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Friday, September 27, 2013

"Cash-Rich" Companies listed in SGX

During the last FOMC meeting, the FED has announced that no tapering of Quantitative Easing (QE) will be done. Suddenly, investors rejoice and the party continues to run on steroids. People are looking once more to enter on risky assets or companies with high leverage to maximize their returns while the FED is sustaining the amount of steroids. But should investors look to the defensive and start looking for companies with strong balance sheet to rebalance their portfolio instead?



We used to hear that "Cash is King". But strangely cash rich companies are usually not that popular to retail investors. These are the type of companies that usually pays out lesser dividends, smaller payout (compared with other aggressive companies) and use little or no leverage to increase their business. The stacked cash rich companies are seen by investors as one which the management does not know how to utilize on growing its business, which is why they prefer to keep cash in fixed short term deposits earning small interest income. But what if their Return on Assets (RoA) and Return on Equity (RoE) are already above average, even without the need for further financial leverage. Is it not desirable to keep cash in the balance sheet so when asset prices falls, they are able to take on the advantage on the situation? Well, different investors different thinking... and there are no right or wrong answers. But here are a few of the companies I have found that have a strong cash backing stacked in their balance sheet.

Boustead














Challenger














Neratel














Shengsiong














SIA Engineering














Supergroup














Vicom














What do you think of these cash-rich companies?


Thursday, September 26, 2013

The Chronological Way of Looking at Dividend Income

So you're all set, geared up and ready to set out on your financial freedom journey. Or you might already been there halfway like myself. Wherever you are in your journey, you might already earned your own first pie of your dividend income. Different people have different ways of looking and utilizing their dividend income. So how do you look at your dividends income that you've received?



As a mean of "Expenses" coverage

If you are an investor who just started like myself, you would have found out that the amount of dividends income you've received are not big enough to sustain a family living expenses such as traveling but enough to pay off your daily expenses such as food, utilities or entertainment expenses. When I started my journey for instance, I would usually use the dividends received to cover my daily or weekly food expenses. As my dividend income grows, the coverage would expand to utilities and some other entertainment expenses. Now, it can cover a wider range of expenses such as luxury food meals, transportation and so on.

As a mean of "Part-time" income

Some investors may also look at their dividends income as an extra income in addition to their monthly active income from their work. The dividends income are like a part-time worker that helps you earn side earnings while you focus on your full-time job during the day. However, as time goes by, you might realize that your part-time earnings may seem to be an easier and better way to earn than your full-time job. This is where you started to feel despair and restless in your day job, especially if the job is one that you feel does not suit you.

As a mean of "Full-time" income

As the clock ticks away, you will feel that your body starts to get weary down from your day job and you find yourself unable to work longer than the amount you used to work in the past. At this stage, your dividends income will slowly become your full-time income while you age and will eventually have to step down to earn lesser earnings than you used to in the past. This is a great idea especially if your dividends income at this stage has surpassed your active income. It is a choice that you and only you have and can make. Your new full-time income will now be able to listen to all your commands and cover any expenses you incurred. By this time, you would have successfully reached the tunnel of financial freedom.

So how do you look at the dividends income you've received? Which stage are you at right now?

Wednesday, September 18, 2013

"Sep 13" - SG Transactions & Portfolio Update"


 No.
 Counters
No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FraserCenter Point Trust
26
1.84
47,840.00
23.0%
2.
Vicom
6
4.91
29,460.00
14.0%
3.
SPH
6
4.10
24,600.00
12.0%
4.
FraserCommercial Trust
14
1.23
17,220.00
8.0%
5.
Neratel
20
0.74
14,800.00
7.0%
6.
First Reit
13
1.055
13,715.00
6.0%
7.
Ascott Reit
9
1.215
10,935.00
5.0%
8.
SembCorp Ind
2
5.07
10,140.00
5.0%
9.
SIA Engineering
2
4.84
  9,680.00
5.0%
10.
Boustead
7
1.35
  9,450.00
5.0%
11.
China Merchant Pacific
8
0.86
  6,880.00
3.0%
12.
Ascendas Hosp. Trust
7
0.785
  5,495.00
3.0%
13.
Second Chance
13
0.46
  5,980.00
3.0%
14.
Noble
4
0.94
  3,760.00
2.0%
15.
CDL H.Trust
1
1.58
  1,580.00
1.0%

Total SGD


211,535.00
 100.00%

The portfolio has gone up over 10% this month from the last (Aug 13 Portfolio) due to the utilization of warchest and general market increase this month. It is also the first time I breached the $200K mark in my portfolio.

It is a busy month for me as I step up to utilize my warchest to purchase stocks which I deemed was fair valuation to enter and luckily enough for me, I managed to get some of them right at their lowest price (at least for the month).

