Friday, December 8, 2017

"Dec 17" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Fraser Logistic Trust
Ho Bee Land
ST Engineering


We are finally at our final month of the year.

I also did some window dressing to the portfolio going into 2018, knowing that I will be busy in the month of Dec. In fact, I was just back from work traveling this week and will be flying again for holiday next week, so I think this will be my last portfolio update for the year before I round it up with my overall xirr portfolio return updates after I come back from my holiday.

From portfolio movement, you can see that I trimmed away some of the companies such as FEO, Straco and Sabana Reit out of the portfolio after their recent financial results which does not meet my expectations.

For Straco, the untimely cut in their visitors arrival due to limit on their Xiamen Aquarium means that growth expectations will need to be reconsidered again. There are still expectations about Straco M&A some time in the future but I decide to allocate the funds elsewhere.

For Sabana, their recent strategic announcement news meant that I would need to reconsider the thesis, especially nos that they are restructuring the organization with new management and faces so I have also decided to allocate my funds elsewhere. 

I added more Ho Bee Land into the portfolio as I believe this is still a nice sector play which has not been fully appreciated by the market yet. Going into the commercial sector up cycle, I think Ho Bee will benefit massively for the next few years, and with more cash in their hands, I think another acquisition in the UK is on the table. 

I also added ST Engineering after they had secured a record contract which would almost secure an EPS for this year and next of about 16 cents. Given their pattern of paying out almost 90%, a 15 cents dividend would translate into near 4.7% on this company, which I think is decent enough for my grade equity bonds. 

I also added more Comfortdelgro after they plunged into recent 52 weeks low. This is a company which I am still comfortable with its value and proposition so it's a slow add for me as they get cheaper.

There was news about its strategic acquisition with Uber for the LCR stake on their rental business. Collaboration like this usually benefits the incumbent party more but without further detailed information, it will be difficult to distill if this is a good collaboration. On the surface however, it appears that it will result in more bookings for the Comfort driver since users are now able to book using Uberapps which means more revenues for drivers.

The portfolio ended the year with $613,516 which is down from the previous month. I've been struggling to keep up with the trend since the beginning of the second half of this year and the stagnant movement of the portfolio has mostly sum up the whole situation. 

In terms of cashflow,  I was able to add more to my position as I received my AWS this month and savings rate continues to be strong as I continued to allocate them into some companies that I believe in.

In my next update,  I will break down my overall 2017 xirr performance in detail with specific breakdown of the profits and losses in the company that I own and the lessons that I've learnt out of it from this year.

Happy holidays!  

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Monday, December 4, 2017

Bringing Accountancy To Life

I know that we are all finance geeks when it comes to life hence it may be easier to look at it the philosophical way when it comes to it.

Life on the other hand is a bit more fragile and often people questions the existence of decision that has an impact in our lives.

This is the Balance Sheet of Your Life.

The day you were born is the day you IPO-ed yourself to the public. While you may own the majority of ownership in yourself, often we are shaped by how the public would view and vote for us. There would be decisions that you would have to depend on others to make for you and you just have to accept it regardless of the decision.

The day you die is the day you get delisted from the public offering of the stock market. The goal here is to accumulate ownership (experience) from the day you were born to the day you leave the earth. There are ample time to do that, so make the buyback counts.

Your ideas are considered an asset while your bad habits will become your liabilities. What goes in is a debit to your assets and what comes out is a credit to your liabilities. Your character will shape out over time due to experiences accumulated, so over time it is clear if you become an asset cow company or one with net debts when you die.

You will get plenty of noise everyday in your life. These are the temptations that will increase your liabilities over time if they are handled improperly. But by now I assume you already know that.

Your happiness and sorrows are your Profit and Loss. They tend to be more volatile than your balance sheet as our emotions undergoes a steer of emotions everyday and are tested vigorously each time they meet a situation. Over time, as you accumulate more happiness, part of it will be retained and go back to your assets, ensuring you live a "rich" life while you are still alive.

Your knowledge is an investment to your assets. They build up over time and compound to such levels that it will raise a bar level to your own game.

Love is your dividend while children are your bonus-issue. They do not change the fundamental and foundation of your life but they have a tremendous impact to strengthen it.

Your age is your depreciation. Time waits for no one regardless you are working, sleeping, accumulating experience or just drunk wasted in the back alley of your bar. Everyone gets depreciated on a straight line basis across a new standard GAAP of between 70-90 years. No exception.

Every year, it is important that you engage an auditor, preferably the big 4 auditor firm, to look at your financial statement. They are slightly more expensive but they can give you an open and critical feedback on how you can improve. These are your friends and families.

