Sunday, July 23, 2017

Running Your Own Finances Like How Companies Are Run

I always feel the way we folks run our own finances are similar in nature to how we tend to prospect companies for our investment.

It has to be correlated in that manner, we get to improve on one thing and that thing opens up the door for another perspective. It has a compounding double win situation.

There are many people in our circle group of friends that are struggling to live on paycheck to paycheck. They used these income that they've earned to pay off expenses like their mortgage, car loans, education and basic necessities like utilities and telco expenses.

There are nothing wrong with that of course. All of us had to start somewhere one way or another. It only becomes a problem when you start depending onto it for prolonged period of time and taking it a holy grail to run your lives.

How is this translating into the way businesses are being run by management you may ask. In businesses, the most important part is about making a profit at the end of the day (and positive cashflow). They can have increasing sales revenue every year but they have to maintain a lower amount of expenses in order to maintain a profit. 

A good business should also maintain their balance sheet healthy. That means having sufficient cash in their book for any emergency funds. They also need to have a good cashflow and think about diversifying their revenue in case something crops up and they are not able to depend on that customer anymore.

Living and heavily depending on our paycheck is just like a company with a major customer concentration. We put our mind and souls to work for it all our lives and tend to project our expenses in trajectory according to how our income increases. Higher bonus translates to more luxury and expensive travels for most cases. But there are very few people that build contingency into their plans, either by diversifying their income stream or having an emergency funds to project a worst case scenario. 

What if that major customer suddenly starts to struggle? If this is run as a business, they will be soon go out of the business, especially when companies start restructuring and you become the unlucky victim to get hit by the tsunami.

By thinking about running our finances the way our own companies that we are working are being run, we should be able to structure our finances better than what we've been doing all along.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Wednesday, July 19, 2017

"Jul 17" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Fraser Logistic Trust
Capitamall Trust
Fraser Comm Trust
CDL Hospitality Trust
First Reit
Total SGD

I was going to write on my Jul portfolio a bit later after I've concluded my application for the CDL Hospitality Rights but as I will be going for my HK holiday next week, I'll have to update it this week.

The portfolio has been impacted much this month as a result of poor performance from Comfort and M1 in particular and this is even more so considering STI has finally break its curse to go onto its 52 weeks high. Still, I'm not overly concerned as yet.

I have accumulated more on Comfortdelgro on several occasions. This has now become my biggest position to date with 55,000 shares at an average price of $2.40. Taxi fleets idling rate are increasing, competition rising up and the media keeps hyping about it, so I think there is already a bit of evasion from the general public. I'd just wait this out until I've analyzed a few more quarters and their plans ahead.

I have also applied for my entitlement of 12,000 shares of CDL Hospitality Trust at $1.28 which I blogged over here. In addition, I have also applied for 12,000 excess shares which is currently pending the status. I doubt I can get more than 2,000 if any.

This month, I have also initiated a new position in Katrina which I have written over here. I am hoping the opening of the new stores will bear fruits from this year onwards which would translate into positive bottomline. Margins is still always a concern.

I have also added my position in M1 at $1.92 which I thought was a strong double bottom after they announce their results and the lapse of their strategic review. My initial take was to divest off the position but seeing the tragic panic that sent its shares down so much this morning, I have quickly recomputed their valuation based on EV/EBITDA and I thought it was decent at 7.2x ($1.92 x 930,057 + 350,000 + 76,600 - 6,100) / (152,400 x 2). Plus, from a technical view, it was a strong support, hence I have added them. For the longer term, I'd have to admit that I might have to rethink twice about it and analyse my options and alternatives. Debt will increase over time due to higher capex and earnings will probably not yet see a bottom due to falling ARPU, so these are some of the consideration that I have to think about.

I have also traded Jadason which I entered at $0.097 and exited at $0.123 for 100,000 shareholding. I was alerted by a fellow blogger and bought the shares right before the company was about to break out. I think it's a relatively decent small gain.

I also trade long positions for Capitacommercial Trust which I bought at $1.65 and have sold it at $1.72 after the release of their results today. This was meant to be a short term trading plan so follow system and execute.