One example is CDL Hospitality Trust. I managed to get them at their lowest price of $1.505 which yields over 7.3% on the cost price. I blogged them previously at (Recent Action - CDL Hospitality Trust).

I also managed to accumulate 2nd Chance in time before they issued a positive profit guidance which sends the shares up a few cents.

Lastly, I also added SIA Engineering back into my portfolio at their lowest price of the month at $4.61 before the general market increase overall. The stock is currently closed at $4.84. I blogged them previously at (Recent Action - SIA Engineering).

With all the recent purchases this month, I am now about 93% invested and 7% approximately on warchest for investment. The next couple of months will see cashflow coming in from the rounds of dividends and AWS Bonus which will push my warchest up to the 15% level. Until then, we'll see what the FED is going to do, how the market is going to react, and how investors will make adjustment to their portfolio. Stay safe.




Sunday, September 15, 2013

Jardine Cycle & Carriage - Is valuations getting attractive? - Part 2

We know that much of Jardine's C&C earnings are dependent almost entirely on how Astra would perform as their earnings contributed 93% of Jardine's earnings. The other 7% or so would go to the "Other Motor Interests" business they have with Singapore, Malaysia and Vietnam. Therefore, any adverse changes in the political, social, economic and forex situation in Indonesia would have a material impact on Astra's financial performance, which in turn will have a significant impact on Jardine's earnings and assets. For the purpose of the analysis, I will concentrate on the Astra segment of the business and ignore the "Other Motor Interest" segment.


Segment (2012)USD in mm 
Astra20,039.293.0%
Other Motor Interests1,501.97.0%
Total21,541.1100.0%

Indonesia's Economy and Growth Risk

First, we take a look at how the Indonesian growth has performed over the past few years. A quick glance we will see that 6% is probably the marginal mean line of how the country has performed in the past 5 years or so. Even during the 2008 GFC crisis, we still see growth in the country of around 4+% which I think is impressive for an emerging market. We can see that the trend for 2013 and 2014 are coming down off slightly to less than 6%. This is probably due to money flowing out from the emerging market as well as the election period which we see every 4 years.We'll probably hit a growth figure similar to the year 2010 in the next 2 years.



Foreign Currency Risk

Since a big segment of the company's earnings is dependent on its overseas business, we know that foreign currency risk is one that investor has to watch out for. For the earnings, the company has used an exchange rate of USD1: IDR9,419 in 2012 (In 2011, USD1 : IDR8,773). So much sensitivity risk is around such that if the Rupiah depreciates by 10% against the major currencies such as the USD, with all other variables remaining constant, earnings for the Group would have been USD5.3M lower. The Rupiah has to date depreciated to around USD1: IDR11,410, which is almost a 15% drop from 2012.


Astra: Taking a deeper look

Astra's segments consists of Automotive, Financial Services, Heavy Equipment and Mining, Agribusiness, Infrastructure and Logistics and Information Technology. Here is how they breakdown in terms Astra's revenue for 2012:


SegmentRevenue (IDR) in mm% Allocation 
Automotive100,979,000.052.9%
Financial Services12,857,000.06.7%
Heavy Equipment and Mining55,954,000.029.3%
Agribusiness11,564,000.06.1%
Infrastructure and Logistic7,425,000.03.9%
Information Technology2,064,000.01.1%
Total190,843,000.0100.0%

SegmentGross Profit (IDR) in mm
Automotive11,536,000.0
Financial Services7,847,000.0
Heavy Equipment and Mining10,521,000.0
Agribusiness4,357,000.0
Infrastructure and Logistic1,887,000.0
Information Technology577,000.0



From the above, it is obvious that the automotive segment of the business is the key contributor to Astra's earnings, contributing more than half the revenue as others. In the past 5 years, the automotive segment has a good growth of over 25% (with exception to 2009 where they had negative growth). It is also obvious that the margins for the business is the lowest among the others, closing in on 11% margins as compared to the others, down from 14% in 2011. For Astra to perform, just feel like the automotive segment has to improve on its margins and it is hard to see that happening in recent economy times.

First, the economy growth in Indonesia seem to be going slightly down in the face of the upcoming election. We see how the automotive segment was hit during the GFC even though Indonesia registered an 4+% growth back then. Secondly, the recent 33% hike in the fuel prices will dampen auto sales even further. Third, with the government recently increasing key interest rates to 7.25 percent in anticipating of rising inflation, it may prompt the automotive business to either report lower margins or having to pass on the increasing costs to consumers. This however, will bring positive news to its financial services segment. 

Conclusion

There are so many headwinds right now, across on and off the emerging markets. Locally, Indonesia's market are always more volatile when elections are looming and facing a potential depreciation in its currency, the government will have to adjust its fiscal policy to increase its interest basis points which will disadvantage the consumer.

