http://www.pldt.com/docs/default-source/presentations/2019/9m2019-presentation_final.pdf?sfvrsn=0
Share price keep tanking despite profitability. Market cap of ~4.5 B vs net debt of 2.9B. Debt is equally space out yearly with ~10% matured every year. Cash balance is 0.5B vs gross debt of 3.5B.
Interest payment is ~170MM annually based on 4.8% average interest rate. Net debt/ EBITDA is 2x indicating EBIDTA is 1.45B and interest coverage of 8.5x which is healthy.
The debt covenant of Net debt/Ebidta is 3x which will be raised to 4x after company seek for waiver for future debt raised for CAPEX spending. Currently, there is a big margin to hit the limit.
Debt/Equity is high and > 1. Company bonds is currently investment grade.
Dividend yield is 6.9% based on morningstar quote indicating 300MM of dividend payment with market cap of 4.5B.
2019 CAPEX is 78B peso which is 1.6B USD which is higher than is EBIDTA. Based on 2011-2019, total CAPEX spent is 369B peso which is 7.4B and roughly 0.9B per year.
Assuming the same level of CAPEX spending going forward and an annual EBIDTA of 1.45B, Free cash flow is 0.55B and minus off interest expense, there is ~400MM available for dividend payout.
If the CAPEX investment leads to higher EBIDTA generation (high margin of ~50%), we can expect the dividend to be sustained or increased in future. current yield looks attractive based on the growth rate and PE ratio of 12x and Market cap/EBIDTA of 3-4x is not compelling.
Annual debt maturity is ~400MM. Company need to maintain the debt level or payoff with increase EBIDTA from its CAPEX.
Monday, December 9, 2019
Wednesday, December 4, 2019
Capitaland C31.SI Review
https://links.sgx.com/FileOpen/CL%20Investor%20Day%202019.ashx?App=Announcement&FileID=587892
Link to Capitaland 2019 investor day. Shows company long term planning and fact book of its business. No longer a property development but mainly as a fund manager managing private funds or REITS. Generate recurring income which is the main income contributor. Top 10 real estate manager globally with Blackstone at the TOP.
With the merger with Ascendas, Capitaland has grown in scale and harder to fail if properly managed. Currently integrating both business together to achieve the forecast synergy. This explains the merger between Ascott REIT and Ascendas hospitality trust to become a large hospitality trust which will be included in a REIT index and potential for trading at higher multiples.
With its REITs vehicle, its a good avenue for divesting its properties for gains. Debt/equity is ~0.7 which is acceptable.
https://investor.capitaland.com/newsroom/20191105_070643_C31_GDOVJM12R2G5FJSU.2.pdf
3rdQ 2019 financial results
Profit from operation = 941M vs finance cost of 234M. Coverage is 4x. Net profit is 527MM. Coverage is 2.2x.
Coverage ratio is typical for a REIT though the dividend yield is much lower but has much diversified holdings in different sectors and geographical area.
Cash in hand is 5.6B vs short term debt of 5.5B and long term debt of 27B.
Investment properties is 48B and investment/JV is 13B while development properties for sale is 7.7B
Equity is 39B. Company is not leveraged compared to Fraser properties.
Exposure to China is large at around 30-40%. Singapore is another 30%. REmaining is Europe and other developing countries. Good entry point if its stock price tank to ~$3 which is its long term average.
Link to Capitaland 2019 investor day. Shows company long term planning and fact book of its business. No longer a property development but mainly as a fund manager managing private funds or REITS. Generate recurring income which is the main income contributor. Top 10 real estate manager globally with Blackstone at the TOP.
With the merger with Ascendas, Capitaland has grown in scale and harder to fail if properly managed. Currently integrating both business together to achieve the forecast synergy. This explains the merger between Ascott REIT and Ascendas hospitality trust to become a large hospitality trust which will be included in a REIT index and potential for trading at higher multiples.
With its REITs vehicle, its a good avenue for divesting its properties for gains. Debt/equity is ~0.7 which is acceptable.
https://investor.capitaland.com/newsroom/20191105_070643_C31_GDOVJM12R2G5FJSU.2.pdf
3rdQ 2019 financial results
Profit from operation = 941M vs finance cost of 234M. Coverage is 4x. Net profit is 527MM. Coverage is 2.2x.
Coverage ratio is typical for a REIT though the dividend yield is much lower but has much diversified holdings in different sectors and geographical area.
Cash in hand is 5.6B vs short term debt of 5.5B and long term debt of 27B.
Investment properties is 48B and investment/JV is 13B while development properties for sale is 7.7B
Equity is 39B. Company is not leveraged compared to Fraser properties.
Exposure to China is large at around 30-40%. Singapore is another 30%. REmaining is Europe and other developing countries. Good entry point if its stock price tank to ~$3 which is its long term average.
Friday, November 29, 2019
TRIP Review
Online travel review company. Derive revenue from hotel bookings and advertisment placed on the websites.
Good balance sheet and cash generation capability with high ebitda margin. Not paying dividend yet.
Profitability is good though low net profit margin due to high investment and depreciation cost. Most of the cost is on marketing and general administration cost.
Marginal cost is low as it is website based business.
High P/E ratio but low P/Cash flow ratios indicating its cash generation capability.
Fair value is estimated to be ~$45 indicating low valuation based on current price.
Good entry point although no dividend paid for holding the stock.
Good balance sheet and cash generation capability with high ebitda margin. Not paying dividend yet.
Profitability is good though low net profit margin due to high investment and depreciation cost. Most of the cost is on marketing and general administration cost.
Marginal cost is low as it is website based business.
High P/E ratio but low P/Cash flow ratios indicating its cash generation capability.
Fair value is estimated to be ~$45 indicating low valuation based on current price.
Good entry point although no dividend paid for holding the stock.
Tuesday, November 26, 2019
Macy's M Review
Hammered by the market.
https://www.barrons.com/articles/macys-stock-plunged-after-the-department-store-chain-reported-a-huge-earnings-miss-51565790916
https://www.fool.com/investing/2019/08/26/macys-stock-could-triple-over-the-next-few-years.aspx
https://content-az.equisolve.net/_036737fe772bd81ce2af3dfcdcbbe121/macysinc/db/490/5730/file/Q3+2019+Balance+Sheets.pdf
https://www.macysinc.com/investors/financial-information/financial-results
Debt and coverage ratio still in tact, no signs of liquidity crunch. Company still making money with low valuation. P/E less than 8x which is attractive. Various initiatives in place for future growth.
Actively paring down debt also. Future has higher chance of being brighter than gloomier. Buy a stake at current weakness.
https://www.barrons.com/articles/macys-stock-plunged-after-the-department-store-chain-reported-a-huge-earnings-miss-51565790916
https://www.fool.com/investing/2019/08/26/macys-stock-could-triple-over-the-next-few-years.aspx
https://content-az.equisolve.net/_036737fe772bd81ce2af3dfcdcbbe121/macysinc/db/490/5730/file/Q3+2019+Balance+Sheets.pdf
https://www.macysinc.com/investors/financial-information/financial-results
Debt and coverage ratio still in tact, no signs of liquidity crunch. Company still making money with low valuation. P/E less than 8x which is attractive. Various initiatives in place for future growth.
Actively paring down debt also. Future has higher chance of being brighter than gloomier. Buy a stake at current weakness.
ALB Review
Free cash flow by 2021. Current debt/equity is ~50%. Interest coverage is ~10x which is good.
CAPEX for Lithium mines for future demand in battery. Post 2021 when the mines are up and running, the cash will flow in.
Consistent dividend payout for the last 25 years. Balance sheet is slightly leverage but not excessive and appears to be typical. Debt maturity is not very stretch out. Total debt is ~1.7B with 1B maturing within next 3 years.
As long as future electrification of global economy is on the way, demand of lithium will continue and pin company's growth which is no1 in the market. There are other business in catalyst and bromine market which they are No2. Those business has lower EBITA margin than lithum but is still good at >20% while lithium is close to 30%.
For a commodity company, the overall margin of >10% appears to be good.
2019 2Q report
https://investors.albemarle.com/static-files/85bbe6f3-47e7-4df4-9825-8396d65305a0
CAPEX for Lithium mines for future demand in battery. Post 2021 when the mines are up and running, the cash will flow in.
Consistent dividend payout for the last 25 years. Balance sheet is slightly leverage but not excessive and appears to be typical. Debt maturity is not very stretch out. Total debt is ~1.7B with 1B maturing within next 3 years.
As long as future electrification of global economy is on the way, demand of lithium will continue and pin company's growth which is no1 in the market. There are other business in catalyst and bromine market which they are No2. Those business has lower EBITA margin than lithum but is still good at >20% while lithium is close to 30%.
For a commodity company, the overall margin of >10% appears to be good.
2019 2Q report
https://investors.albemarle.com/static-files/85bbe6f3-47e7-4df4-9825-8396d65305a0
Monday, October 21, 2019
TS Review
Good balance sheet, net cash position with current ratio despite being a commodity type of company which supply steel pipes to the energy industry. Despite making a loss in 2016-2017, they still maintain dividends payout. Payout ratio is around ~50% at 4% yield. Due to net cash position, company has enough buffer to pay dividends every year even if free cash flow for the year is inadequate.
Global diversified business with 50% of revenue from USA. 20% in Latin america. 10% in europe, 20% in middle east and africa. <5% in Asia Pac.