If you are a little frugal in nature and want to reduce these expenses, the new IFRS standard allows that you be your own internal auditor and we trust that you would be compliant to the standard through proper self reflection.

You are your own management to your life.

You have control on how you would like to lead or shape them, and to go beyond to influence the people around you.

A good company gets recognized over time from the public and the share price would eventually follows the performance.

A good life gives you the edge.

Now, start building up your balance sheet the proper way.

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Friday, November 24, 2017

Sabana Reit - Update On Strategic Review

I wrote on Sabana just a couple of days ago (Link Here) and wanted to update on their latest announcement.

The update on the strategic review is finally out on Friday morning.

This explains why the share price has been sliding down in the past couple of weeks since they announced their Q3 results, perhaps there are insiders who already knew about the news.

I wanted to summarize the update in a nutshell to give us fellow investors some train of thoughts on what we need to do with this.

1.) Talks with ESR Reits have ended.

This is probably the most concerning news for investors if you are buying on the thesis of a successful review.

We'll probably never know the real reason behind this but it appears neither ESR nor Vibrant Group can reach out to a conclusion on this.

It'll remain to be seen if ESR will reduce its substantial stake in Sabana after this outcome.

2.) Selective Divestment of Properties

The management decides to go via this route of selective divestment of assets that they have.

This route is obviously a lot slower and more difficult, but they'd be able to be selective on the non-performing asset that they want to divest.

After a successful divestment earlier in the year for 218 Pandan Loop for 13.8% premium to the book value of the property, the company now has 20 properties under their radar.

Already, they have identified 6 Woodland Loop as their next selected divestment of choice as they have moved this into the short term property held for divestment in their balance sheet. This property amounted to $12.2m, which would translate into 1.1 cents which would either go into the working capital, repayment of loans, or returned back to the shareholders.

Given that they used the earlier divestment of 218 Pandan Loop to reduce much of their gearing, I suspect they may return the proceeds back to shareholders for this one.

3.) Expiring Master Lease Extended

They have managed to successfully renewed the expiring master leases for the 3 Sponsor linked properties (51 Penjuru, 33&35 Penjuru and 18 Gul Drive) on a one year term for an aggregate rental of about $8.8m. This is about what they are getting in terms of the rentals right now.

4.) Step Up Search for new Management and Appoint New ID

With the unsuccessful talks with ESR, this means it is business back to usual and they will need to search for a new CEO after Kevin will leave at the end of this year.

They have also appointed more Independent Directors to replace the old few who has resigned and it seems after the history saga, we may see a clean state of new board members in the company for 2018.

Final Thought

I think given that the news is out public, we may potentially see an overhang in the share price in the short term.

There are obviously people like me who buys into this on the thesis of hoping the strategic review that will work out in favor and there are another group of people who are buying this for dividend purpose.

I think valuation of the company at 0.76x P/BV and a near 8% dividend yield is about rather fair for such industrial sectors. The key for this really if you are holding for longer term is to hope for the new management to rebuild the trust of the public back and increase the value of the shareholders by doing their job well. It's not all done and dusted of course and we need to give them time to prove their worth over time. So this can be a successful investment pending this outcome.

To divest or keep, it depends on your objective ultimately on why you are buying this company in the first place.

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Wednesday, November 22, 2017

Recent Action - Sabana Reit

The recent downtrend of the company puts me into the buying radar zone and I managed to purchase 230,000 shares of the company today at a share price of $0.415.

This purchase immediately made this into my top 3 holdings.

You might have recalled that earlier in the year I managed to purchase this at a lower discount at 34 cents (Link Here) when there is still all the ongoing saga about the revolt of the management, and since then a lot of things have happened.

This is a special play situation.

My main thesis of buying into this stems from the fact that E-Shang Redwood (ESR) has now emerged into a substantial shareholder with more than 5% stake.

And of course I think valuation came to an attractive level too.

Do note that ESR currently holds 80% stake in the formerly known Cambridge Industrial Trust and Warburg (largest shareholder of ESR) has a plan to grow and consolidate their industrial properties into one, most notable injection into the currently known ESR Reit.

While the strategic review is still ongoing and we are kept waiting for the outcome, I feel the recent downtrend of the share price presents a solid opportunity for investors to enter.

First, the current price represents a 33% discount to the nav of 56 cents (based on latest quarterly results). Given that ESR is a substantial shareholder for both Sabana and ESR Reit, the buyout would be considered a related party transactions. In order for that to take place under the arm's length agreement which is usually a lot more stringent, the buyout would have to minimally be offered at least to the nav price. That to me tilts the rewards highly in the favor of those who are vested at this valuation.

If there are anything to add, the last divestment of the properties they made at 218 Pandan Loop was transacted at 13.8% higher than the book value of the properties. 