Astra share price has dropped from the 52 week high of IDR 8,300 to a recent low of IDR 5,100. It is somewhat similar to Jardine's price who has dropped from the high of $56 to a low of $31. Both Astra and Jardine have been trading below their average P/E multiples already and there seems yet more headwinds to come. But once the issue is blown over, I feel like this is a stock that we can look out for. But for now, the risks are pretty much there on the table.



Saturday, September 14, 2013

Jardine Cycle & Carriage - Is valuations getting attractive?

Jardine Cycle & Carriage is one of the leading bluechip Singapore listed company and a member of the Jardine Matheson Group. It has an interest of over 50% in Astra, a premier listed Indonesian conglomerate, as well as other motor interests in SEA.




This is a company which has yields over ROE > 20% in the past 5 years and a nice dividend yield of about 3.9% at current price. EPS for FY2012 has dropped about 4.2% from previous year because of weakening Rupiah while forward EPS are expected to drop further by 8% in FY2013 (again because of weakening Rupiah). The question remains on whether valuation is attractive now as price has fallen from the 52 week high of $56.00 to a recent 52 week low of $31.50. As Rupiah continues to weaken, price could falls further and this could be a good grab at below $30.00. The statistics are also pointing in favor of Jardine as they are currently below at least 1 SD below their historical averages mean.






I have not taken a hard close look at their businesses and cashflow but first impression it does look one to watch for. Unfortunately, the price seem to be beyond my reach at the moment (imagine having to fork out $30K for 1 lot). If SGX can come out with reducing lots rule sooner, I may just consider this to my portfolio.

Thursday, September 12, 2013

How am I coping with my expenses after marriage life?

Many people said that marriage is a burden to expenses. I wouldn't exactly deny that but I wouldn't want to avoid marriage too for that reason. It is true that when two people got married, it seems that even though your spouse is also earning income (which adds up to your overall household income), the expenses seem to go up exponentially faster than the overall income combined. So how did I fare in coping with my expenses after marriage?



First of all, I was only married in June this year. Since the month of Jun and July were mostly spend on honeymoon and transitioning, both myself and wife only start keeping track for the expenses from Aug onwards. So without further adue, this is how we have fared in Aug:


August 2013
Food$858
Transportation$187
Utilities$215
Entertainment$112
Miscellaneous$63
Total$1,435

Food
People who know me would know that my wife and I are crazy food eaters and that we often post them on Facebook and Instagam. We like to try different types of food and atmosphere almost every weekends and we usually ended up spending much on food, which I think is fine. We usually spend little during our normal working days as we mostly ended up eating hawkers with our colleagues which costs very minimal. Overall, this segment usually represents more than 60% of the total expenses we incurred and it is not surprising to see why.

Transportation
We live easy on transportation as we don't own a car and only take public transportation such as buses and trains. At times, we would splurge a little to take cab to and fro if it is necessary but at the moment, we don't spend on this too much. A few of my friends who own a car in Singapore can easily spend almost close to $800 on this segment per month. This is usually the biggest expense differentiation between a car owner and a non-car owner.

Utilities
Utilities are a straight forward expense. It includes our telephone bills, internet as well as cable TV. Just on this month, I have managed to cut this segment down by canceling some of the channel which I hardly watch. I think I will be able to reduce this segment of the expenses down further in the coming months.

Entertainment
Our entertainment category makes up only movies. At times, we would like to splurge on concerts but because of the high demand we usually are unable to get the tickets. We love to travel as well but we don't seem to do so as much as the others due to certain restrictions we have as a couple right now. We don't drink, smoke and go clubbing - which is why our entertainment expenses are one of the lowest among all the other friends I know. Yes, a tequila shot can easily costs you $12 in just one gulp.

Miscellaneous
Miscellaneous expenses are usually an one-off and go expense. It consists of stuff like giving angpao or buying stationeries and are usually non-recurring. We would usually categorize buying clothes under this segment as well but it's mostly my wife who would buy. I still have my brand new clothes which I have not worn since my honeymoon in Japan ;)

Conclusion
There are people who have said that we spent too little and called us a misery. There are another group of people who thinks that we've managed expenses well and called us a thrifty couple. Either way, I think it does not matter. What I wanted to highlight was that we managed to keep the expenses in check every month without overspending our targeted budget. Sure, in some months there will be times when we would spend huge and we would let it run if it is a mandatory expenses like relatives wedding for example. But overall, we've managed to keep the outflow tight and still being able to live very comfortably with what we spend on food, entertainment and other things.

I have always believed that saving habit goes a long way in life that you can pass on to your children in the future. With a good saving habit and proper return on your investment, your children would inherit a good start to their lives, which they would then continue to pass on to the next generation after generation. The key starts from now.

