dividend-in-specie) or would they consider spinning off its utilities business as a trust separately in the future. The Chairman responded by saying that the company will spin off its utilities business as a trust eventually but not sure when. It could be in a matter of 5 to 7 years or longer. As for reducing its stake in the marine business, it has no plans currently at the moment.
 
A few other questions were raised by other shareholders before we proceed with the rest of the resolutions. After we finish, we proceed out to grab our lunch box :). It was around 12.45 by then and everyone were feeling hungry. I took the lunch box and went sweet home after that.




I own 2 lots of Sembcorp as of this writing.

P.s: I can't help but think that Uncle CW is there too. Uncle CW, were you there?

ST Engineering AGM - 24.04.2013

This is my 2nd consecutive year attending the ST Engineering AGM as a shareholder. This year, it was held at the Amara hotel which I thought was quite uncomfortable and not spacious enough as compared to last year which was held at One Marina Boulevard.

 
 
Shareholders or appointed proxies who attended this year's AGM were given a S$15 NTUC voucher, which I think is a whole lot better than a lunch buffet. Anyway, tea and coffee beverages were available to the shareholders and one uncle actually asked me where I get my sugar!!! :D







Anyway, the Chairman (Mr. Peter Seah) started off the speech by thanking the crowd for coming and making his intention to step down as Chairman with effect on 25 April 2013. He thanked the shareholder for the support he has received as Chairman of ST Engineering and wish the shareholder to keep faith in ST Engineering in the years to come.
 
When it was time to pass the 1st resolution which was the audited financial statement related, a few questions came up from the crowd. One of the questions was relating to the impairment losses for bad debt in Notes 22 of the Audited Annual Report. Based on the report, allowance for bad debt increases year on year and this raises a concern for the aforementioned shareholder. Mr. Tan Pheng Hock (President and CEO) responded to this query by stating a fraud case in one of their business which resulted in the increase in the impairment losses for 2012. Mr. Tan also assured shareholders that this is a one off case and careful risk management is taken to ensure shareholders' return.
 
Another question came up (which I have suspected) from another shareholder regarding the purchase of Neratel. The question was why did ST Eng not pursue Neratel further after the initial offer which was rejected. Being both ST Eng and Neratel shareholder myself, this certainly interests me. Mr. Tan responded to his query by saying that every business has a value and if the business does not meet the company's criteria, they would simply walk away. Mr. Tan added by saying that they were previously very interested in one of Neratel's business segment which would help their infocomm business but given the price they are now, they are overvalued and the company would not pursue the acquisition any further. Mr. Tan ended by saying that any acquisitions ST Eng made needs to meet the company's criteria. Otherwise, they will simply walk away from it.

The rest of the questions were revolving around the order backlog, community involvement and others which I thought was ordinary and nothing special to take note of. I was actually quite surprised no one actually inquire about the huge drop in ST Eng price this morning, which has rebounded since. It almost gave me a personal shock.

I am vested with 1 lot of ST Engineering as of this writing.

My Portfolio

Disclaimer: The above writing was based on my personal experience attending the AGM and interpretations and it may differ depending on how others interpret.

Friday, April 19, 2013

Are you having investment savings fatigue?

Savings is a form of accumulation of wealth.
 
This is especially true when you are in the stage of accumulation. The higher your savings rate are, the higher your ability to put those funds into investment and get higher returns thereafter.
 
I've had a fairly solid savings rate since I started my investment portfolio in 2010. Since then, I have utilised them resourcefully to build up my arsenal of solid dividend payers. These include shares in Reits which give a consistent cashflow to my portfolio as well as similar dividend blue-chip grandmaster like Singtel, SPH, ST Eng and SIA Eng which give very decent yields. As my portfolio has grown over the last couple of years, I noticed the result is becoming more and more dependent upon the performance of the stock market. If the market does well, my portfolio would grow at a faster rate and if the market turns bearish, the opposite would occur. Over time, it will grow to a point where it will depend much lesser on the elements that are within my control. So how do folks keep up with the motivation of maintaining their savings habit then?
 