Second, the fact that ESR holds a substantial shareholder stake in Sabana is also a strategic move for the fact that they are able to call for management to convene an EGM. If they are not a substantial shareholder, it would be a lot harder for them to do that. There is a purpose for them to become a substantial shareholder with an agenda.

Third, there are many similarities in the shareholder profile with Sabana and ESR, with Tong JinQuan being one of those who holds both substantial stake. That makes it easier for ESR to convince key stakeholders for a buyout offer.

Fourth, from a technical point of view, we see a much stronger support based on $0.415 while volume sell today is winding down. The next best support would have been at 34 cents (the price I originally bought).

Fifth, the gearing of the company has since reduced from the earlier of 42% to the current of 36%, which means in terms of gearing debtroom, they are able to take more loan to fund the next property purchase, which I deemed unlikely at this point because I feel they would sell the assets.

Sixth, the current share price is trading at an 8% yield. What this means is for as long as the strategic review is not concluded, we would be sitting with a 8% yield while waiting.

Seventh, while 4 of the master leases are expiring this year, 3 of them are coming from sponsor related, so the risk is virtually much lower.

Point 5 to 7 are not something I am after too much at this point so it's a relatively consolation factor for me.

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Sunday, November 19, 2017

Factor Based Investing Course (by Dr. Wealth) - Review

I had the opportunity to attend Dr. Wealth 2.5 days course which spans across the weekend thanks to the invitation by the team.

This was my second time attending their courses and it is a very much expanded and improvised course than the first one I attended, which touches only on the CNAV (Conservative Net Asset Value) concept. You may want to read my earlier review on the course here.

I'll try to cover as much as I can without detailing too much of what they teach because I believe if you want to become a successful investor, you've got to put an effort to it, not a spoonfeeding and that's what this course is all about.

The course is divided into 3 broad strategies in general, namely the CNAV concept, the GPAD concept and lastly the momentum concept.

Day 1

On day 1, we were taught on how to value a company using a CNAV concept.

This is basically using book value as a core to identify companies who has assets and are trading lower than their book value, which implies as undervalued.

What is different with this CNAV concept is that they teach you on how to pick the good and better assets from the other assets. For example, cash is a better asset than receivables and hence have to be valued a bit more differently because receivables can turn into bad debt in a likely scenario.

Once the list of companies has passed the CNAV criteria, they are being further checked for their other factors, which they named it in house as their POF score. The POF score is basically standing for the Profitability, Operating Efficiency Cashflow and Financial Leverage. The idea of doing this is to ensure that we are buying a legitimate company who is not making losses after losses which are burning cash. If they do, that'll only be a value trap, not a value buy.

The course teaches the students a clear signal of when to enter (buy) and to exit (sell). So they've made it into a system that's easy for the students to follow.

Personally, I like the strategy of the CNAV concept and I have used a bit of the same strategy in general to mostly my developer companies, with the caveat difference that I am looking for a bit of extra catalyst or events driven news before I enter. One such example is Ho Bee Land which I am currently vested.

For the exit strategy, it is always more of an art than science.

Personally, I have different strategy myself but so does everyone and I understand how difficult it can be to design a system where it signals you when to exactly sell at an optimum price.

Day 2

On day 2, we were taught a new strategy in the form of GPAD.

I do not want to delve too much into the detail but this is rather new to me and I've hardly heard about combining the two ratios together between Gross Profit and Dividend. 

Apparently, this was backed by a research study by Novy Marx who's done a quantitative research based on past data in search for ratios which would synergized into a value metrics.

There are several reasons on why the Gross Profit was used instead and they are not much different from what I had written in the past about Bruce Greenwald's EPV (Earnings Power Valuation) method which adds back certain "good" expenses such as marketing and R&D because it takes into account future benefits.

Alvin further teaches the class on how to read companies that are able to sustain their dividend through the free cash flow and payout ratio which adds more value in the form of education.

While it is great to know, I'm just not sure how much these students can absorb because it's a bit more abstract and relative, not as direct as the CNAV concept taught on the first day. I get the feel that the students are taking the 2nd day a lot tougher than the first.

The class also played an investing game which touches on real life example of companies using the CNAV and GPAD concept, which I think everyone enjoyed it.

Day 3

While I'm not able to join the third day due to other appointments, I understand that there is another form of strategy in the momentum concept.

I'm still not sure why they introduce the momentum concept after a rather heavy two strategies which  think it's sufficient for the students to succeed. The momentum concept is relatively short term and hinges much on momentum flow hot money is flowing. In my opinion, this can be seen a bit more speculative rather than investing, and I personally would avoid this altogether if I know nuts about it.