Global diversified business with 50% of revenue from USA. 20% in Latin america. 10% in europe, 20% in middle east and africa. <5% in Asia Pac.
Wednesday, October 16, 2019
VIAB and CBS Review
VIAB and CBS will be merged with CBS buying VIAB in all stock issue with VIAB S/H receiving 0.59625 CBS per VIAB share.
https://www.cnbc.com/2019/08/13/cbs-and-viacom-reach-merger-deal.html
The deal is expected to be closed by end 2019 subjected to approval by the free market commission in USA. This deal also ends the several years battle within the controlling shareholder. It will be run by Shari redstone and CEO will be Bob Bashi who has a good digital strategy to transform viacomCBS. For example, they have purchased pluto.tv which is >20 MM subscribers as of now.
With its slew of content, they will be able to compete with big companies like Warner, Disney, Comcast and Netflix etc. An article by forbes reported the details of this saga.
https://www.forbes.com/sites/dawnchmielewski/2019/10/02/exclusive-for-the-first-time-shari-redstone-tells-her-side-of-the-battle-to-merge-viacom-and-cbs/#7aef3b86423c
One interesting chart shows the comparison between CBSviacom and the various competitors in terms of market valve and sales. Only CBSviacom is trading near its sales value compared to the rest which is trading a high multiples.
AT&T is at 1.6x, Net Margin = 10-12% / ROE = 10-12%
Disney at 4x NM = 20% / ROE = 20%
Comcast at 2x NM = 10-12% / ROE = 16-18%
Netflix at 10x NM = 6-8% / ROE = 20-25%
CBSViacom at 1x NM = 10-12% / ROE = 25-30%
Based on the above comparison, it appears CBSvia is trading at lower multiples despite being profitable with good cash flow generation and comparable net profit margin and ROE.
If market rerate it with similar multiples, it will be easily a 100-200% return from current price and with its small size, it also becomes a good take over target to be acquired by the bigger companies such as disney or AT&T.
CBS current operating interest coverage is ~6-7x , long term debt of 9B, no short term debt and cash of 216MM. average debt interest is 4.4%. Debt is spread out till 2045 with the next 5 years debt maturity of 2B to be fully funded by cash flow of $1-2B per year. Liquidity not an issue.
VIAB current operating interest coverage is ~6x, long term debt of 8.6B, current debt of 320MM and cash of 722MM. Operating cash flow is ~2B per year while dividend payout is 400M. Debt is evenly space out until 2057 with yearly maturity of 300-500MM with every 5-10 year interval of 1B repayment. The yearly cash flow generation is able to pay down the debt. Average interest rate is 5% No issue with liquidity.
Both companies balance sheet is not stretched by any nature and the cash flow generation is adequate to finance the interest expense. With the merger, there will be synergy and cost savings which will further improve the finance.
Valuation is also not compelling. VIAB P/E ratio is less than 10 indicating future potential rerating in price. with CBS merging with VIAB, it is buying a undervalued company which in turns will boost its future share price when market rerate the combined balancesheet and earning power.
CBS is of higher valuation compared to VIAB.
Estimate VIAB intrinsic value is 32-52 versus current price of 23 which indicates high level of margin of safety. good chance to buy now for future upside.
Estimate CBS intrinsic value is 40-70 versus current price of 38.5. Either way, both company appears to be undervalued.
Buy VIAB as it is over lower valuation. Post merger, combined entity will have potential price catalyst
https://www.cnbc.com/2019/08/13/cbs-and-viacom-reach-merger-deal.html
The deal is expected to be closed by end 2019 subjected to approval by the free market commission in USA. This deal also ends the several years battle within the controlling shareholder. It will be run by Shari redstone and CEO will be Bob Bashi who has a good digital strategy to transform viacomCBS. For example, they have purchased pluto.tv which is >20 MM subscribers as of now.
With its slew of content, they will be able to compete with big companies like Warner, Disney, Comcast and Netflix etc. An article by forbes reported the details of this saga.
https://www.forbes.com/sites/dawnchmielewski/2019/10/02/exclusive-for-the-first-time-shari-redstone-tells-her-side-of-the-battle-to-merge-viacom-and-cbs/#7aef3b86423c
One interesting chart shows the comparison between CBSviacom and the various competitors in terms of market valve and sales. Only CBSviacom is trading near its sales value compared to the rest which is trading a high multiples.
AT&T is at 1.6x, Net Margin = 10-12% / ROE = 10-12%
Disney at 4x NM = 20% / ROE = 20%
Comcast at 2x NM = 10-12% / ROE = 16-18%
Netflix at 10x NM = 6-8% / ROE = 20-25%
CBSViacom at 1x NM = 10-12% / ROE = 25-30%
Based on the above comparison, it appears CBSvia is trading at lower multiples despite being profitable with good cash flow generation and comparable net profit margin and ROE.
If market rerate it with similar multiples, it will be easily a 100-200% return from current price and with its small size, it also becomes a good take over target to be acquired by the bigger companies such as disney or AT&T.
CBS current operating interest coverage is ~6-7x , long term debt of 9B, no short term debt and cash of 216MM. average debt interest is 4.4%. Debt is spread out till 2045 with the next 5 years debt maturity of 2B to be fully funded by cash flow of $1-2B per year. Liquidity not an issue.
VIAB current operating interest coverage is ~6x, long term debt of 8.6B, current debt of 320MM and cash of 722MM. Operating cash flow is ~2B per year while dividend payout is 400M. Debt is evenly space out until 2057 with yearly maturity of 300-500MM with every 5-10 year interval of 1B repayment. The yearly cash flow generation is able to pay down the debt. Average interest rate is 5% No issue with liquidity.
Both companies balance sheet is not stretched by any nature and the cash flow generation is adequate to finance the interest expense. With the merger, there will be synergy and cost savings which will further improve the finance.
Valuation is also not compelling. VIAB P/E ratio is less than 10 indicating future potential rerating in price. with CBS merging with VIAB, it is buying a undervalued company which in turns will boost its future share price when market rerate the combined balancesheet and earning power.
CBS is of higher valuation compared to VIAB.
Estimate VIAB intrinsic value is 32-52 versus current price of 23 which indicates high level of margin of safety. good chance to buy now for future upside.
Estimate CBS intrinsic value is 40-70 versus current price of 38.5. Either way, both company appears to be undervalued.
Buy VIAB as it is over lower valuation. Post merger, combined entity will have potential price catalyst
Wednesday, October 9, 2019
ABB Review
No longer Oil and Gas dominated. Review from O&G + Chemicals now makes up 14% of company's revenue. Company is positioning itself for the Electrified world with main markets in Electification, Automation, Robotics, and motion which are the future trends.
Company's customers are diversified across various industries and various geography.
Its equally split between asia, europe and americas.
In essence, it will become a proxy for global economy performance.
Operating EBITA margin around 11%
Finance expense is 200MM per year vs net income of 1200MM. Interest coverage of 6x which appears to be OK.
Cash on hand is 2.5B vs short term debt of 2.4B and long term debt of 7.9B and equity of 13B.
Negative cash flow for 1H 19 vs dividend paid out of 1.6B. Dividend sustainability is questionable.
Need to look at full year performance before further actions.
KIV.
Company's customers are diversified across various industries and various geography.
Its equally split between asia, europe and americas.
In essence, it will become a proxy for global economy performance.
Operating EBITA margin around 11%
Finance expense is 200MM per year vs net income of 1200MM. Interest coverage of 6x which appears to be OK.
Cash on hand is 2.5B vs short term debt of 2.4B and long term debt of 7.9B and equity of 13B.
Negative cash flow for 1H 19 vs dividend paid out of 1.6B. Dividend sustainability is questionable.
Need to look at full year performance before further actions.
KIV.
Sunday, October 6, 2019
HSBC Review
120 B Market Cap bank with quarterly profit of around 4B. Annual profit of 16B. P/E ratio less than 10. Cheap for a bank.
14% Tier 1 ratio. Similar to BCS. Positive JAWS indicating growing income vs declining costs. which is a good trend.
Payout ratio = 50%. Current price is $UK 6 vs NTB of $US 7. Trading close to book valve indicating market confidence in the bank vs BCS and other european banks which trade often at a big discount to book valve.
14% Tier 1 ratio. Similar to BCS. Positive JAWS indicating growing income vs declining costs. which is a good trend.
Payout ratio = 50%. Current price is $UK 6 vs NTB of $US 7. Trading close to book valve indicating market confidence in the bank vs BCS and other european banks which trade often at a big discount to book valve.
Wednesday, October 2, 2019
Aviva Review AVVIY
UK Insurer. Business in Life and General segment with main contributor from Life Insurance.
Good solvency ratio at 194% above target range of 160-180%. Stable balance sheet; upgraded to AA- by S&P. Liquidity measured by centre cash is good which support deleveraging plan.
Cost cutting in progress to reduce operating expenses and full review of group and business strategy in progress. Sold Asian operation which will yield some net returns and further boost the balance sheet strength. Net debt is current 300M vs centre cash of 2.3 B
Consistent dividend payment for last 3 years and is progressing increasing. Current yield is ~7% which is attractive.
Interest coverage is 8x based on operating profit which is healthy and show signs of increasing compared to FY18. Current price is close and slightly lower than NAV of $4.3 pound.
Low risk asset portfolio and well diversified into mainly bond and debt assets. decreasing leverage from 37% in 2016 to 29% currently, reducing interest expenses, driving higher future profit with stable and good ratings from the agency.