On the Netlink Trust, I have ended up not applying for the IPO as I almost ran out of cash, so I'd give it a miss this time round first.

For all the transactions in detail, you can refer to the Transaction Page.

Net Worth Portfolio

The portfolio has dropped from the previous month of $610,142 to $608,501 this month (-0.1% month on month; +40.4% year on year).

I think given the huge turbulence in Comfortdelgro and M1 so far based on what we've seen in the market, I was expecting it to rock the portfolio quite a bit. I think it is doing relatively fine so far so I won't get worried quite yet at this point.

Next month it'll be a huge one as dividend season is approaching, and I can't wait to add that into the warchest.

Stay safe till then and enjoy the bull.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Tuesday, July 18, 2017

Cost Budgeting For Our Thailand Trip In Dec 17

I've finally managed to finalize the big chunk portion of our Thailand trip later in Dec this year with flights and accommodation costs secured.

Our family have been a huge fan of venturing various parts of Thailand since we have our children since it's pretty near to where we are. In the first year, we went to visit BKK and Huahin and in the second year, we visited BKK and Krabi. It was such a memorable experience for us and the kids that we wanted to go back there again.

This time round, we'll be venturing BKK and Phuket.

We'll be traveling with our two children, 3+ and 6 months, and we'll be bringing our domestic helper and nanny as well to the trip, so that'll makes it 6 of us including myself and my wife. This also helps to waive the foreign levy when they were out overseas for a period of 7 days or more during the traveling period.

Life's a Total Beach!


Like some of the other bloggers like Kevin, I've been on a project miles accumulation since about a year ago. My wife charges all of her business expenses to this card and being overseas meant that we get double the miles we are entitled to. Just over a year now and we've accumulated slightly above 160k miles so far, which we would be hoarding for the larger trips when my kids get older.

We managed to book via Jetstar for our trip this time to SIN-BKK and PHU-SIN. We compared the prices across the budget airlines and also the timing of the departure and arrival and felt this was the best case of all for value. It wasn't easy traveling when you have two young toddlers with you around and we've got to accommodate that.

We are also going during the school holidays, so there wasn't any steal deals in particular.

It was also funny that the booking a seat for the infant (less than 2 years old) was actually cheaper than tagging the infant to my seat. So we proceeded to book a seat for our infant. We had funny experience about this in the past, where you've got to remind the admin to issue an infant ticket during the check-in process.

Our flights amounted to $1,262.67 for the 6 of us on this one.

In addition, we also managed to secure a Thai Airways flight in our interim flight from BKK-PHU for THB 10,000 (~$407).

Total flight costs $1,669.67.


For accommodation, since we are traveling in a relatively large group, we needed to avoid the traditional hotel rooms where it can only fit 2 or 3 people max.

This time round, we managed to book our accommodation via an airbnb. I've get to know this young lady who's kindly willing to offer a 3 nights complimentary stay for a return on reviewing her apartment after we stayed. I agreed to such deal since it managed to save us $388 worth of accommodation stay at BKK.

The apartment is also located at the Pratunam area so it'll be easy for us to move around. Most importantly, it has 2 queen beds which can fit the 6 of us nicely and we can also cook in the house.

Airbnb Apartment Near Pratunam

For our accommodation stay at Phuket, we managed to book a family suite at the Holiday Inn Patong for 2 nights for THB12,107.40 (~SGD 493). This was booked straight from the hotel website itself after we found out that it offered a discount if we booked direct instead of through a booking website agent.

Connecting Room for the kids... There's another room for the adults

We also booked another suite room at the 5-star Avista Hideway Sofitel which was going for like a crazy discount at one of the booking website, For 2 nights stay, it'll costs us $521 which I thought was quite a good deal considering it costs $800 to $1k on usual days.

Our total accommodation for the 7 nights sums up to about $1,014.

Food & Shopping & Transportation

We are not planning to do any major shopping and food galore since we've been across so this should more thrifty for the section. Still, because we have two young kids, we have to settle for a cleaner food condition and that means decent restaurants most of the time.