What I like is they have also touched on risk management, portfolio allocation as well on how to mitigate risk using stop loss and orders.

Final Thoughts

I think overall it's a very fruitful 2.5 days if you would like to learn about the different strategies and what value investing is all about.

Personally, I learned a great deal of information myself which would surely be helpful in my future assessment of the companies I prospect.

The class is also conducted in a fun way as Alvin and Louis were both expert in their field of studies and have many real life stories to share. For one, I particularly liked the part where Alvin touches on the vertical and horizontal expansion, using simple example like chicken rice stall where everyone would understand.

If you'd like to explore, you may want to attend their free preview course which you can find over here and signed up in the eventbrite link.

They are free to attend for the preview upon which you can then decide if you'd like to sign up for their extensive 2.5 days course.

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Saturday, November 18, 2017

IFRS 16 - New Leasing Standard

If you are working in an accounting department, you should already be aware that this is one of the next major changes on the new leasing standard that will kick into effect from January 2019. While we still have more than a year to go, many companies are already preparing to shift into the new leasing standard as they start to look into their leasing activities from 2018 onwards to meet the criteria later on. 

The End of the Operating Lease

Under the existing rules, lessees generally account for lease transactions either as an off-balance sheet operating lease or as on balance sheet finance leases. 

The new standard requires the lessees to recognize nearly all leases on the balance sheet in their PPE and then capitalize this by depreciating the items for the remaining useful lives of the assets. 

Who Will Be Affected? 

Many companies uses rentals for their offices or machines as well leasing for access to some machinery or software assets so industries across will be impacted by the new standard. 

Currently, many leases contracts embedded both the operating lease and non-lease (e.g maintenance) components and they do not separate them. Under the new leases standard, it is imperative and mandatory that they separate between the two because the leases will have to be recognized on the balance sheet. 

For example, telco companies that are leasing network equipment or fibre optic cables need to unbundle elements that are between lease, service and maintenance. The discussion will then take place on whether the capacity it provides can outweigh the revenue that they can earn (also subject to the new revenue recognition standard in 2018). 

For the real estate industries, the discussion will then take place on whether lessees are going for shorter term leases rather than longer term and the way they’d like to split between the rentals and the services (inclusive of furniture and fittings). 

What Will Be Exempted?

There are 2 scenarios where the lessees may be exempted from the new IFRS requirement. 

The first is a short lease term that are lower than 12 months. In this case, the lessee is able to recognize the lease payment straight in the PnL over the lease term without needing to touch the balance sheet. 

The second is for lessees that leases for low value assets that are less than $5k. This usually involves components such as laptops, tablets and parts of the assets. 

What This Means In Terms of Financial Impact?

If you owns a company that is impacted by these changes, you should notice a heads up on this. 

The new standard will gross up balance sheets and impact pnl and cashflow. 

Rent expenses will be replaced by depreciation expense in the income statement which results in a front-loaded lease expense. This should translates into lower earnings especially if the depreciation is taken at an accelerated rate. EBITDA would also be virtually higher but NOPAT lower. Operating cashflow should also be higher, since depreciation is a non-cash items but this will be offset with the payment made on the investing cashflow. Balance sheet should also swell, which means gearing may go up.

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Tuesday, November 14, 2017

Dividend Income Updates - Q4 FY2017

With earnings completed this quarter, I can finally tabulate my dividend income for the 4th quarter and also consolidate them for the full year.

I have been reliant on much of my dividend income over the years as it gives about a state of stability and predictability in terms of the cashflow that is much needed in my space so far.

I continue to invest in an arsenal champion of profitable companies who would then declared part of their profits as dividends to reward the shareholders. Having a stake in these companies mean having part of the pie when these companies reap good returns from their business.

I think this year has been a great year for the most part of investors.

Not only do they get to receive dividend income from the businesses they own, but also reap the benefits in terms of better striving business and higher profits, hence translating into higher share price for the shareholders.

Reits in particular have also been very resilient this year and will continue to be for the longer term.

If you are following my portfolio, you'd know that I don't hold a lot of companies on hand. Thus, the 4th quarter is a rather barren month in terms of dividend.

The only company that declares dividend in the 4th quarter is FLT, which pays out sometime in Dec later this year.

CountersAmount ($)Payable Date
FLT1,344.00 19-Dec-17

This brings the reporting for the dividend income for the year comes to an end.

The full year dividend income comes to $26,292, which to me is largely disappointing because I have a goal of achieving a dividend income of above $32,000 for the year. But again, that's because I killed much of my golden goose ahead and have them allocated elsewhere. So perhaps I should see that as a level playing field.

I'll try again next year to see if I can improve anywhere from here.

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