STI in retreat: Sound Global, Golden Agriculture, Keppel Corporation and REITs.

STI 2,789.35

- Down 66.42 pts.

STI 2,789.35

- Down 66.42 pts.

Not a pretty sight, is it? Scream in panic? Run around in circles? Sell everything and jump off a cliff like lemmings? There is plenty of fear. What should I do? Stay calm and look out for opportunities. I have spent time looking at various counters and I will talk about a few here.

More than two years ago, I went in big on E-pure, the current Sound Global, believing that the water industry is the logical beneficiary from constant efforts by governments around the world to improve water quality for their people. China is still underinvested in this area and Sound Global is a natural beneficiary.

Sound Global's share price touched a low of 40.5c in the recent sell down. As I got in at 20c more than two years ago, I was wondering if the price could go lower. After all, we can't tell if a bottom has been formed until after the fact. Could we see a retest of 40.5c now that sentiments have soured? We could, of course.

However, seeing how volume was not very high as black candles were formed, the bears seem to be lacking in conviction. I will probably start buying in at 48.5c. Why 48.5c? 48.5c could be a significant near term support as that is also where we find the trendline support and the rising 20dMA.

I also subscribe to the idea that there will be increasing demand for food and oil as the middle class in Asia expands. Golden Agriculture is a likely beneficiary of this long term trend.

The counter's price weakness in the last two sessions was on the back of decreasing volumes. This is again a sign that the bears lack conviction. I would like to get back in at supports. I see immediate support at 62c. In very bearish conditions, we could see gap filling at 58c.

I also want to re-initiate a long position in Keppel Corporation. This is a company I held rather short term long positions in both in the Asian Financial Crisis in the late 90s as well as in the Subprime Crisis a couple of years back.

I would like to re-initiate a long position in the conglomerate, believing that it will continue to be a beneficiary of the global race for oil which is a theme I firmly believe in although there could be short term setbacks.

Further weakness could see a retest of $8.40, a natural candlestick support which broke on 23 Sep after being tested multiple times. I would buy in slowly as there are quite a few gaps which could be filled at lower prices if $8.40 should give way. That volume expanded as a long black candle was formed today does not inspire confidence.

I also have my eyes on a few REITs which are seeing weakening unit prices and rising distribution yields. Prices could weaken further if sentiments continue to sour. I will judiciously add to my long positions to benefit from the sell down. Panic? Not me.


Related posts:
1. Why do I not panic?
2. Sleep well at night with a plan.

Singapore Kindness Movement.

I always believe in being courteous. However, there are times when I just feel like bashing in some people's faces. These are people who do not appreciate courtesy and are totally inconsiderate.

This world would be a much nicer place to live in if everyone is more considerate and courteous towards one another. Is it so hard to show consideration and courtesy?

Do you use ‘please’ and ‘thank you’ often? What you say matters and how you do so – politely and graciously – also makes a difference.
- Singapore Kindness Movement.

Make Singapore a kinder, more courteous place.
Let us all do our part. Find out more at:
http://sg.churpchurp.com/AK71SG/share/makesomeonesday

Thank you. :)

REITs and rights issues: Dilutive or not?

I was not the best Science student, that is for sure. I made the switch from Science to Arts at the advice of my school principal when I was in secondary school and that was probably the best advice during my school days in terms of my academic life.

I do, however, remember the scientific concept of "dilution". To me, it is quite simple. 




If I had half a glass of orange juice and I added half a glass of water to it, it would taste quite bad. Diluted and, in this case, half as concentrated.

However, if I had half a glass of orange juice and I added another half a glass of the same type of orange juice to it, would it taste any different? 

No, it would taste the same. 

Concentration stays the same. Not diluted.

There has been quite a bit of talk in cyberspace that rights issues by REITs are dilutive if we as unitholders do not participate in them. 




Some would even say that the REITs are taking back the income they distributed to unitholders before. 

Thinking of rights issues in such a manner is like suffering from cataracts. These people are not seeing things clearly.

If a REIT's distribution yield was 10% and after rights issue, it remained at 10%, would it "taste" less delicious? 




No, it would still be giving me the yield I had enjoyed before the rights issue. 

The rights issue would be simply providing me an option to increase my investment in the REIT for the same distribution yield, doubling future income in nominal value.

However, if I did not participate in the rights issue and chose to sell away the nil-paid rights instead, would the distribution yield for my remaining investment in the REIT be lower? Probably so.

However, since we had sold the nil-paid rights, the cost of our original investment would be lowered and the distribution yield would, thus, be higher. 

Theoretically, therefore, we would not be worse off in terms of distribution yield if we chose not to subscribe to the rights issue.




Most arguments which say that unitholders would see dilution if they did not take part in rights issues are referring to how their shares of the enlarged capital base would shrink in percentage terms. 

This argument, apart from being academically appealing, holds no pragmatic significance for me.

Having said this, not all rights issues are distribution yield accretive. Each rights issue should be assessed based on the circumstances leading to it and its pro forma numbers. 




Equity fund raising as a concept is simple enough to understand. 

To have a simple blanket statement that unitholders not taking part in rights issues would see dilution is, however, too simplistic and ignores what is most important about investing in REITs: income.

Cache Logistics Trust: 3Q 2011.