Debt maturity is well spaced out with average of 500-800M yearly from 2020 to 2038 onwards. Year 2021 will have 900M maturity and 1.3B maturity in 2022. Total debt on hand is ~7B vs shareholder assets of 92B. Does not appear to be overstretch in terms of leverage.
Majority of business still comes from UK. Probably affected by Brexit.
Good solvency ratio at 194% above target range of 160-180%. Stable balance sheet; upgraded to AA- by S&P. Liquidity measured by centre cash is good which support deleveraging plan.
Cost cutting in progress to reduce operating expenses and full review of group and business strategy in progress. Sold Asian operation which will yield some net returns and further boost the balance sheet strength. Net debt is current 300M vs centre cash of 2.3 B
Consistent dividend payment for last 3 years and is progressing increasing. Current yield is ~7% which is attractive.
Interest coverage is 8x based on operating profit which is healthy and show signs of increasing compared to FY18. Current price is close and slightly lower than NAV of $4.3 pound.
Low risk asset portfolio and well diversified into mainly bond and debt assets. decreasing leverage from 37% in 2016 to 29% currently, reducing interest expenses, driving higher future profit with stable and good ratings from the agency.
Debt maturity is well spaced out with average of 500-800M yearly from 2020 to 2038 onwards. Year 2021 will have 900M maturity and 1.3B maturity in 2022. Total debt on hand is ~7B vs shareholder assets of 92B. Does not appear to be overstretch in terms of leverage.
Majority of business still comes from UK. Probably affected by Brexit.
Sunday, September 29, 2019
ABEV review
http://www.mzweb.com.br/ambev2012/web/default_en.asp?idioma=1&conta=44
One of the largest brewer in the world exposed to latin america economy growth.
Demand underpinned by growing wealth in Latin america.
balancesheet is good and not overstretch. Consistent cash flow generation.
Net cash position. 5B Reals debt vs 14B Reals cash. Current debt - 2.5B and long term debt of 2.3B.
Interest coverage is 6x on operating profit basis. Adequate. Expense can be covered by cash balance if there is shortfall. Based on cash flow statement, interest payment is 200M vs interest recieved of 250M for 1H 2019 which means company has net finance cash inflow.
Interest expense includes interest paid to banks and gains/losses on derivative/non derivative instrument which is non cash.
Debt is growing slightly from previous year though still in net cash position
Pay dividends twice a year but for 2019, there is no interim dividend. Not sure if they change to once per year instead of twice per year. This is one unknown to be confirmed.
http://www.mzweb.com.br/ambev2012/web/conteudo_en.asp?idioma=1&conta=44&tipo=43241#3
Based on their dividend policy, it is mandatory to pay out min. 40% of income as dividends.
high margin business with 38% EBITA margin ans 20% profit margin.
Anheuser-Busch InBev ons 62% of shares while market owns 28% of shares. There are some liqudity. Free Float in NYSE is 85 vs in Brazil.
Stable business exposed to growth markets. Stable dividend policy. Share price depressed for various geopolitical reasons but underlying business is still OK. Balance sheet is sound and not stretch.
Buy when price drop further.
One of the largest brewer in the world exposed to latin america economy growth.
Demand underpinned by growing wealth in Latin america.
balancesheet is good and not overstretch. Consistent cash flow generation.
Net cash position. 5B Reals debt vs 14B Reals cash. Current debt - 2.5B and long term debt of 2.3B.
Interest coverage is 6x on operating profit basis. Adequate. Expense can be covered by cash balance if there is shortfall. Based on cash flow statement, interest payment is 200M vs interest recieved of 250M for 1H 2019 which means company has net finance cash inflow.
Interest expense includes interest paid to banks and gains/losses on derivative/non derivative instrument which is non cash.
Debt is growing slightly from previous year though still in net cash position
Pay dividends twice a year but for 2019, there is no interim dividend. Not sure if they change to once per year instead of twice per year. This is one unknown to be confirmed.
http://www.mzweb.com.br/ambev2012/web/conteudo_en.asp?idioma=1&conta=44&tipo=43241#3
Based on their dividend policy, it is mandatory to pay out min. 40% of income as dividends.
high margin business with 38% EBITA margin ans 20% profit margin.
Anheuser-Busch InBev ons 62% of shares while market owns 28% of shares. There are some liqudity. Free Float in NYSE is 85 vs in Brazil.
Stable business exposed to growth markets. Stable dividend policy. Share price depressed for various geopolitical reasons but underlying business is still OK. Balance sheet is sound and not stretch.
Buy when price drop further.
Tuesday, September 24, 2019
LYG Review
To study annual report. Appears to be undervalued based on historical statistical valuation
Tier1 ratio of 14%, similar to BCS. TNAV of 53 pence is close to current market price. Hence no significant discount from book value.
https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_presentation.pdf
Mainly a UK domestic bank. Fate tied to UK economy. Comprises of traditional banking, wealth and insurance group. The wealth group is growing fast and much faster than the market.
Decreasing Cost/Income ratio a good sign of cost controlling
Underlying loan is stable and is mainly mortgages. If UK market tank, there will be default and there will be delinquent loans.
Net interest margin around 2.9% which is relatively stable for last 2 years.
Progressive dividend policy. To commence quarterly payout from 2020 onwards.
Dividend payout ratio is low.
Q&A from 1H2019 report
https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_faqs.pdf
Company has contingency plans for BREXIT and expect direct impact to be modest since majority of their business is within UK.
Invested in digital experience for future. Expect customer to benefits and stay on with this system.
Stress test indicate robust capital and liquidity levels.
This is a UK economy play. Best is buy after BREXIT where uncertainty is mostly gone. Or a bet towards pound recovery. Bank performance over the last few years is stable despite BREXIT foes overhanging which illustrate their current robust business strategy and model.
Tier1 ratio of 14%, similar to BCS. TNAV of 53 pence is close to current market price. Hence no significant discount from book value.
https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_presentation.pdf
Mainly a UK domestic bank. Fate tied to UK economy. Comprises of traditional banking, wealth and insurance group. The wealth group is growing fast and much faster than the market.
Decreasing Cost/Income ratio a good sign of cost controlling
Underlying loan is stable and is mainly mortgages. If UK market tank, there will be default and there will be delinquent loans.
Net interest margin around 2.9% which is relatively stable for last 2 years.
Progressive dividend policy. To commence quarterly payout from 2020 onwards.
Dividend payout ratio is low.
Q&A from 1H2019 report
https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_faqs.pdf
Company has contingency plans for BREXIT and expect direct impact to be modest since majority of their business is within UK.
Invested in digital experience for future. Expect customer to benefits and stay on with this system.
Stress test indicate robust capital and liquidity levels.
This is a UK economy play. Best is buy after BREXIT where uncertainty is mostly gone. Or a bet towards pound recovery. Bank performance over the last few years is stable despite BREXIT foes overhanging which illustrate their current robust business strategy and model.
Monday, September 23, 2019
BCS Review
To review BCS Annual report. Appears to be undervalued based on statistical valuation history
Diversified income with 50% from UK and remaining from international. Well prepared for Brexit with Barclays Ireland up and running and can take over anytime. diversified funding sources with 60% from deposit and 7% from shareholder equity, 10% from government, remaining from debt. Income sources comes from a variety of business such as tradtional banking, credit cards, bank fees. Investment incomes make up ~10% only. So its business is tied closely to general economy and not trading. The capital structure is sound and tier 1 ratio is much higher than the minimum regulatory requirement and the stress test limit. Dividend payment is not excessive and well cover by its profit. At current price level the dividend yield is ~4.5% which is not too shabby. Company has progressive dividend policy based on profit level. Current price is depressed for a bank that is pretty sound and has move on from the 2008 GFC. Price depressed due to 2 reasons:
1) BREXIT uncertainty
2) Pounds dropping.
Item 1) and 2) are related. Once the Brexit is over, uncertainty will be gone whether UK is in EU or not. With uncertainty gone, pound will increase in value. Share price will rerate and dividend payout in terms of USD will improve also. Good entry price now.
Tier-1 ratio is inline with US peers of 13% and better than european peers of 12%
Leverage ratio is 5% versus regulatory requirement of 3.9% and stress test limit of 3.6%.
Prudently managed and trading at half of book value.
Diversified income with 50% from UK and remaining from international. Well prepared for Brexit with Barclays Ireland up and running and can take over anytime. diversified funding sources with 60% from deposit and 7% from shareholder equity, 10% from government, remaining from debt. Income sources comes from a variety of business such as tradtional banking, credit cards, bank fees. Investment incomes make up ~10% only. So its business is tied closely to general economy and not trading. The capital structure is sound and tier 1 ratio is much higher than the minimum regulatory requirement and the stress test limit. Dividend payment is not excessive and well cover by its profit. At current price level the dividend yield is ~4.5% which is not too shabby. Company has progressive dividend policy based on profit level. Current price is depressed for a bank that is pretty sound and has move on from the 2008 GFC. Price depressed due to 2 reasons:
1) BREXIT uncertainty
2) Pounds dropping.
Item 1) and 2) are related. Once the Brexit is over, uncertainty will be gone whether UK is in EU or not. With uncertainty gone, pound will increase in value. Share price will rerate and dividend payout in terms of USD will improve also. Good entry price now.
Tier-1 ratio is inline with US peers of 13% and better than european peers of 12%
Leverage ratio is 5% versus regulatory requirement of 3.9% and stress test limit of 3.6%.