The other only thing we are planning is to revisit the zoo and safari again in BKK, to bring both my children to see the animals.

We figured out about SGD80 x 7 = $560 would be more than a comfortable range on this one.


We expect to spend about $3,200 during our trip this time and we haven't been able to cut down much on our travel since we had our kids (and helper) with us.

Most of the costs from that amount have been amortized and prepaid, so the good news is we've accounted for those expenses which has hit us, past tense.

Still, I think we'll had fun and that's about one of the most important thing for us.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Saturday, July 15, 2017

Guest Post by CK - Insight Into The Real Estate Industry - Part 2

This is a continuation post from our guest writer CK, who has kindly contribute on some of the insights from his real estate experience. If you missed the first part, you can view them here.

Here we go.

Doing a follow up post on the first post as B rightfully asked how does Oxley managed to sell more properties than others. Some background was provided on my first post whereby the floor area for Suites@Bradell ranged from 387 to 893 sqft.

I would say Oxley earned their first buck for being able to react to market demand for shoebox apartment which is a trend that began around when Oxley’s founder started the property development business in 2006. Some interesting snippets below:

“Mr Ching left the police force in 1993 after completing his study bond because the job did not pay very well, he recalls. He tried his hand in business, going from being a subcontractor doing sewerage washing and water tank cleaning for HDB, to a turfing contractor for football fields, a tour agent, a coffee shop mixed-vegetable rice seller, an otah supplier, a construction builder, and eventually a property developer in 2006.

His break came in 2007 when his bet on "shoebox" condominiums (units smaller than 500 square feet) paid off, starting with the 48-unit Tyrwhitt 139 project which sold within three hours.

But it was not a road without potholes. He took out a mortgage on his home to buy the plot of land, and the night before the launch, the anxiety of losing everything if the project flopped caused him to wake up in the middle of the night and throw up.”

History: In 2008, having been in the property and construction industry for more than 10 years, Oxley's founder Mr Ching Chiat Kwong observed a growing demand for affordable private residential properties amongst young working adults, who desired a modern and vibrant lifestyle. By then, he had successfully developed and launched more than 13 property development projects in Singapore, all of which were fully sold within three months of their respective launches. In mid-2009, Mr Ching, together with current Deputy CEO , Mr Eric Low See Ching and substantial shareholder Mr Tee Wee Sien, decided to jointly-develop properties. This would allow them to take advantage of the economies of scale in undertaking property development businesses, and to share financial resources and expertise.” Source: 

“Oxley Holdings Chief Ching Chiat Kwong has defended shoebox apartments, following a comment by CapitaLand’s CEO Liew Mun Leong that such units are ‘almost inhuman’.

“Tell me what is more inhuman? Giving a young person an opportunity to buy an affordable first apartment in a good location, or making people cough up S$1,700 psf for a 99-year leasehold residential unit in the suburbs or HDB townships?"


As evident above, Oxley’s founder rise is nothing short of amazing, from a policeman to entrepreneurs of all trades and finally hitting his gold mine at property development. As his 13 property developments were all fully sold within 3 months of launch, one could only imagine the returns generated. But this cannot be achieved without a foresight to see the “shoebox” trend and also the guts to even mortgage his house to buy land for development.

As we can see the comments made by former Capitaland CEO is reflective of the advantage of being a small developer as Oxley is able to venture into a niche market whereby the big boys are shunning. 

The last point I would like to highlight is that from 2006 to about 2014 saw a ‘bull run’ in Singapore property price index, not forgetting 2009 which saw a ‘V shape recovery’. Being in the property development business in a bull cycle obviously benefits the developer as by the time the property is ready for launch the land price would have already appreciated in value.

Somehow, Oxley did not seem to suffer from any ramification on a slowing property market in Singapore which plagued several developers over the last 2 to 3 years as they made their last land acquisition in Singapore at around 2012.

Interestingly, after about 5 years of absence from the local property scene, Oxley is back in recent months with 2 land acquisition at Pasir Panjang and East Coast. Seems like the Oxley is betting on a housing recovery for Singapore.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Thursday, July 13, 2017

Recent Action - Katrina Group

The recent continuous drop of the Katrina Group from its high since its listing a year ago has alerted me so I went to do a bit of due diligence looking for potential entry opportunity.