I spoke to a few seasoned investors who are using a different metric to gauge their performance over time. Based on their response, it seems that they are not keeping track too much of their capital gains or losses. To them, unrealised gains or losses mean nothing to them, as long as the company fundamentals remain strong and dividends continue growing - that's what they are more interested in. When they invest their savings of $10k, they are seeing S$500 of extra income annually or S$40/month. This is where they get their motivation in savings. It is always going to earn them extra income annually.
 
How do you keep up with your investment savings habit? How do you deal with investment savings fatique?
 
You're most welcome to share.
 

Monday, April 15, 2013

A Story of two hypothetical Starhub Investors

John and Sam are twin brothers who had the same habit of savings when they were young.
 
 
 
Both of them had always been interested in investing and so they looked around the stock market and they tried to purchase a stock that has the greatest probability of producing the highest underlying profits, without any major sell off risk 10-20 years from now.
 
The two brothers decided to purchase Starhub at different times of the year in 2008. John gets the lowest price possible while Sam gets the highest price possible during the year. John bought Starhub on 8 Dec 2008 at S$1.76/lot while Sam bought Starhub on 14 Apr 2008 at S$3.10/lot.
 
John invested S$100,000 of his life savings and managed to purchase 57 lots (rounded to the nearest) of Starhub while Sam who invested the same amount managed to get 33 lots (rounded to the nearest). Over the subsequent years, they managed to reap the benefit of dividend investing and both brothers managed to receive the steady dividend returns from Starhub.
 
Fast forward to 15 April 2013, John who managed to purchase the stock at the lower price, managed to receive S$48,450 worth of dividends and a capital gain of S$151,050. Sam, on the other hand, managed to receive S$33,000 worth of dividends and a capital gain of S$43,230.
 
The only reason why John collected S$15,450 worth of extra cash dividends and extra capital gain of S$107,820 is because he paid the stock at S$1.76/lot while Sam paid more at S$3.10/lot. John is able to use the extra receipts of these income to buy gifts, spend on vacations or simply reinvesting the dividends into his portfolio. The longer the time period that passed, and the better the business did, the larger this differential became in absolute dollars.
 
Note that the two brothers owned the exact same business, the same rights, the same management and the same brand. The only difference is that each paid a different price for their ownership stake.
 
With markets fairly priced in now, ask yourself... Would you rather be John or Sam?

Saturday, April 13, 2013

How much money is enough?

How much money is enough, and what will I do with myself when I get there?
 
This question is just as challenging for multimillionaires as it is for dollar-a-day farmers. The dilemma is tantalizingly similar for both.
 
For the one-acre farmer whose family now has enough to eat for the whole year because they have increased their income to three dollars a day, the question is what's next? Do they keep increasing their income from farming, or focus on educating their kids, stabilizing their income, and living a happy rural life?
 
For the multimillionaire, the question is what's next?
 
Do they keep making deals and growing their income just like they have been, or take advantage of their economic freedom to make a passionate commitment to write a great novel, make the world a better place, or pursue some other dream?
 
Small farmers who live on less than a dollar a day often have surprisingly big dreams. A one-acre farmer in Himachal Pradesh, India had just gone deeply into hock to build a small greenhouse where he had started growing carnations and roses for the Delhi market. His eyes widened as we talked about what he could do with low cost drip irrigation. After we finished our tea, he asked for my card. Eight months later, he sent me an email from his newly acquired Apple computer connected to the internet. He told me his business was growing fast, and he would continue growing it.
 
When you start out below the survival line, enough money means access to food, shelter, and clothing. But how far should poor people go beyond that? How much is enough?
 
At the other end of the spectrum, Bill Gates and Warren Buffett, with $53 billion and $47 billion respectively, have decided to give their money away. Why give it away? Because it gives meaning to their lives, and because the marginal value of wealth beyond a certain amount becomes trivial.
I have several friends who have accumulated millions of dollars from a variety of enterprises, and I ask each of them the same thing.
 
"What's your number?"
 
"What do you mean? They ask.
 
"Your number is the amount of money you and your family needs to live comfortably." For example, if you need $100,000 a year, and expect to earn 5 percent each year on your assets, your number is $2 million. Once you've reached your number, you can start doing whatever you've always dreamt of doing all your life."
 