Prudently managed and trading at half of book value.
Sunday, September 22, 2019
New Toyo Review
Looks interesting with recent price correction. Check it out.
Recent 2 quarters making losses. Unable to cover interest expenses with the losses. short term debt of 30M + long term debt of 40M with cash of 30M. Total equity is 200M. debt/equity around 40%. Balance sheet looking stretch. Avoid until the debt has been paid off.
Recent 2 quarters making losses. Unable to cover interest expenses with the losses. short term debt of 30M + long term debt of 40M with cash of 30M. Total equity is 200M. debt/equity around 40%. Balance sheet looking stretch. Avoid until the debt has been paid off.
Friday, September 20, 2019
Altria Review
Cigaratte company, owns Marlboro as a main brand and other non-combustible type of cigarrates such as E-Vap, IQOU, JUUL patch. Also own companies such as AB INBEV (largest beer company)/ 10% share and cannibodiol company to take advantage of the growing legalization of marijuana in USA and various countries.
Falls under the FACTOR categories of >10 year dividends and value.
Business is sticky in nature since people are addicted to tobacco. Major risk is government policy in view of potential health risk of tobacco and marijuana.
Trend of smoking is not good as company is registering steady decline of 3-5% every year. However, the revenue still manage to stay relatively flat. If new products are able to counter the traditional products decline, company business will be better.
High margin and cash flow generation business hence supporting its consistent dividend payout which is currently near 80% of EPS.
Latest quarter interest coverage of ~8x on operating income and 6x on net profit.
Gross margin is high at 50% with net profit margin of 30%.
Management forecast 2019 EPS to be $4 which translates to a PE ratio of 10x appearing to be attractive under current rich valuation of general market. Yield is ~6-7% which is attractive.
Long term debt is 27B vs short term debt of 2B and cash holding of 1.8B. Long term assets mainly backed by investments in equity securities of 32B and goodwill/intangible assets of 17B which is easy target for impairment. Total debt/ebita is 2.8x.
Doesn't look stretch in terms of ability to pay off interest with cash generation.
Debts are pretty well stretch out with every year's payoff of 4-5B with fixed interest rate.
Operating cash flow per year is 3-6B. There is ample ability to pay off the interest requirements.
They just spent 12B to purchase JUUL which is a huge bet in future vaping industry. With recent news of people dying of vaping, it may hit on their business. JUUL is likely overvalued since it is a startup. Future impairment of goodwill is possible if JUUL does not live up to standard. This deal appears to be largely finance by debt.
Altria is a falling knive. Be careful!
https://seekingalpha.com/article/4291598-altria-falling-knife
Better think twice. Observe more first. Dont bet against secular trend. Unless the price drop is drastic enough to make it valuable. Poor steward of capital with JUUL purchase which is vastly overpaid.
Potential merger with Philip Morris may further increase their debt and weaken their balance sheet.
Falls under the FACTOR categories of >10 year dividends and value.
Business is sticky in nature since people are addicted to tobacco. Major risk is government policy in view of potential health risk of tobacco and marijuana.
Trend of smoking is not good as company is registering steady decline of 3-5% every year. However, the revenue still manage to stay relatively flat. If new products are able to counter the traditional products decline, company business will be better.
High margin and cash flow generation business hence supporting its consistent dividend payout which is currently near 80% of EPS.
Latest quarter interest coverage of ~8x on operating income and 6x on net profit.
Gross margin is high at 50% with net profit margin of 30%.
Management forecast 2019 EPS to be $4 which translates to a PE ratio of 10x appearing to be attractive under current rich valuation of general market. Yield is ~6-7% which is attractive.
Long term debt is 27B vs short term debt of 2B and cash holding of 1.8B. Long term assets mainly backed by investments in equity securities of 32B and goodwill/intangible assets of 17B which is easy target for impairment. Total debt/ebita is 2.8x.
Doesn't look stretch in terms of ability to pay off interest with cash generation.
Debts are pretty well stretch out with every year's payoff of 4-5B with fixed interest rate.
Operating cash flow per year is 3-6B. There is ample ability to pay off the interest requirements.
They just spent 12B to purchase JUUL which is a huge bet in future vaping industry. With recent news of people dying of vaping, it may hit on their business. JUUL is likely overvalued since it is a startup. Future impairment of goodwill is possible if JUUL does not live up to standard. This deal appears to be largely finance by debt.
Altria is a falling knive. Be careful!
https://seekingalpha.com/article/4291598-altria-falling-knife
Better think twice. Observe more first. Dont bet against secular trend. Unless the price drop is drastic enough to make it valuable. Poor steward of capital with JUUL purchase which is vastly overpaid.
Potential merger with Philip Morris may further increase their debt and weaken their balance sheet.
Wednesday, September 18, 2019
BTTGY Review
British Telecom stock price beaten badly. Corrected almost 50% for the past 3 years. Mainly due to potential of cutting dividend for investment in 5G network which CAPEX has been lax,.
Based on valuation model on a 75% cut in dividend, still indicate pretty attractive valuation at current price and discount to fair value is much larger than historical median of 22% indicating market is unduly punishing the stock. If Mean Reversion is true, we will expect the fair value gap to be closed. Need to look more on the annual report before committing fresh funds
Based on valuation model on a 75% cut in dividend, still indicate pretty attractive valuation at current price and discount to fair value is much larger than historical median of 22% indicating market is unduly punishing the stock. If Mean Reversion is true, we will expect the fair value gap to be closed. Need to look more on the annual report before committing fresh funds
Sunday, September 15, 2019
Jardine Matheson Holdings
Conglomerate with exposure to greater China and Southeast Asia. Basically it’s an ETF that holds dairy farm, Jardine c&c, Hong Kong land, mandarin oriental, astra and other non listed business. It is widely diversified and take part in Everyday business which a typical economy will need such as retail property automobile finance construction hotel etc. Pays a decent dividend out of its cash flow. Current yield is 3 percent and historical trend points to a growing dividend policy. Price is corrected from recent high. Trading at below book value. 40B market cap. Not easy to fail since it is prudently managed. There is some debt but not so high. If want to buy a Jardine company, this should be the one to go.
Wednesday, September 11, 2019
OKP Review
https://www.drwealth.com/okp-holdings-is-undervalued/
Good analysis from Dr Wealth. Go through the annual report for more in depth understanding before taking action. Paying 5 percent yield now. Trading at less than asset value.
Classic graham style stocks. However experience with such stocks are not good as they take a long time to recover to its fair value before your patience run out. Also, when the market is correcting and tanking, its price action tends to be more volatile. Best time to buy is during depressed conditions.
Current market is not depressed enough.
Like its balance sheet strength but business nature is cyclical and project base even though they have classified road works as maintenance type which is recurring, it is still considered as project based.
We shall keep this in watchlist for future actions.
Good analysis from Dr Wealth. Go through the annual report for more in depth understanding before taking action. Paying 5 percent yield now. Trading at less than asset value.
Classic graham style stocks. However experience with such stocks are not good as they take a long time to recover to its fair value before your patience run out. Also, when the market is correcting and tanking, its price action tends to be more volatile. Best time to buy is during depressed conditions.
Current market is not depressed enough.
Like its balance sheet strength but business nature is cyclical and project base even though they have classified road works as maintenance type which is recurring, it is still considered as project based.
We shall keep this in watchlist for future actions.
Sunday, September 1, 2019
Carnival PLC CUK_CCL Review
Largest Cruise operator. Listed both in NYSE and LSE. 2 counters listed in NYSE which is CUK (ADR) and CCL. We will be looking at CUK since it is offering a higher yield and potentially without withholding tax since it is a UK listed company.
Good valuation numbers and overall score. Not yet reach 30% discount. Currently at 25%.
Entry point at $40. Need to look at its annual report for more clarity.
Currently indicating a low debt financed business with good cash flow sustaining a 4% dividend yield. Strong Moat in terms of brand recognition and huge barrier of entry (not everyone can go and buy a cruise ship easily and start competing with Carnival). Their business have various brands that cater to different market segment.
Not sure of IMO impact, potentially higher fuel cost if ship need to burn LSFO.
If general economy weaken, lesser tourist will go on cruise which is not cheap. There is sign of general economy weakening. Potentially will impact their business performance in future.
Dividend maybe cut if the FCF is not enough.
Capital intensive business though their ROE and net profit margin is respectable at teens level indicating that it is not in a low margin business.
Brexit may not have an impact to this UK listed company in view of its global operation.
In terms of historical valuation, it is trading near historical low at 26% vs 10 year median level of 22%. The lowest point is 50% in 2008/09 during GFC but thereafter rebound strongly. During that time, price drops to 20s indicating a 50% drawdown from current price. This is the worst case scenario volatility that we can expect. Even during that period, company did not make loss and still pays a dividend.
1.2B in cash, short term debt of 2B vs long term debt of 9B and shareholder equity of 24B.
Interest coverage is ~7-8x on net profit basis. Revenue increase but Onboard and fuel cost increase much more leading to lower profitability. Operating margin is ~10% while net profit margin is 7-8%.
Interest expense is 200MM versus net income of ~1.6B and dividends of 1.4B.
Operating cash flow is ~5.5B vs CAPEX of 3.5B. dividends can be financed from FCF.
Going forward, forecast CAPEX requirement is 6.7 , 5,7, 5.9, 5.3 every year from 2019 to 2022 leading to annual capacity increase of 4.5-7.3% with new ship growth.