The volume for this company is usually low, so it was difficult for me to load up a sizeable position in the company. I had to take several days/weeks to do so and I think I loaded this overall over a total of 6 sessions for 210,000 shares, at an average price of about $0.196. This was lower than the IPO offering which was at $0.21 just a year ago.

I don't think the company needed much introduction any further. They are known as an operator of various brands and restaurants that serve mainly casual dining. Some of its brands include the commonly known Bali Thai, So Pho, Streats, Hutong, Honguo. I've eaten most of them myself and it's pretty decent.

The company currently operates 33 (+4 halal) restaurants in Singapore and 2 restaurants in the PRC area.

Katrina's financials was impressive during the IPO prospectus, and this is what that propels investors to flock in into the company during the listing.

Topline is still growing as the company's intention is to grow their market share and increase the number of outlet restaurants in the region. The latest news is they have partnered with Ajisen Group in a Joint Venture to grow the So Pho brand in China and HK. I think we should continue to see topline increasing aggressively in the next few years. GP Margin however, is one that we need to look out for and make sure it doesn't deteriorate much further.

This financial model differentiation is also somewhat different from the rest of the other competitors like Tunglok, Japan Food in the sense that the cost of sales for Katrina represents not only the cost materials but also the payroll cost of the restaurant employees, the lease rentals and other support costs. The latter are usually presented in the other overhead section. If we take based on the previous year breakdown, the split for the ingredients, salaries, and rentals are 24.5%m 35.7% and 27.3% respectively. The rest of the 12.5% goes to other expenses.

The company faces increasing operating costs and start-up IPO costs during the year, as they need to hire more manpower and administrative costs in promoting their online ordering platform thus send its overhead up, as well as its net profits. There are the one-time IPO costs of $0.9m (the other $0.5m is capitalized against the share capital) and also the remuneration rewards to the management which increases the costs. In addition, the company also incurred higher depreciating costs due to the renovation and improvement to their premises which is a non-cashflow items.

Net Profit margin for Katrina is in line with the rest of the competitors.

What I like about the company is its cash flow generating ability, and we can see that with its dividend payout policy at 60%, the company will be able to use the retained earnings of 40% and its existing cash (no debt) to further expand into the region. Already, we see them expanding into 4 more halal restaurants at Bedok mall, Westmall, Vivo City and Marina One. They plan to triple the number of outlets to 90 by 2019 which I think is rather ambitious. I'd rather they go slower and create more efficiency economies of scale along the way.

The company has also established the online ordering platform in 2016 which is now available to order via Foodpanda and Ubereats. This has raked up $2.4m in sales so far and trend to continue over the next few years. Through this online orders, the revenue growth from this channel has been equivalent to adding two new outlets at a much higher margins.

With the net proceeds from the IPO still available majority for expansion, and the company has no debt position, we should see them engaging in more M&A news and grow more outlet in the next 1 to 2 years, and this should translate into higher earnings and bottomline at the end of the day.

There are plenty of risks in F&B business and I think it needed no further introduction. Risks such as the increasing rentals, and employee benefits continue to increase in our glory days and the barrier to entry is usually low for such business.

From valuations view, F&B tends to trade at the higher range of between 16x to 19x earnings, and you can see why the share price of Katrina has crashed down since they have a very poor EPS in 2016. My thesis play is for them to grow on year on year in 2017 which will bring its earnings higher and thus will re-rate the valuations for the stock.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Tuesday, July 11, 2017

Guest Post by CK - Insight Into The Real Estate Industry

I have the privilege of recently exchanging views with CK, who is currently a financial controller at a real estate company. He has relevant real estate experience gained from his previous background as a senior manager at one of the big 4 accounting firm which I'm sure we can learn something from.

I'm not going to do the usual interview of asking him generic questions about investing. Instead, I have asked him to share one of the many learning points in the real estate industry which will benefit us as readers, and to give specific example to illustrate his case.

Here we go and over to CK.

