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K-Green Trust: Possibly stabilised.

Sunday, August 22, 2010

On 15 Aug, I did a TA for KGT and suggested that its chart showed some weakness. At that time, it hit a low of $1.11.  In the next two sessions, it went to a low of $1.10 as its price hugged the lower Bollinger. It has since shown a detachment from the lower Bollinger as price moved sideways. Volume has been declining in recent sessions with this sideway movement in price. This suggests that much of the selling is done. This is possibly confirmed by the OBV which has gone flat which suggests a stalemate between accumulation and distribution.

 

The RSI's lower highs indicate recent selling pressure and the index is now in oversold territory.  The MFI has similarly entered the oversold territory with falling demand. However, both indices are turning up slightly. Is a reversal on hand? It is too early to tell. However, there is a picture of growing stability as price has moved sideways for more than a week.

I decided to look at the Stochastics since it is most useful in a rangebound situation.  It has been trending up in the oversold region since 5 Aug. This looks promising. It means that the daily closing price has been relatively stronger in recent sessions compared to its price range.

On 3 July, I blogged that KGT has "Stable cash flow, low risk and room to grow.  This sounds like a good addition to my passive income portfolio. It diversifies my income stream and injects a higher level of stability at the same time. The lower yield is acceptable because of its debt free balance sheet.  When a balance sheet is heavy in debt, the risk is higher and, consequently, I would demand a higher yield."

I have been waiting for a possibly better entry price but it was impossible to use TA at that time as KGT was newly listed then. This situation is being corrected.

I believe the catalyst for an upward movement in price for KGT would be the announcement of a cash distribution and a near term support seems to have formed at $1.10 in anticipation of this. Therefore, I would buy some at the current price of $1.11 instead of waiting as per my original plan.

With an estimated yearly DPU of 7.82c, buying at $1.11 would give a yield of 7.05%.  It would also be buying at almost the NAV of $1.12. I believe that KGT would be a valuable part of my passive income portfolio.

Related post:
Charts in brief: 13 Aug 10 (Part 3).

6 comments:

Anonymous said...

Hi AK,

I got a small question about KGT. The bulk of its assets are tied to a land lease which expires within the next 2 decade. The key one is the Senoko plant and land lease which expires in 14 years time. I understand that there is a great possibility of lease extension so it shouldn't be a cause of grave concern. My question rather is how much will KGT (assuming it needs to) have to cough up to extend the lease ?

Thanks in advance !

Nick

JW said...

That's good. I have some on average $1.135.

Thinking when to top up my holdings with my 3rd and 4th batch. That's the amount I had set aside for KGT alone.

Neroli said...

Hello, re K-Green Trust, may I ask what "cash distribution" are you talking about? Is it something special, in addition to the regular/usual distribution by Trusts/Reits? I do not find any statement or proposal from K-Green to this effect.

AK71 said...

Hi Nick,

That is an interesting question and one that I have thought of but I do not think that we would know the answer now.

Trying to do a valuation of a facility 14 years into the future and consequently estimate how much the government might demand for a lease extension is just too long a shot to take.

If anyone knows the answer, please share. :)

AK71 said...

Hi JW,

Today, I bought some KGT at $1.11 with money in my SRS account. Locked in 7.05% yield. I see the next supports at $1.06 and $1.04 and would possibly buy more if these levels are tested. Again, I would use money in my SRS account as the interest paid for money in SRS accounts is pitiful. I also do not have to worry about rights issue from KGT. So, it is perfect for SRS money. :)

AK71 said...

Hi Neroli,

REITs and business trusts do not have dividends. What they give is cash distributions and, hence, DPU. :)

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