The operating cash flow need to cover the above CAPEX requirement else more debts are required.
Current long term debt are evenly spread out from 2021 to 2030. Near term big maturity is at 2022 with 2B of debt maturity and 1.2B at 2023.
Total new ship growth capital expected is 19B from 2019 to 2023 for 5 years versus operating cash generation of ~5-6 B per year. The cash generation capability will largely finance the new ships without huge amount of debt. Dividends payout and share buybacks need to be measured/controlled to avoid taking on more debts.
New ships are larger and more efficient and replace the older fleets. Their fleet size does not increase much and stay near to 100 for the past 5 years while growing the overall passenger capacity and passenger carried which is a good sign.
Good valuation numbers and overall score. Not yet reach 30% discount. Currently at 25%.
Entry point at $40. Need to look at its annual report for more clarity.
Currently indicating a low debt financed business with good cash flow sustaining a 4% dividend yield. Strong Moat in terms of brand recognition and huge barrier of entry (not everyone can go and buy a cruise ship easily and start competing with Carnival). Their business have various brands that cater to different market segment.
Not sure of IMO impact, potentially higher fuel cost if ship need to burn LSFO.
If general economy weaken, lesser tourist will go on cruise which is not cheap. There is sign of general economy weakening. Potentially will impact their business performance in future.
Dividend maybe cut if the FCF is not enough.
Capital intensive business though their ROE and net profit margin is respectable at teens level indicating that it is not in a low margin business.
Brexit may not have an impact to this UK listed company in view of its global operation.
In terms of historical valuation, it is trading near historical low at 26% vs 10 year median level of 22%. The lowest point is 50% in 2008/09 during GFC but thereafter rebound strongly. During that time, price drops to 20s indicating a 50% drawdown from current price. This is the worst case scenario volatility that we can expect. Even during that period, company did not make loss and still pays a dividend.
1.2B in cash, short term debt of 2B vs long term debt of 9B and shareholder equity of 24B.
Interest coverage is ~7-8x on net profit basis. Revenue increase but Onboard and fuel cost increase much more leading to lower profitability. Operating margin is ~10% while net profit margin is 7-8%.
Interest expense is 200MM versus net income of ~1.6B and dividends of 1.4B.
Operating cash flow is ~5.5B vs CAPEX of 3.5B. dividends can be financed from FCF.
Going forward, forecast CAPEX requirement is 6.7 , 5,7, 5.9, 5.3 every year from 2019 to 2022 leading to annual capacity increase of 4.5-7.3% with new ship growth.
The operating cash flow need to cover the above CAPEX requirement else more debts are required.
Current long term debt are evenly spread out from 2021 to 2030. Near term big maturity is at 2022 with 2B of debt maturity and 1.2B at 2023.
Total new ship growth capital expected is 19B from 2019 to 2023 for 5 years versus operating cash generation of ~5-6 B per year. The cash generation capability will largely finance the new ships without huge amount of debt. Dividends payout and share buybacks need to be measured/controlled to avoid taking on more debts.
New ships are larger and more efficient and replace the older fleets. Their fleet size does not increase much and stay near to 100 for the past 5 years while growing the overall passenger capacity and passenger carried which is a good sign.
Sold WDC and CPB
Sold WDC (25% gain) and CPB (12% gain). Selling winners to hold more cash in portfolio for risk mitigation against potential market pro-long correction.
Bought SNP which is beaten down and offer good dividend yields.
Actively building dividend yielding portfolio predominantly with foreign stocks with low withholding tax rates. Although this strategy appears to be weak compared to the US stock market rising while overseas market got beaten.
This is mainly due to FOREX exchange and other countries' being weaker. However, in terms of valuation, foreign markets appears to be more attractive compared to USA.
Stick to good value proposition and trust your system. Over long term, we should get meaningful returns. Don't panic in front of roller coaster ride.
Bought SNP which is beaten down and offer good dividend yields.
Actively building dividend yielding portfolio predominantly with foreign stocks with low withholding tax rates. Although this strategy appears to be weak compared to the US stock market rising while overseas market got beaten.
This is mainly due to FOREX exchange and other countries' being weaker. However, in terms of valuation, foreign markets appears to be more attractive compared to USA.
Stick to good value proposition and trust your system. Over long term, we should get meaningful returns. Don't panic in front of roller coaster ride.
Monday, August 26, 2019
Sinopec (SNP) Review
Appears to be low valuation with low debt ratio. Net cash position (167MM RMB cash vs 120 debt) compared to general oil and gas company. High interest coverage ratio > 10x, (20x for Ebita/expense) No indebtness and liquidity issue.
Good cash flow generation. OPS cash is 2x of net profit. CAPEX is ~0.5x of OP cash indicating good free cash flow generation. Dividend payment is sustainable as it is close to or lower than FCF.
Payout ratio based on net profit is > 50% and dividend payout is consistently growing.
A good trend is company's debt level has been gradually decreasing with company consistently pay down debt resulting in lower finance expense and free up more cash for returning to shareholders.
Yield is ~7% based on listing in HKEX.
Business covers the whole supply chain from upstream exploration to refining to pet-chem, sales and distribution.
Oil and gas exploration is losing money while other segments are making money
1Q 2019, E&P swing to positive. Other sectors remain positive growth while refining business register negative growth with lower refining margin as experienced globally. One good thing is they also manage the cost well with lower operating cost. Overall still making money.
They register negative operating cash flow and increase debt to finance CAPEX. Balance sheet is still sound. However, if this continues, it will be a red flag.
New accounting standards applied also. Appears to be one-time for some of the costs.
In short, company appears to be defensive still.
State-own company with >70% shares
Dividend pay out history:
Assuming $5 payout per year, the yield will be close to 8-9% which is attractive.
The numbers are quite good indicating low valuation based on historical P/E, dividend, P/B, P/cash ratios as well as DCM and earning power valuation models.
Main reason for price correction is due to trade war concerns with USA. Things may get nasty.
Worst case scenario, chinese companies maybe sanctioned and listing in USA maybe affected. vs potential price rerating when the situation improves.
The assumption that company will continue to pay does not depend on company performance only. Need to consider political factors as well.
Share price may test 2014 low point at $40 indicating a ~30% drawdown. Be prepare to endure the volatility should we enter a position soon.
https://www.dividend.com/dividend-stocks/basic-materials/independent-oil-and-gas/snp-china-petroleum-and-chemical-corp/
Good cash flow generation. OPS cash is 2x of net profit. CAPEX is ~0.5x of OP cash indicating good free cash flow generation. Dividend payment is sustainable as it is close to or lower than FCF.
Payout ratio based on net profit is > 50% and dividend payout is consistently growing.
A good trend is company's debt level has been gradually decreasing with company consistently pay down debt resulting in lower finance expense and free up more cash for returning to shareholders.
Yield is ~7% based on listing in HKEX.
Business covers the whole supply chain from upstream exploration to refining to pet-chem, sales and distribution.
Oil and gas exploration is losing money while other segments are making money
1Q 2019, E&P swing to positive. Other sectors remain positive growth while refining business register negative growth with lower refining margin as experienced globally. One good thing is they also manage the cost well with lower operating cost. Overall still making money.
They register negative operating cash flow and increase debt to finance CAPEX. Balance sheet is still sound. However, if this continues, it will be a red flag.
New accounting standards applied also. Appears to be one-time for some of the costs.
In short, company appears to be defensive still.
State-own company with >70% shares
Dividend pay out history:
Assuming $5 payout per year, the yield will be close to 8-9% which is attractive.
The numbers are quite good indicating low valuation based on historical P/E, dividend, P/B, P/cash ratios as well as DCM and earning power valuation models.
Main reason for price correction is due to trade war concerns with USA. Things may get nasty.
Worst case scenario, chinese companies maybe sanctioned and listing in USA maybe affected. vs potential price rerating when the situation improves.
The assumption that company will continue to pay does not depend on company performance only. Need to consider political factors as well.
Share price may test 2014 low point at $40 indicating a ~30% drawdown. Be prepare to endure the volatility should we enter a position soon.
| 2019-05-31 | $3.4697 | |
| 2018-09-05 | $2.0821 | |
| 2018-05-24 | $5.6345 | |
| 2017-09-18 | $1.3313 | |
| 2017-07-14 | $2.2222 |
https://www.dividend.com/dividend-stocks/basic-materials/independent-oil-and-gas/snp-china-petroleum-and-chemical-corp/
Thursday, August 22, 2019
Jardine C&C (C07.SI) Review
Historical good dividend growth. Dividend almost doubled for the past decade. However, dividend growth slowed in recent years.
Total debt of 4.5 + 2.8 (long term) vs equity of 13B. Non financial debt is 2.7+1.1 (long term).
OP Cash flow is 2B vs dividend of 0.3MM while investment is also 2B. To finance increasing dividends, they need to generate more cash or cut investment. They are holding more investment to support future growth.
Its historical fair value margin is ~20%. Based on this margin, the entry price is ~$28.5 which is another 10% discount from current price. If price drop to this level, it may be an interesting entry point. However, current PE is 30x and dividend yield of <3%. Abit on the rich side. If the growth rate does not support the large PE, there will be price correction.
Exposure to ASEAN emerging markets, predominantly in Indonesia with strategic investment in Siam Cement and 10% holding in Vinamilk (F&N is 20%). Vinamilk is high growth company which pay dividends to C&C.