Guest Post

The intention of my sharing is very much align with B (i.e. to share thoughts on investment) and hopefully through this process enable fellow readers gain a better understanding on the real estate industry. Similar to B, my background is in the real estate industry and am currently a financial controller in the listed reits company in sgx. Previously, I was also the senior manager in one of the big 4 accounting firm.

Real estate development business is a popular business venture for a number of companies, from the traditional developers: Far East, UOL, Capitaland and Fraser Centrepoint to the “converts” which are usually from companies that operate in related businesses such as construction: Chip Eng Seng and Low Keng Huat. It is also not hard to find companies which operate in industry that has little relevance to the real estate business such as previously listed Popular to dabbled into the property development business.

Why the popularity? 

This sharing is intended to be in a series of bite size sharing with each post highlighting one key characteristic on real estate business. So we'll move on with batches.

The context of the analysis will be primarily focus on the Singapore real estate market and in this post I will use Oxley Holdings Limited as a case study - Quick sales cycle and potentially high return on equity

Personally, I would attribute the attractiveness to a property development business to the quick sales cycle and the potentially high return on equity. I highlight below one of the development project which Oxley Limited undertook, Suites@Bradell extracted from the 2011 annual report. 

Take note on the time between the site acquisition date and and launch date of 8 months and by 15 August 2011, the development is almost fully sold. The ability to execute a quick sales cycle on 97% of the development of less than one year after site acquisition as illustrated above translates to an attractive return on equity as Oxley will be entitled to receive the down payment of 20% on the sales price from the the buyer upon execution of the sales and purchase agreement.

Hence, the the likelihood is that Oxley has already recoup its equity invested (on the presumption land loan and construction loan was drawn down) on the development project by August 2011 as costs incurred till then would likely be incurred mainly for the downpayment of the land, the construction of the showflat as well as marketing expenses.

The remaining 80% outstanding (i.e. from date of August 2011 to date of TOP) will be paid to Oxley as the construction of the development progresses till completion. The proceeds received will then be use to fund the remaining construction of the development as well as paying off the interest on the loan drawn down. Do note the recovery on the outstanding payment is almost assured given the stable environment in Singapore and more importantly because the initial 20% downpayment would have been forfeited if the buyer is unable to service the progress payment.

Hence, the key takeaway on the above is that not all debts are bad debts and traditional debt to equity metrics might throw off a lot of investors from investing in real estate companies as they would view the high leverage ratio as risky. In this case, a better measure would be the percentage of sales of the development project which the Company undertook and expected margin on the project which would provide assurance to the investors that the Company has the ability to repay loan drawn down as the progress payment is received from customers with excess being translated to profit for the Company.

For the record, Suites@Bradell was completed on 5 June 2015 and the 33 residential apartments has a floor area of between 387 to 893 sqft.

CK is not vested in Oxley.

I'd like to thank CK once again for his invaluable sharing and we'll definitely see him share more about the real estate industry in the near future as a series batch.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Thursday, July 6, 2017

Recent Action - CDL Hospitality Trust

This is a continued trilogy event for CDL Hospitality Trust which I have previously wrote here and here.

Today, I managed to divest the majority of my mother share for 50,000 shares at $1.62 in the open market. This is after the shares have went ex-rights on Monday, so I am pretty surprised at their strong performance in the market today.

The divestment yields me a decent 28% gains (inclusive of dividends) for a period of about 6 months. This has been my top position since the start of the year and I am fortunate to be holding it as this is the top performing Reits in 2017 from the hospitality comeback.

The original share price was $1.68 before they announced the acquisitions and the rights issue that day. The TERP works out to be at [(1.68 x 997,728,705) + (1.28 x 199,545,741)] / (997,728,705 + 199,545,741) = $1.61

The share price then went on a few turbulence as the market absorbs the news and fall to last Friday closing at $1.655.

Based on the last Friday closing of $1.655, the revised TERP is [(1.655 x 997,728,705) + (1.28 x 199,545,741)] / (997,728,705 + 199,545,741) = $1.5925.

Today, the mother share price has went up to $1.62, which I took the chance to divest at this point. This is equivalent to about $1.70 before the announcement of the rights and the enlarged base.