A DPU of 2.095c has been declared and this is an 8% increase year on year. Annualised at 8.38c, it would translate to a distribution yield of 8.38% at the last traded price of $1 per unit. Not bad. That would explain the strength of the unit price in the days running up to the announcement.

Occupancy: 100%.
Gearing: 30.4%.
Interest cover ratio: 8.3x.
Total assets: >$830m.
Financing cost reduced from 3.92% to 3.81%.

It would be a natural course for Cache Logistics Trust to eventually have total AUM of $1b. With gearing at 30.4%, it could borrow another $150m easily before hitting the 40% mark as it embarks on acquisitions to hit the $1b AUM mark.

The REIT might not have to do any equity fund raising at all. This would be good for unitholders since all acquisitions in such an instance would be distribution yield accretive, all else remaining equal.

A good set of numbers and I will look out for opportunities to accumulate more units of this REIT on pullbacks.

Technically, when a REIT goes XD, we usually see a pullback in its unit price. We have seen it with AIMS AMP Capital Industrial REIT, Sabana REIT, Cambridge Industrial Trust and First REIT recently.

I have identified the supports for Cache Logistics Trust where it could be more rewarding to enter long positions at. Now, I wait. Wait to receive income for my current investment. Wait for weakness to accumulate more.

See presentation slides: here.

Related post:
Cache Logistics Trust: Initiated long position at 91.5c.

My weaknesses (Part 2).

Not too long ago, I indulged in one of my weaknesses... on two occasions... at Andersen's of Denmark.

Visit 1: Fondue for one. I chose this because there were bits of fruits and being the rational me who is trying to lead a healthier lifestyle, it was a healthier choice. Wait a minute, a healthier choice in an ice cream outlet? Hmmm... Nah, I am over-analysing. Healthier, it is! ;p

Visit 2: Apple pie! An apple a day keeps the doctor away. I am sure a slice of apple pie would do the trick too, right? Why am I not saying anything about the ice cream? Oh, the two scoops of ice cream were just accompaniments and, honestly, I did not touch the big dollop of fresh cream you see on the extreme left. Healthier choice, remember? ;p

In a pretty crowded scene which Swensen's probably has an advantage as being the most entrenched player and Haagen Daz has the honour of being probably the most atas, Andersen's has been doing pretty good business if my observations are anything to go by.

Related post:
Tea with AK71: My weaknesses.

McDonald’s Monopoly has found its $80,000 cash winner.

I guess I will try to win the Volkswagen Touran now. Actually, just winning a Macbook Air would make me really happy. I need Tanjong Rhu!

See all remaining prizes at http://sg.churpchurp.com/AK71SG/share/mcd-monopoly2011-3

Get your game labels at McDonald’s restaurants today! Double labels on weekends! Good luck!

CPL, CMA and NOL: Resistance levels to look out for.

We had a very nice rally today. The upward march on the STI was almost uninterupted all the way from the start of the session. In an earlier blog post on 17 October, I mentioned that there seems to be a bias for further upward movement and it has taken almost two weeks to materialise.

Now that a rally is underway, for investors who are already vested, do we ask if the rally could continue tomorrow? No. We should ask if the rally were to continue tomorrow, where are the resistance levels? We should be looking for exit prices.

For investors who are not vested and who are knocking themselves on the heads for being overly bearish, they want to know where are the supports so that they could consider buying on pull backs. However, given the strength of the rally in Europe right now, chances of a retest of supports could be rather slim. If I had missed the boat, so be it. That's my take.

For CapitaMalls Asia,  a long white candle tested the high of 17 Oct at $1.31. Overcoming this resistance level will see a cluster of resistance levels ahead: $1.33 as provided by the declining 100dMA followed by $1.36, a many times tested resistance level in early September.

In very bullish conditions, we could see the gap at $1.395 filled. Where should I place my sell order? As is my usual style, I will partially divest at each resistance level.

Capitaland could test resistance at $2.71 as a white candle was formed today on the back of very much higher volume.

If $2.71 were to be taken out convincingly, we could see the gap at $2.79 filled eventually. Before $2.71, we have the declining 100dMA to contend with. This MA approximates $2.68 in the next session.

NOL formed a nice white candle today on the back of relatively high volume. Immediate resistance is at $1.19, the high of 13 Oct. Given the momentum of the upward movement, chances of a continuation in the next session is high.

Overcoming $1.19 would see $1.24 and $1.27 as the next two resistance levels, the 123.6% and 138.2% Fibo lines respectively. $1.27 also approximates the position of the declining 100dMA.

With container shipping business very much in the doldrums, the 138.2% Fibo line could be a strong resistance, if tested at all. Remember that 38.2% is also a golden ratio.

Good luck.

Tea with AK71: Healthy and economical lunch.

What am I having for lunch today?

This is easy to prepare and to bring to work. Easy to wash up too.

This meal is high in fibre and full of natural goodness. Lower in glycaemic index than ground oats, I also prefer raw rolled oats to instant oats which are pre-cooked and dried.

Although instant oats are convenient, just add hot water and they are ready to eat, they are not as chewy, flavourful and nutritious. Anyone in the know would tell you the less processed, the better.

How do we prepare something like this? Remember this? Tea with AK71: A healthy low cost meal.

A healthy lunch that is also gentle on our wallets. I like it.