"What is it that you've always dreamt of doing?"
This is where it gets to the hard part. They may very well say
 
"That's interesting. But I like doing deals, so I think I'll keep doing it"
 
"That's fine" I say, but some people dream all their life that if they don't need to be a working stiff any more, they dream of writing the next great novel, or becoming a professional scuba diver, or a minister, or a philanthropist, or an actress. What's your dream?"
 
That's when we get into a really interesting discussion. Because a deep exploration about living the next dream often turns out to be the most challenging, upsetting and happily transformative things they have ever done.
 
What if you dream of writing the next great novel, and once you have time to do it you find you really can't write worth a lick? Sadly, a great many just pass on the creative struggle of learning about their deeper gifts and dreams, and just keep on doing what they've been doing all along without thinking about it too much.
 
I have no doubt that the greatest peace and satisfaction comes to people who become passionately committed to something.
 
Warren Buffett's passion and commitment is to continue making money to hand over to Bill Gates, whose passion and commitment is to make the world a better place through the Gates Foundation. Mark Zuckerberg, the founder of Facebook, announced in 2010 that he will donate $100 million toward improving public schools in Newark, New Jersey.
 
What's your passion and commitment for the years you have left?

Source:huffington post

Wednesday, April 10, 2013

"Apr 13" - SG Transactions & Portfolio Update"


 Counters
No. of Lots
Average Price (SGD)
Total Value (SGD) based on average price
Market Price (SGD)
Total Value (SGD) based on market price
Total Dividends collected (SGD) since purchase
FraserCenter Point Trust
12
1.69
20,280.00
2.15
25,800.00
1,185.00
SPH
4
4.09
16,360.00
4.65
18,600.00
0.00
SIA Engineering
3
4.12
12,360.00
4.87
14,610.00
210.00
First Reit
11
0.89
9,840.00
1.29
14,190.00
519.00
Neratel
20
0.46
9,200.00
0.665
13,300.00
400.00
Ascott Reit
8
1.29
10,320.00
1.415
11,320.00
386.00
SembCorp Ind
2
5.44
10,880.00
5.03
10,060.00
0.00
Boustead
6
0.92
5,500.00
1.395
8,370.00
140.00
PLife Reit
3
1.85
5,550.00
2.64
7,920.00
556.00
STX OSV
6
1.245
7,470.00
1.225
7,350.00
0.00
Ascendas Hosp. Trust
7
0.89
6,250.00
1.01
7,070.00
63.00
Second Chance
17
0.43
7,210.00
0.415
7,055.00
456.00
CWT
4
1.43
5,730.00
1.52
6,080.00
0.00
ST Engineering
1
2.82
2,820.00
4.35
4,350.00
1,240.00
YZJ
4
0.96
3,830.00
0.95
3,800.00
0.00
Singtel
1
3.09
3,090.00
3.64
3,640.00
316.00
QAF
3
0.71
2,135.00
0.95
2,850.00
20.00
Noble
2
1.12
2,240.00
1.18
2,360.00
0.00
Total SGD
 
 
141,065.00
 
168,725.00
5,491.00

Market has turned soft recently after a strong run-up to the Q1 2013. Having said that, we have seen that whenever market has a small mild correction, it quickly moves back up due to hot money flowing as people are waiting for a correction as an opportunity to enter.

I have added further grounds to STX OSV and YZJ in the month of Apr. Valuations for both stocks are still compelling in my opinion based on the single digit earnings multiple. Even though forward earnings are expected to drop significantly, it is still cheap compared to its fellow peers in the same industry.

This coming weeks is going to be the earnings season. Market is expected to be more volatile than the usual months. I have saved a few bullets for any upcoming opportunity, notably the opportunity in Sembcorp Industries. The stock looks like it will hit $4.7-$4.8 range after it goes ex-dividend shortly.

I have used this opportunity to also liquidate all my US holdings as Dow and S&P hits a record high. Valuations for the stocks in my holdings look rich and it is a good time to take off profits off the table at some point.

What about you?   How is your portfolio doing in the month of April?

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