Wednesday, September 11, 2013

Recent Actions - SIA Engineering

SIA Engineering has been one of my personal favorite and a darling company for many investors which has seen its dividends grow from 16 cents to 18 cents, 20 cents, 21 cents and finally 22 cents in the past 5 years. The management has also returned shareholders value well with ROE > 20% in the past 5 years.



I last sold the shares at a price of $5.01 in Jun (before it went ex-dividend) and I bought them back today at a price of $4.61 to add to my portfolio. So why did I decide to buy them back at this price?

A quick look on its recent results for Q1 FY13 may left investors with somewhat disappointments. A company who is seen by investors to have resilient core earnings have reported dipped topline results. Revenue and Operating Profit have dropped quite a bit, by 3.7% and 19.5% respectively compared to previous year. Though the company is still capable of generating FCF through their operating cashflow income and dividends from its shared associates and JV, I bet not many are expecting an increase dividends this year.

But the key behind SIA Engineering success which many had overlooked has been its profits with its associates (Pratt & Whitney) and JV (Rolls Royce*). Profits on Shared Associates and JV companies have turned on a strong performance in Q1 FY13, recording a strong 14% YoY growth compared to previous year. This has helped to mitigate the underperformance of its fleet management revenue and profits. Depending on the growth level of the JV business, this could be the key to unlock values for SIAENG for its recurring maintenance business with potential carriers such as Airasia, Malaysia Airline, Thai Airways and Virgin Atlantic.

*Singapore Aero Engine Services Pte - a joint venture between SIA Engineering, Rolls-Royce Holdings Plc and Hongkong Aero Engine Services Ltd.

At my cost price of $4.61, it represents a dividend yield of 4.8% at a payout ratio of almost 90%. I am expecting an increased profits and dividends from its associated and JV in years to come, which I think will be key to unlocking further shareholders value. I also hope the efforts from the government to build Changi Terminal 4 and 5 by 2020 will also materialise which will boost up the airline and tourism industry. Valuations is rather fair in terms of its Price to Earnings multiple, which is currently closing in between 17-19x. As always, I rather buy a great company at a fair price than a fair company at a great price. For SIA Engineering, I think I have added a solid blue chip company to my portfolio.






Friday, September 6, 2013

Recent Action - CDL Hospitality Trusts

Hospitality sectors have been under huge pressure from the markets in recent months and it is easy to see that from the graphs. On YTD, the shares for CDL Hospitality Trusts have fallen from a 52 week high of $2.12 to today's 52 week low of $1.50. I managed to load them today at $1.505.


I think the selling in recent months has been quite overdone. We understand that fwd earnings are expected to be lower, but I personally don't expect it to drop a lot. I think EPS will remain slightly lower at $0.11 cents compared to $0.12 last year but it certainly does not justify the huge drop in its price. 


At $1.505, it currently yields on 7.3% forward earnings. I think that's a pretty nice cyclical play on the hospitality sector, not to mention that the Singapore government is focusing strongly on tourism. This sector would be a nice play on rebounds for sure once it happens. For the moment, I'll sit back, collect the dividends and accumulate on further weakness.


What do you think of the hospitality sector? Has the selling been overdone in recent months?

Wednesday, September 4, 2013

Is Monopoly the best board game to teach "Money" basic to your kids?

When I was young, we were always taught to win. To win at something, it means that your opponents will have to lose. It is for that very reason why everytime we finish playing "Monopoly" board games with our friends or relatives, we don't feel good about it - even as we finish the game as a winner.



Monopoly is a game created for a zero-sum game. That means that in order to win the game, the others will have to lose. And you have to make the other party succumb to bankruptcy to the very end in order for the person to lose. Though some may argue that's what actually happens in real life, it's just too cruel for the kids especially when they should be learning good moral practice in life.

Derk Solko, a co-founder of the Boardgamegeek commented:

"“Monopoly has you grinding your opponents into dust. It’s a very negative experience. It’s all about cackling when your opponent lands on your space and you get to take all their money. Gouging and exploiting may be perfect for humiliating your siblings, but they’re not so great for relaxing with friends.”

So what type of Board game out there is more suitable and is able to teach simple money basic to your kids?


The "Game of Life" is a one of those board game known to be popular among family and friends. The game basically simulates a person's life covering from colleges to retirement, with jobs, struggle, disappointments, taxes and marriages along the way. Like Monopoly, it gives the same realistic journey throughout one's life but the good thing is that the players are able to help each other throughout then journey when one is facing trouble. So we can have the best of both worlds and end up finishing the game as winners. For me, it's good and definitely one which I would want to teach my kids when I have them. Not sure how will that appeal to kids who wants to emerge as sole winner in the game or society.


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