Projected yield is at around 5.8% yield based on current development which I deemed it as fair to slightly expensive if we are talking about Hospitality Reits in general.

Part of the other reason is I am reallocating this capital to build up a much larger position in Comfortdelgro and M1 - my favorite contrarian play and get into the action when everyone else is avoiding them like a plague.

The share price should also see some more turbulence during the nil paid rights session starting next Monday as people starts to arbitrage on it.

*Still Vested with 10,000 mother shares, and entitled to 12,000 renouncable rights

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Wednesday, July 5, 2017

Investor Exchange 2017 - Your Firepower Guide To Investing

BIGScribe will be hosting their biggest event this year by partnering up with 7 well known and proven capable speakers at the Investors Exchange 2017. 

This event will be huge because it is a big crowd and there are various topics which will be covered by each individual, so it isn’t like we are only focusing about one part of the investing aspect. 

If you are those who loves Reits and dividend investing, there will be topics that cover that quite in depth by my fellow good friend, Chris from Tree of Prosperity and Kenny

If you are those who loves the quantitative method of valuing equities, you would also be able to learn the methodology of doing so. I have personally been a fan of reading Teh Hooi Leng book of “Show Me The Money” series and some of her methods in picking equities have proven to return very well. 

Joel is also a professional equities broker who has been trading professionally for a number of years. If you are interested in the ways to frame your mindset on how to handle trades, he will show you systematically how you can do that. 

Another friend which I am acquainted is Elvin Liang, who will be speaking about ways to scuttlebutt into things and management when looking at companies. I am sure his experience of sharing would be invaluable. 

It is a pity that I am unable to make to the event as I will be on a holiday overseas but this will definitely be a punch-packed event which will leave you with lots of financial literacy to learn from at the end of the day.

Last I heard tickets are selling fast and it is almost the last 10 seats left. Grab yours now.


Tuesday, July 4, 2017

The Delusional Positioning of A Bubble Forming

A bubble formation is technically speaking a concept in the market where more and more people are entering and participating in a phenomenon that gets bigger.

It started all the way from the first few batches that enter into the phenomenon and made extraordinary gains from sitting in a pot of gold, then made into the headline news in the media so more people can join in the party. This phenomenon made such a huge amount of gains in a short amount of time such that it will look stupid on people who doesn't participate in it.

Everyone congratulates one another and that's when the "wealth effect" starts coming in, a concept which my fellow blogger STE just wrote it here. Essentially, it is a prelude that when the value of the assets you are holding increases in price and you are sitting on a comfortable gains, this security about wealth is being translated into spending higher because earning money is that... simple.

Charles Mackay, one of the famous journalist who wrote on the book "Extraordinary Popular Delusions and The Madness of Crowds" states that bubble spotting isn't as simple as it appears. As investors, you should always guard against the popular assertions made by high profile analysts or pundits that claim they can detect bubbles and exit before the bubble bursts.

Take a look from one of the excerpts from the everly popular figure Jim Rogers on his claims on the market each year.

The point he is making might be right in theory but for as long as the bubble is still forming and the party still lasts, it will live to see another day.

We've seen the US market expanding for 9 consecutive years since the great financial crisis and valuations are within top 3 highest since the Great Depression in 1929. We've also seen byptocurrency like Bitcoin and Etherium gaining exponentially upwards since the last couple of years. The delusional positioning in this instance is to avoid totally and wait for the crash to happen or participate in the momentum and make your way out before the party is over.

There isn't a definite answer to this and only with hindsight we can tell our children how easy it is to predict and see that happening.

The great value investor Benjamin Graham once mentioned that investors should always look to portfolio balancing as a measure to his or her own psychological play on the market. He added that investors should never have less than 25% or more than 75% of their money in an equity market. The room for that error of +-25% top and bottom is to account for the investor's own judgement when the market level has become increasingly dangerous or opportunist. But because no one can ever predict anything so accurately, you shouldn't go one extreme and do a 100% or 0% binomial decision.

Now, as investors, have you worked out a perfect plan for yourself?

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.