Poor valuation despite recent correction in price. The valuation model appears to be quite accurate in the sense that the fair value is around $35 which the stock price approaches for the past 1 year with peak at $37. Recent low is at $28 at 2015. The stock last seen $25 at 2009/2010 with its bottom at around $9. Unless we are expecting another 2009 GFC type of event, the price should not drop drastically.
reasonable debt/equity ratio excluding its financial subsidiaries. Interest coverage is > 10x with net financing charges of 161MM vs profit of 2B.
reasonable debt/equity ratio excluding its financial subsidiaries. Interest coverage is > 10x with net financing charges of 161MM vs profit of 2B.
Total debt of 4.5 + 2.8 (long term) vs equity of 13B. Non financial debt is 2.7+1.1 (long term).
OP Cash flow is 2B vs dividend of 0.3MM while investment is also 2B. To finance increasing dividends, they need to generate more cash or cut investment. They are holding more investment to support future growth.
Its historical fair value margin is ~20%. Based on this margin, the entry price is ~$28.5 which is another 10% discount from current price. If price drop to this level, it may be an interesting entry point. However, current PE is 30x and dividend yield of <3%. Abit on the rich side. If the growth rate does not support the large PE, there will be price correction.
Tuesday, August 20, 2019
Smart Beta ETF in Singapore
Philip Sing Income ETF
Recently come across this Smart beta etf which selects its stocks based on dividend yield, balance sheet strength and business moat. Refer to below analysis by fifth person which is good:
https://fifthperson.com/phillip-sing-income-etf/
Another write up from dollar and sense:
https://dollarsandsense.sg/an-alternative-to-the-sti-etf-introducing-the-phillip-sing-income-etf/
Refer to Philips website for the ETF factsheet
https://www.poems.com.sg/wp-content/uploads/2018/09/Sing-Inc-Fund-Brochure.pdf
http://www.phillipfunds.com/home/sing-income-etfs
The stocks held by the etf appears to be the kind that I will buy. Good investment tool if no time to study individual stock
Philip Lion global REIT ETF
Understand Philips managed to get tax exemption from iras for reit dividends. The yield will be higher without the 20 percent tax. It’s interesting now. More details at fsm link:
https://secure.fundsupermart.com/fsm/stocks/etf-factsheet/SGX/CLR
But this year Reit rise a lot. Wait for price correction before buying the reit etf
Saturday, August 17, 2019
Far East Orchard Review
Price drop to 1.1 with yield of 5 percent. Fixed dividend payout of 6 cents for the past 8 years regardless of good and bad performance. Defensive balance sheet with low debt ratio.
Nav is 2.8 vs price of 1.1 indicating low valuation. Dividends largely financed by recurring income from its property investment and hospitality business and not from its property development arm.
Their developed properties are almost done and ready for launch. For example in Singapore wood square and UK west minister. Expect to turn these holdings into cash once they commence selling at a profit. Properties in overseas are freehold so they can hold long without worry.
Current debt of 400MM will be refinanced to longer tenure. Interest coverage on the low side at ard 5-6 times (5mm interest expense vs net profit of 30mm) which is near our requirements of at least 5x. If we consider interest income of 3mm from their cash holding, the coverage will be much higher. Hence, we don’t see significant debt financing issue.
Moreover they can pay off debt easily by selling off their assets. Cash on hand is 260MM while properties held for sale is 160mm. Investment properties and JV total around 1B. Not concern of liquidity.
Current yield of 5% is attractive which pay investor to wait for future upside.
Potential candidate to be take provide. With the large discount from NAV, chances of upside is high. Market Cap is 500mm while cash on hand is 260mm.
Control shareholder owns 60% of company. To pay off minority shareholders, they need to pay 300MM. Basically they only need to top up 40 MM to pay off minority shareholders. They can easily finance it with debt. With the recurring income from their business, the debt can be paid off easily and there is no need to pay dividends to minority shareholders once it was taken private.
Potential risk/red flag that company may not pay a premium to prevailing stock price during a market crash (for example down to $0.5 compare to $1.15 now) and take company private as they are major shareholder. Recent privitisation deals indicate a 20-50% premium. Refer to Hupsteel and Memtech. We expect such premium should FEO be taken private.
If company not taken private, it remains an attractive yield play given its track record of consistent payment though not increasing. Dividend is sustainable based on its recurring income.
If there is bad year and recurring income not sufficient to cover dividend, it can be finance from its cash holding of 260mm vs yearly dividend of ~30mm which explains why they can pay dividend every year.
Ability to pay dividends is confirmed. With its defensive balance sheet and easy to understand business model of buying properties to rent out for yields, we felt we can invest more into this business.
Estimated fair value is $1.5. Entry price @ 30% discount is $1.05. However, historical fair value margin is 13% while current discount is ~21% indicating a value gap to be realised by the market. Current price of $1.15 is interesting. Potential entry in general weak market conditions.
Nav is 2.8 vs price of 1.1 indicating low valuation. Dividends largely financed by recurring income from its property investment and hospitality business and not from its property development arm.
Their developed properties are almost done and ready for launch. For example in Singapore wood square and UK west minister. Expect to turn these holdings into cash once they commence selling at a profit. Properties in overseas are freehold so they can hold long without worry.
Current debt of 400MM will be refinanced to longer tenure. Interest coverage on the low side at ard 5-6 times (5mm interest expense vs net profit of 30mm) which is near our requirements of at least 5x. If we consider interest income of 3mm from their cash holding, the coverage will be much higher. Hence, we don’t see significant debt financing issue.
Moreover they can pay off debt easily by selling off their assets. Cash on hand is 260MM while properties held for sale is 160mm. Investment properties and JV total around 1B. Not concern of liquidity.
Current yield of 5% is attractive which pay investor to wait for future upside.
Potential candidate to be take provide. With the large discount from NAV, chances of upside is high. Market Cap is 500mm while cash on hand is 260mm.
Control shareholder owns 60% of company. To pay off minority shareholders, they need to pay 300MM. Basically they only need to top up 40 MM to pay off minority shareholders. They can easily finance it with debt. With the recurring income from their business, the debt can be paid off easily and there is no need to pay dividends to minority shareholders once it was taken private.
Potential risk/red flag that company may not pay a premium to prevailing stock price during a market crash (for example down to $0.5 compare to $1.15 now) and take company private as they are major shareholder. Recent privitisation deals indicate a 20-50% premium. Refer to Hupsteel and Memtech. We expect such premium should FEO be taken private.
If company not taken private, it remains an attractive yield play given its track record of consistent payment though not increasing. Dividend is sustainable based on its recurring income.
If there is bad year and recurring income not sufficient to cover dividend, it can be finance from its cash holding of 260mm vs yearly dividend of ~30mm which explains why they can pay dividend every year.
Ability to pay dividends is confirmed. With its defensive balance sheet and easy to understand business model of buying properties to rent out for yields, we felt we can invest more into this business.
Estimated fair value is $1.5. Entry price @ 30% discount is $1.05. However, historical fair value margin is 13% while current discount is ~21% indicating a value gap to be realised by the market. Current price of $1.15 is interesting. Potential entry in general weak market conditions.
Sunday, August 11, 2019
Power of compounding and consistent saving
Never underestimate the power of consistent saving and compounding. 1k a month with 5 percent return for 20 years yields close to 400K versus 240K of capital investment.
400k gives you 20k annual income which is 1.5k per mth based on 5 percent return.
Together with CPF life which gives around 2k per mth, monthly income will be 3.5k. By the time we retired, we should aim to be debt free. Hence 3.5k is purely for our own expenses for food, clothing utilities etc which appears to be adequate based on my personal experience. How much you can eat per mth? You don’t buy clothes every month also? Public bus and mrt is relatively cheap. There will be adequate leftover for that yearly trip to overseas.
All the figures are nominal, if we assume 3 percent inflation over 25 years, our spending power will be halved. So the retirement income figures above will be essentially halved as well.
What does this means? Start saving now and aim to save more to Ensure adequate retirement income. Minimise debt and refrain from chasing the latest car or condo. Live below your means or at least don’t spend beyond your means. If you can save at least 1k cash per month, you can achieve the basic. Retirement life style. If u save more, you can do more.
Please plan early.... don’t forget hospital insurance such as MediShield life enhance coverage and life insurance policies. If you are the Passive person who is not interested in investing, a couple of endowment funds will help. They give around 3 percent return . So you need to save even more.
400k gives you 20k annual income which is 1.5k per mth based on 5 percent return.
Together with CPF life which gives around 2k per mth, monthly income will be 3.5k. By the time we retired, we should aim to be debt free. Hence 3.5k is purely for our own expenses for food, clothing utilities etc which appears to be adequate based on my personal experience. How much you can eat per mth? You don’t buy clothes every month also? Public bus and mrt is relatively cheap. There will be adequate leftover for that yearly trip to overseas.
All the figures are nominal, if we assume 3 percent inflation over 25 years, our spending power will be halved. So the retirement income figures above will be essentially halved as well.
What does this means? Start saving now and aim to save more to Ensure adequate retirement income. Minimise debt and refrain from chasing the latest car or condo. Live below your means or at least don’t spend beyond your means. If you can save at least 1k cash per month, you can achieve the basic. Retirement life style. If u save more, you can do more.
Please plan early.... don’t forget hospital insurance such as MediShield life enhance coverage and life insurance policies. If you are the Passive person who is not interested in investing, a couple of endowment funds will help. They give around 3 percent return . So you need to save even more.
