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Golden Agriculture, AusGroup and Genting SP.

Thursday, February 25, 2010


Golden Agriculture failed to move higher today and closed at 54c.  It formed a bearish black candle and with stochastics closer to the overbought region, it doesn't look promising.  On the brighter side, although it has closed lower, it is still above the rising 50dMA.  The 20dMA is turning up.  MFI has formed a higher low and the next session will see if it could continue to do so.  I continue to see resistance at 59c and strong support at 50c. 



AusGroup too formed a black candle as it closed at 58c, supported by the 20dMA.  This is on the back of significantly lower volume.  With the MFI forming a higher high, there might be some momentum left in the upmove.  For stale bulls who missed out on reducing their exposure here in the last couple of sessions, there might still be a chance to do so yet.  Strong resistance is at 63c.



Genting SP continues to weaken as expected.  The highest it got to this week was 98c to give stale bulls a chance to reduce exposure.  Closing at 91c today hugs the lower limits of the Bollinger bands.  The downtrend seems ready to continue as the MFI continues to decline indicating reducing buying momentum.  In the unlikely even that the price moves up in the next session, resistance is at 98c.



Looking at the weekly chart, we see a precarious situation.  Price is hugging the lower limits of the Bollinger bands and the MFI continues to decline just like in the daily chart.  However, what is important is that it has closed below the rising 50wMA which is at 92.5c.  If price is unable to recapture this support level to close at or above 92.5c in the next session, which is the last trading day of the week, the chart would look very ugly.  The ultimate downside target would be 74c, a support level provided by the rising 100wMA.  Although there would be intial support at 80c, such a potentially huge fall in price would be too tempting for short sellers to ignore.

6 comments:

la papillion said...

AK,

I read a bit more from this forum:
http://investideas.net/forum/viewtopic.php?f=31&t=245

I'll re-read your posts again to get familiar with it. From what I see, at least 7% yield is no problem, at current price. But the 7% yield will come with extremely low gearing and a good potential for capital appreciation.

I like it more and more ;)

AK71 said...

Hi LP,

Your midnight oil is well and truly burnt! :)

Saizen REIT meets all my criteria for a perfect investment in a REIT: low gearing, high yield and trading at a huge discount to NAV.

Its gearing is likely to lower in time as it pays another CMBS fully come April. As its unit price goes up, the gearing calculated as debt to equity will also reduce.

Its future dpu is sustainable as demand for its properties is relatively inelastic unlike commercial or industrial properties. I like the fact that collections are in JPY and payments to us are in S$.

Japanese real estate has been deflating for 20 years. Marc Faber says that Japan is the ultimate contrarian play. Reflation is a distinct possibility. Capital appreciation from such a low base would likely be explosive!

I believe that Saizen REIT is going to be one of those REITs that will make many people quite happy over the next few years.

la papillion said...

I like the fact that the downside is pretty much covered. I can think of a few scenarios:

1. Reit is closed due to default of payment/unable to secure loans. Unlikely. But as long as the entry price is well below NAV (i need to read up on its NAV again), it's not a serious issue. Unlikely scenario anyway, given their relentless clearing of debts.

2. Warrants all converted to rights, resulting in dilution. From the forums I've read, it seems like the likely effect is the change of yield from 12.5% to 7%. This comes after one of their properties is taken away, resulting in lesser rental yield and thus lesser payout. I'm really fine with 7% yield, really.

3. Unsustainable yield. Ok, I suck at this. I've no interest in Japan properties for me to read up extensively on it, so I've to rely on expert opinions from you, haha :) Feeling the heat?

I say let the upside take care of itself ;)

AK71 said...

Hi LP,

Technically, the downside is pretty limited.

1. Saizen REIT has 9 portfolios of properties in Japan. Each one is independent of the others. It has defaulted on 1 portfolio: YK Shintoku in November 09. Foreclosure is a possibility although unlikely in an improving credit environment. Saizen would have 4 unencumbured portfolios by end April 10. Next two loans due in May 2011 (GK Chosei, JPY459m) and June 2011 (GK Choan, JPY5,900m). After that, no more loans due until Sep 2019.

2. It would seem that people are all being very conservative in their estimates of Saizen REIT's dpu. Maybe, that's the better thing to do. The 2c dpu per annum I estimated before is based on the assumption that all the warrants are converted (and so I thought I was conservative). I've taken into consideration full dilution. So, that works out to a yield of 12.5% based on current price of 16c per unit. None of their properties were taken away. They sold a few buildings to reduce their debt in YK Shintoku. If I remember correctly, the total number is 5. They did this to demonstrate that there is a willing buyer, willing seller market out there and that there is no requirement for a fire sale.

3. Unsustainable yield? I see this as an eventuality. As the unit price goes up, yield will fall. ;p Importantly, the dpu is sustainable and this is a factor making this REIT most attractive.

Yes, I have taken care of the downside and, hopefully, the upside will take care of itself. :)

Anonymous said...

AK,

Like you, I also believe that Saizen REIT has fantastic potential. However, I am curious as to why you advocate buying Saizen shares when Saizen warrants are deep in-the-money, and trading at zero premium considering its expiry in Jun 2012. To me, the warrants are a better buy - you get more bang for your buck.

Grateful if you can share your views

AT

AK71 said...

Hi AT,

Oh, you have let the cat out of the bag. Now, everyone will rush to buy the warrants. Haha.. I'm just kidding.

Actually, I also bought some Saizen REIT warrants. Imagine how much greater the returns could be in the event Saizen REIT's price breaks through the roof in future.

Imagine buying Saizen REIT units at 16c and the warrants at 7c. If the REIT moves to 24c, we gain 50% on the REIT but more than 100% on the warrants. Droolsome.

Two factors make me less aggressive with the warrants:

1. What if the entire global market does a u-turn and we go into another recession quite quickly? If Saizen REIT drops to 10c, what would happen to the warrants? I think the historic low was 4c? Would it go lower? In such an instance, what would happen if the global economy does not recover by 2012 when the warrants expire? Then, it might actually become cheaper to buy Saizen REIT units from the market than to convert the warrants. A scary thought.

2. Warrants are not eligible for distributions. Saizen REIT will resume distributions from mid 2010. As you can tell from the header in my blog, I am basically after passive income. This becomes a more important consideration if, for some reason, the price of the REIT does not appreciate as we think it should.

I agree that the warrants would give us more bang for our dollar in the event that Saizen REIT's units appreciate in price but there is no absolute certainty and I shall stay cautious because of that. I sleep better at night. :)

Saizen REIT units and the warrants are suitable for people with different objectives and different risk appetites.

Thank you for bringing this up. If truth be told, I have been thinking whether I should talk about this subject and you have provided me the opportunity to do so. :)

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