Saturday, July 1, 2017

Netlink NBN Trust IPO - The Fibre of Smart Nation

Singtel has filed a preliminary prospectus to list one of its associates, Netlink NBN Trust to list on the Singapore Exchange. They were given a deadline by the IMDA to spin off their infrastructure division but still held 24.99% unitholding of the Trust after the offering.

There is a book-building process which will determine the offering price between the range of $0.80 (minimum) to $0.93 (maximum).

This will be huge because we are talking about a potential market cap size of between $3,091.2m (based on minimum offering price) to $3,593.5m (based on maximum offering price).

Business Overview

The Trust Group's nationwide network is the foundation of the Next Gen NBN, over which ultra-high-speed internet access is delivered throughout the island of Singapore.

MPA believes that ultra-high-speed fibre broadband has become a necessity and is the foundation of the pyramid to the many services moving into the next Smart-Nation phase.

The Trust designs, builds, owns and operates the passive fibre network infrastructure for nationwide coverage. The principal services provided by the Trust Group includes fibre-end network, broadband and other ancillary services.

The Trust will have 3 main market segments to focus on: i.) Residential end-user connections; ii.) Non-residential end-user connections; and iii.) NBAP connections.

The operations of the roll-out was initiated back in 2009 through OpenNet, which most of us are more familiar with. Back then, the company received financial assistance funding from the government to roll out the next GEN network of building a ultra-high-speed connection network islandwide.

Business Moats

The Trust Group's primary customers are Requesting Licensees, which made up of several players such as Singtel, M1, Starhub, MyRepublic, who in turn provide fibre services to Retail Service Providers (RSP), which in turn provide retail fibre services to residential and non-residential end users.

This is a concept of a Business to Business to Consumer (B2B2C) model.

As the services are undertaken by the RSPs, and not the Trust, competition among the the RSP does not impact the number of connections that the Trust provides. To the extent that the RSP reduces prices because of competitive reasons, it might actually lead to a higher number of fibre connections request from end-users. Either way, the Trust has a monopoly moat in this case.

The provision of services provided to the RSP however, are mostly regulated by the IMDA. In fact, 94% of the overall revenue are regulated by the IMDA, hence it is very difficult to increase prices even if they want to.

Financials (Revenues)

Currently, the Trust Group's network is the only fibre network with nationwide residential coverage in Singapore.

As at latest Mar 2017, there were approximately 1.1m residential end-user connections supported by the Trust's network., which represents 76.3% of all residential premises in Singapore. This is the bulk of where their revenue came from, which made up 61.3% of the overall revenue in 2017. This isn't the installation portion, so this should be recurring in nature.

MPA projected the fibre subscription to grow at 6.5% over the next 5 years so we should see similar traction of growth too in their topline subsequently.

The non-residential connections is currently a small portion of the overall revenue at 7% in 2017, but you can already see the trajectory exponential increase from the past 3 years.

MPA has forecasted a higher growth at 9.9% for this segment over the next 5 years, citing the Trust's extensive network presence of reaching out to the outside core industries and companies as its competitive advantage.

A big part of the Smart Nation program initiatives is to provide deployment of network sensors and island wide applications such as security devices, surveillance cameras and through the extensive bandwidth network of the Trust, there will be a huge roll-out plan to install the Non-Building Access Points (NBAP) connections by providing similar services to the RSPs which in turn roll-out the HetNet and 5G services to end-users.

The Non-Building Access Points (NBAP) is currently a small percentage of its overall revenue at marginally 0.2%, but this is slated to grow almost double every year at 86.2% CAGR over the next 5 years and possibly beyond.

Financials (Capex)

The nature of such business model usually involves lots of capex requirements.

Consequently, future capex is largely limited to network maintenance (maintenance capex) and network expansion (growth capex) to cover additional residential homes, non-residential homes and NBAP. The good thing about this model being regulated by the IMDA is that they would ensure that pricing wise the Trust is able to generate a satisfactory IRR from the growth capex they are investing in. In the eyes of the shareholders, I think that's one of a huge unknown factor being taken care of. You don't usually find deals like that.