Unit Trust Portfolio Construction and Selection Philosophy
Unfortunately Singapore don’t have a good ETF investing platform that support monthly investment programme. The best alternative we have is invest via unit trust though we understand that majority of fund managers fail to beat the index over Long term due to higher management cost and lack of consistency in investment performance.
Hence we aim to minimise the performance GAP between unit trust and index fund via the following selection philosophy:
a) Long term track record
b) Low expense ratio than its peers
c) Beating index since inception and on a 3, 5, and 10 years basis. One year and shorter duration Performance poorer than index is acceptable. Historical performance is for reference and we know it’s not indicative of future performance l
d) Preferably no star manager and management by a team so performance of fund is not due to any individual. Returns will be more sustainable and consistent.
In terms of portfolio construction, Simple and fuss free is key. Core funds include
a) global equity
b) global bond
c) Asian equities
Weightage to be based on risk appetite and current equity market valuation. Global equity is made up of 50 percent us stocks which is overvalued hence weightage is Low to minimise risk. Overall we are 50 percent in bonds and around 15 percent in global equity with remaining 35 percent in Asian and emerging market equity which is relatively lower in valuatiOn. Together with DCA and periodic portfolio rebalancing to sell winners and buy losers, we aim to get a relatively less volatile returns of 4-5 percent on a Long term duration. This is based on long term equity return of 7 percent and bond return of 3 percent.
10 percent of the portfolio will also be reserved for tactical sector exposure which we felt price has been beaten up badly. For example, oil and energy and turkey equities. We will initiate small position via DCA and reduce risk due to poor market entry timing.
With current market conditions, we believe such conservative approach will give us better sleep at nights knowing that we will not be subjected to individual stock risk and instead will only be subjected to general market risk as a result of general economic performance or geopolitical issues. With this mechanical approach, we aim to remove and if not, reduce the amount of emotions in the investing operation to minimise the mistakes we made when the market corrects. Last thing you want is to sell Low when the market corrects and later miss out on the subsequent recovery.
Hence we aim to minimise the performance GAP between unit trust and index fund via the following selection philosophy:
a) Long term track record
b) Low expense ratio than its peers
c) Beating index since inception and on a 3, 5, and 10 years basis. One year and shorter duration Performance poorer than index is acceptable. Historical performance is for reference and we know it’s not indicative of future performance l
d) Preferably no star manager and management by a team so performance of fund is not due to any individual. Returns will be more sustainable and consistent.
In terms of portfolio construction, Simple and fuss free is key. Core funds include
a) global equity
b) global bond
c) Asian equities
Weightage to be based on risk appetite and current equity market valuation. Global equity is made up of 50 percent us stocks which is overvalued hence weightage is Low to minimise risk. Overall we are 50 percent in bonds and around 15 percent in global equity with remaining 35 percent in Asian and emerging market equity which is relatively lower in valuatiOn. Together with DCA and periodic portfolio rebalancing to sell winners and buy losers, we aim to get a relatively less volatile returns of 4-5 percent on a Long term duration. This is based on long term equity return of 7 percent and bond return of 3 percent.
10 percent of the portfolio will also be reserved for tactical sector exposure which we felt price has been beaten up badly. For example, oil and energy and turkey equities. We will initiate small position via DCA and reduce risk due to poor market entry timing.
With current market conditions, we believe such conservative approach will give us better sleep at nights knowing that we will not be subjected to individual stock risk and instead will only be subjected to general market risk as a result of general economic performance or geopolitical issues. With this mechanical approach, we aim to remove and if not, reduce the amount of emotions in the investing operation to minimise the mistakes we made when the market corrects. Last thing you want is to sell Low when the market corrects and later miss out on the subsequent recovery.
Friday, August 9, 2019
1977 Berkshire Hathaway Letter Key takeaway
1) We understand the business. Everyday business around us like grocery, telco, utilities etc. Improve with more reading or individual industry research to widen circle of competence
2) Favourable Long term prospects. No major headwinds or risk of being disrupted. GME is one mistake that violate this principle. Even I am not buying physical copies of games. Trend is internet download. This is one area which we can identify easily by reading more but at the same time environment changes so fast that even favourable prospects will worsen. Such as retail and shale oil etc. Safer to go with defensive business which is not cyclical.
3) Competent and honest management. Hard to gauge. Need to read more into company and management history
4) At attractive price. Long term returns are dependent on entry price (dividend or earning yields) and Long term growth rate. If purchased at a Low yield, need to depend on high growth rate to have high returns
To quote Ben Graham, stock is best seen from the perspective of a perpetual bond with growth like characteristics and price volatility. Future returns are strongly dependent on purchased yield .
Adopting these 4 criteria will help an investor stay calm during market turmoil and not sell out at price weakness and hopefully give the investor courage to buy more at the discounted price with the knowledge that the fundamentals of the company is still sound.
Wednesday, August 7, 2019
Quotes
Meaningful quotes gathered over the years. This post is LIVE and ON-GOING......
- We like to work with people that we like, trust and admire : Buffet
- I aspire to inspire before I expire: UNKNOWN
- You can have anything but you can't have everything: UNKNOWN
- You can get the timing right. You can get the price right. But you cannot get both the timing and price right easily: UNKNOWN
- Price is what you pay. Value is what you get: Graham
- Market is a voting machine in the short term but is a weighing machine in the long term
- Always surround yourself with smart people if you are a leader. If as a leader, you are the smartest in the room, something is not right: UNKNOWN
- Always look at the downside, the upside will take care of itself: UNKNOWN
- Buying at the right price means half the battle won: GZG
- Have a philosophy of investment and try to follow it: Schloss
- If you are honest, hardworking, reasonably intelligent and have good common sense, you can do well in the investment field as long as you are not too greedy and don't get too emotional when things go against you: Schloss
- https://www.inspiringquotes.us/author/5561-walter-schloss
Sunday, August 4, 2019
Straits Trading Review --> Balance sheet and Interest Coverage not strong
2 Main divisions: Property development/investment and Tin smelting
Income predominantly comes from property development and recurring income from its property investment portfolio which includes:
1) 20% of ARA management ($ 80B portfolio)
2) 90% Straits Real Estate
3) 30% Far East Hospitality Group
4) Freehold land from their existing smelting plant to be redeveloped. Near prime location at Penang
Company initially was net cash position 5 years ago but with its investment in various assets, the company is now in net debt position with debt to equity ratio of close to 40% and interest coverage < 5x on a profit before tax basis. $27M interest expense vs $100M profit before tax.
However, based on cash flow statement, the actual finance cost paid is 14M versus operating cash flow of 12M. The base business is not cash flow generating enough. There is dividend payout from associates but the coverage is <5x.
Majority of its revenue still comes from its tin mining and smelting division. only 5% comes from property. It is receiving dividend and interest income of $30M per year. The company is very sensitive towards commodity price in view of its large exposure to the tin industry.
Tin revenue is 430M vs cost of 380M with gross margin of 50M which is ~10%. Essentially, very thin profit margin available for this business. Any time may swing into loss and impact the whole business.
5-6% of dividend yield from its investment securities and 3% from its investment properties.
Cash on hand is 245M vs current debt of 247M and long term debt of 617M and total equity of 1.6B
There is a reason why market is valuing them at ~40% discount to their NAV of 3.6 and market price of 2.2. Probability not a good time to buy now though company is actively buying back their shares indicating their confidence in the business.
We would prefer a company with lesser debt and higher coverage ratio to fill comfortable especially in current market trend with overprice equity and low interest rate environment. Company may make loss and unable to pay dividend and leading to large price drawdown.
Wait and KIV.
Income predominantly comes from property development and recurring income from its property investment portfolio which includes:
1) 20% of ARA management ($ 80B portfolio)
2) 90% Straits Real Estate
3) 30% Far East Hospitality Group
4) Freehold land from their existing smelting plant to be redeveloped. Near prime location at Penang
Company initially was net cash position 5 years ago but with its investment in various assets, the company is now in net debt position with debt to equity ratio of close to 40% and interest coverage < 5x on a profit before tax basis. $27M interest expense vs $100M profit before tax.
However, based on cash flow statement, the actual finance cost paid is 14M versus operating cash flow of 12M. The base business is not cash flow generating enough. There is dividend payout from associates but the coverage is <5x.
Majority of its revenue still comes from its tin mining and smelting division. only 5% comes from property. It is receiving dividend and interest income of $30M per year. The company is very sensitive towards commodity price in view of its large exposure to the tin industry.
Tin revenue is 430M vs cost of 380M with gross margin of 50M which is ~10%. Essentially, very thin profit margin available for this business. Any time may swing into loss and impact the whole business.
5-6% of dividend yield from its investment securities and 3% from its investment properties.
Cash on hand is 245M vs current debt of 247M and long term debt of 617M and total equity of 1.6B
There is a reason why market is valuing them at ~40% discount to their NAV of 3.6 and market price of 2.2. Probability not a good time to buy now though company is actively buying back their shares indicating their confidence in the business.
We would prefer a company with lesser debt and higher coverage ratio to fill comfortable especially in current market trend with overprice equity and low interest rate environment. Company may make loss and unable to pay dividend and leading to large price drawdown.
Wait and KIV.
Appropriate interest coverage level
Intelligent investor chapter 6 by Graham indicates that interest coverage for a well run and safe railroad company should be at least 5x based on earnings before tax. We can take reference and extend the same argument to other defensive companies which generate stable cash flows and are not cyclical in nature. For example, REITs utilities supermarket transportation etc.
Companies that does not meet such criteria shall look deeper into their balance sheet and cash flow status history and confirm is it a once off or sustained situation into the future. If that is the case, there is great solvency and liquidity risk in terms of servicing the debts.
We should stay clear from such companies no matter how attractive the valuation is.
Companies that does not meet such criteria shall look deeper into their balance sheet and cash flow status history and confirm is it a once off or sustained situation into the future. If that is the case, there is great solvency and liquidity risk in terms of servicing the debts.
We should stay clear from such companies no matter how attractive the valuation is.
Wednesday, July 31, 2019
CHU China Unicom --> Observe / 23% discount
China telco with low debt/equity relative to typical telco.
Free cash flow generation is good with low dividend payout ratio indicating future potential for higher dividend payout.
Share price is beaten till its multi-year lows.
CAPEX to invest on mobile network and other necessary infrastructure is largely financed from FCF instead of debt indicating prudent management and sustainability.
2018 finance income is larger than interest cost. If dont consider finance income, the interest coverage on net profit basis is 6x, 50x on OP Cash basis and 25x on FCF basis. This indicates business has little liquidity risk as it can largely finance its debt.
Long term bank loan is 3B RMB and short term bank loan is 15B RMB + corporate bond of 16B RMB versus cash balance of 30B RMB. The bonds will expire in 2019. There are some liquidity strain if company cannot find cash to pay off the bonds.
Annual dividend payout is 4.1B indicates very low payout ratio at current yield of <2%. Room for future increase is high.
Company actively paydown debt leading to lower debt.equity ratio and lower finance cost with better interest coverage ratio.
Free cash flow is 40B per year vs short term loan of 15B. In terms ability to repay debt, the company is in good shape, they can repay debt easily even after paying the dividends.
Currently is undervalued by not deep enough. Wait until beyond 30%. discount.
Free cash flow generation is good with low dividend payout ratio indicating future potential for higher dividend payout.
Share price is beaten till its multi-year lows.
CAPEX to invest on mobile network and other necessary infrastructure is largely financed from FCF instead of debt indicating prudent management and sustainability.
2018 finance income is larger than interest cost. If dont consider finance income, the interest coverage on net profit basis is 6x, 50x on OP Cash basis and 25x on FCF basis. This indicates business has little liquidity risk as it can largely finance its debt.
Long term bank loan is 3B RMB and short term bank loan is 15B RMB + corporate bond of 16B RMB versus cash balance of 30B RMB. The bonds will expire in 2019. There are some liquidity strain if company cannot find cash to pay off the bonds.
Annual dividend payout is 4.1B indicates very low payout ratio at current yield of <2%. Room for future increase is high.
Company actively paydown debt leading to lower debt.equity ratio and lower finance cost with better interest coverage ratio.
Free cash flow is 40B per year vs short term loan of 15B. In terms ability to repay debt, the company is in good shape, they can repay debt easily even after paying the dividends.
Currently is undervalued by not deep enough. Wait until beyond 30%. discount.
Thursday, July 25, 2019
Dairy Farm Review
20% correction from 52 week of ~$US 9.2 to ~$US 7.5. The all time high is $S9.75.
Weak SEA hypermart and supermart business (Mainly Giant) is suffering and not performing well compared to the other business. Groceries comprises of highest percentage of sales but deliver the lowest profit margin compared to its Beauty & Care, Convenience store, Home furnishing and Restaurant business which average a margin of 7-10% compare to groceries of ~1-3%.
While there are growth in almost all sectors except for the groceries business, Beauty & Care register the faster growth and contribute to 50% of profit despite sales contribution of 10-20%.
Company has installed a new CEO with a new transformation plan with 5 key initiatives that is focus on China expansion, maintain HK business, Strengthen and revitalize SEA business and better adoption of digital technology. Company acknowledge that they have been slow on adopting digital technology and install a CTO and CIO to address this issue. Goodwill impairment has been done on the SEA food business to give it a fresh start.
Going forward, expect more CAPEX on digital technology investment. Profitability and cash flow maybe reduced. Current payout ratio is still low dividend of 21 cents vs underlying EPS of 31cents.
Company has been prudent in dividend payout.
Currently in net debt position due to investment in Chinese business Yonghui which is growing well.
Current borrowing is 1B vs long term borrowing of 14.5MM and cash of 300MM. Company need to ensure liquidity availability to refinance its current debt of 1B. This appears to be always the case to maintain current debt level high vs long term debt. Company should have some liquidity arrrangement with their bankers based on certain caveats of interest coverage and debt/equity ratio which is still appearing to be fairly reasonable where debt/equity < 1 and interest coverage is >10x on net proft basis and 15x on operating cash flow basis (interest expense is ~$40MM)
Operating cash flow is 600M vs dividend of 284M. Payout ratio is less than 50%. CAPEX investrment is ~ 220M per year. In that sense, the cash flow can sustain cAPEX and dividend payout and paydown of long term debt if any. The current revolving credit of 1B appears to be working capital financing.
Detail analysis to be performed to look into its historical valuation trend and current valuation metrics in next posting.
Analysis indicated fair value range of $US 6.6-10 versus current price of $7.1 (07th Aug 19). There is no steep discount to make this a compelling investment case. We will wait for more price correction before entry price of $6 which is near its 2014 lows.
2019-08-21: Historical fair value margin is 16% versus current margin of 13%. Price is not discounted enough. Further correction required.
Sunday, July 21, 2019
Sarine Technology Updates
This is a painful one. we initiated BUY at roughly ~$1 after evaluating that it is undervalued compared to historical valuation and price. Indeed, our hypothesis was validated initially within 6 months when the share price rise ~30%. Never did we imagine the market change their view point so fast with the on-going china trade war and the competition with man-made diamonds etc, that the share price keep tanking. We keep holding the position, thinking it is temporary but the market keep hitting us back. As of today, the share price is $0.3, a 70% drop from our buy price! Indeed, this is a tasting of our patience and conviction towards of strategy.
As of 1Q 2019, the balance sheet is still very sound with no debt and cash in place. The losses make so far are NON-cash in nature comprising of depreciation and amortization. If dividend is not cut, the yield is very attractive at > 10%. However if current loss making trend continues, we believe at some point, the dividend will be cut when cash flow generation is not sustainable.
We will closely monitor and wait.
We reiterate, this is a painful waiting process...
As of 1Q 2019, the balance sheet is still very sound with no debt and cash in place. The losses make so far are NON-cash in nature comprising of depreciation and amortization. If dividend is not cut, the yield is very attractive at > 10%. However if current loss making trend continues, we believe at some point, the dividend will be cut when cash flow generation is not sustainable.
We will closely monitor and wait.
We reiterate, this is a painful waiting process...
Investing philosophy: Understand where we are at the market cycle
Recently heard a podcast interviewing Oaktree capital investment chief Howard Marks who wrote a book about market cycle. It is important to know where we stand at current market. The easy money has been made in 2009. Currently we are near end of cycle where making money is tougher with rich valuation at various market. Upside is minimal and downside is plenty. Expected forward returns will be lower than historical average. It is important to manage risk at this point. Opportunity cost is market continue to rise but downside risk is protected and allow us to stay in the game should the market corrected in near or distant future.
Also value investing is suffering a Long run of underperformance compared to growth investing. It maybe demoralizing to see your strategy not performing, but it is important to maintain a consistent strategy and not flip to another strategy that chase the return. A System will not work in all market cycle. Key is to trust ur system that is backed by proven results.
Also value investing is suffering a Long run of underperformance compared to growth investing. It maybe demoralizing to see your strategy not performing, but it is important to maintain a consistent strategy and not flip to another strategy that chase the return. A System will not work in all market cycle. Key is to trust ur system that is backed by proven results.
Saturday, July 20, 2019
Lippo Group Impact on First Reit and Lippomall trust
Both REITs price correction due to parent company lippo group financial issues. Since then lippo group has began initiatives to shore up the group balance sheets. First reit tenants which are laretely lippo owned hospitals should not have issues paying the rental going forward. The rating agencies also upgrade the ratings with the plan in place. First reit and Lippomall trust price have corrected a lot and are not rising compared to the rest of the S REITs which have their yields compressed. Indicating a potential entry opportunity at current larger yields. Take note of upcoming quarterly performance to check for further developments.
Tuesday, July 16, 2019
SG Stock Actions 2019-07-17: Selling for Risk Management
With recent US markets going all time high, the risk for overvaluation and future low returns is increasing. Although SG market has not reach all-time high, if the US market corrects leading to a world wide market correction, SG cannot escape. Moreover, the REITs has increased sharply ~15-20% this year while the underlying business does not change much; ie income does not increase proportionally. We believe this is an increase in market multiplier and yield compression rather then improvement in business fundamental.
Although some of the holdings are still in RED, it has rise from its LOWs along with the general market REIT's rise. Some of the holdings are seeing good profits after holding for a couple of years.
The capital gains realised is equivalent to 3-6 years of dividends. We believe we can buy back these companies at a lower valuation subsequently when the market corrects.
The opportunity cost is lost of dividends and potential price appreciation should this hypothesis of a potential future market correction fails to materialize. However, if the hypothesis is true, we will be spared from the potential 15-30% market correction.
Cash gives you a piece of mind and flexibility to buy the market at discount.
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