A higher portion of the capex will be expected to incur in the next 2 years.

For 2018 and 2019, the forecasted capex is estimated to be at $250m and $86m respectively, which translates to about 112.8% and 25.3% of total revenue respectively.

A large portion of the forecasted capex below is expected to be non-recurring in nature. This includes:

i.) The increase fibre capacity in the network (growth capex);
ii.) The planned acquisition of additional ducts from Singtel (growth capex);
iii.) The expansion of new co-location rooms in Central office (non-growth and admin capex);
iv.) The enhancement of security measures in Central office (non-growth and admin capex);
v.) Implementation of IT Project (non-growth and admin capex)

If I break it down, the growth capex that shareholders are hoping to ride on for their internal returns are at $164m ($142.7m + $51.4m - $30m) and $36m ($5m + $61m - $30m) for 2018 and 2019 respectively.

The non-growth admin portion of the capex are at $46m ($56m - $10m) and $11m ($21m - $10m) for 2018 and 2019 respectively.

Excluding the non-recurring capex, the Trust expects maintenance capex to be in the range of $40m to $60m.

The management intends to fund these capex for 2018 and 2019 through the use of its bank loan facility, thus it is almost certain that we will see gearing goes up much more for the next 2 years until they are able to fund their maintenance capex from the operations cash flow after 2019.

Gearing is expected to increase from the current Debt/EBITDA ratio of 2.3x to 3.0x and 3.2x for 2018 and 2019 financials before getting better.


Revenues is expected to dip in 2018 before growing from 2019 onwards, and with such expected huge capex in 2018, the financials for 2018, whether in terms of earnings, cashflow or balance sheet will all look like crap for them.

EPS is expected to be at an estimated 1.14 cents and 1.70 cents for 2018 and 2019 respectively, which would translate into an earnings yield of only 1.2% (PER 81x) and 1.8% (PER 54.7x).

We can't exactly use earnings yield to gauge their valuation because depreciation takes up most of the expenses and they are non-cash in nature, so cashflow methodology or gauging them by the Enterprise value methodology would be more appropriate.

Free Cash flow for 2018 will be in the state of horrible, because you have a decreasing revenue and an extremely high capex which will be funded through by a debt facility, but after that, we are looking at a potential decently looking free cash flow for the years beyond. Assuming we take Bruce Greenwald's theory of using depreciation at 1.5x the maintenance capex, we should be looking at depreciation costs of around $60m to $90m to be added back into the cash flow every year. Hence, assuming there isn't any growth capex to be taken into account, we could be looking at a FCF of about $55m + $60m - $40m = $75m each year. Based on a loan facility of $507m + $210m = $717m, we could be looking at around 10 years for them to repay all the loans they have on their book.

The market cap depending on the book building exercise will be in the range of $3,091m to $3,594m. Adding debt of $507m + $210m loan facility less cash of $140m, we could be looking at an forward enterprise range of between $3,668m to $4,171m. Assuming forward conservative EBITDA at around $55m + $150m = $205m, this would translate into a forward EV/EBITDA valuation range of between 17.8x to 20.3x. This is not cheap considering the higher range of telcos valuation (for example Singtel) are typically at around 14x, which gives Singtel a good opportunity to cash out in the near term. Other infrastructure trusts such as KIT are valued at 15x and HPH at 18x.

Final Thoughts

I like the business model and I think it is a no brainer this sort of model would not come in cheap.

Their model is highly regulated and is a barrier to entry for many other smaller competitors so they are almost acting as a monopoly, similar to what Vicom is right now. The good thing about it is IMDA will ensure the company will not lose out on what they have invested in their growth capex so thats a big plus.

Growth potential is evident in my opinion, with the government initiative moving towards a clear path of Smart Nation, and valuation will only get more expensive as it will be re-rated even upwards.

In terms of dividend yield, it provides a decent 5% thereabout for a stable play while riding onto the growth segment of their many focus areas. The only thing shareholders will have to be patience is to ride this out for a few years because the next year results won't be good and if we add that to a big bear market, we might see investors cashing out in panic mode.

I think it's a yes for me on this one.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here.