Hock Lian Seng: Testing 39.5c resistance.

The last time I blogged about Hock Lian Seng was in December last year. Since then, the stock has seen its price rising almost relentlessly. Drawing some Fibo lines shows that share price is now probably testing the resistance at 39.5c. It is a golden ratio and probably quite a strong resistance.

I have readers asking me if they should sell their investment in Hock Lian Seng in the last month or so. I said it is really up to them.

I am not ready to sell because I invested in Hock Lian Seng for income and even at 36c a share, a 1.8c dividend per share (DPS) would still mean a 5% dividend yield and that is based on a 40% pay out ratio. Still a pretty good income generator. So, even at 36c, it wasn't a price I would sell at.

Just now, I was alerted by a reader that Hock Lian Seng is declaring a 4c DPS and although I thought a bumper dividend possible before, it is still a pleasant surprise. This means a dividend yield of as much as 16.67% based on my lowest entry price in October 2011.

Over the years, Hock Lian Seng has been a very rewarding income investment for me and the higher DPS declared today is the icing on the cake.

What about the future?

Hock Lian Seng has been winning projects and their order book is now worth about $457 million. Even without new order wins which I think is unlikely, they will be kept busy for many years. This is in line with my initial investment thesis that Hock Lian Seng is a natural beneficiary of our country's escalating investment in infrastructure projects till the year 2030.

Hock Lian Seng has another industrial development property project which will obtain TOP probably in the next month or so. This will mean recognising more net proceeds as the project is almost 90% sold. An interim dividend, perhaps? Well, we can always hope although given the conservative nature of Hock Lian Seng's management, I doubt that it would happen.

Now, let us look at the burr in Hock Lian Seng's side, the Skywoods. Although the Skywoods condominium is less than half sold, I have written a pretty detailed piece before on how Hock Lian Seng's business is much more than just Skywoods. This residential development project, a joint venture, is expected to obtain its TOP sometime in 2016.

Recent transactions for Skywoods.

I would have been quite contented to stay invested in an income generating business that Mr. Market wasn't paying much attention to as I would have liked to build a bigger long position at lower prices. With the attention that Hock Lian Seng is now getting, I feel that its stock is no longer undervalued but, taking everything into consideration, it isn't expensive either.

See financial statement: here.

Related post:
Hock Lian Seng: Robust order book.

NeraTel: Still a good investment for income?

NeraTel has been a rewarding investment for me. In their latest results presentation, I like their renewed focus on generating recurring income. It appeals to the income investor in me.

On top of their current strategy to grow recurring revenue from lease of POS terminals, they plan to build and lease in building mobile coverage network in Indonesia to strengthen recurring revenue. We should see their efforts bearing fruit in the following years.

In terms of performance, profit after tax fell rather dramatically by about 30%, year on year, but if we were to remove a one off contribution from negative goodwill which bumped up profit in the preceding year, then, the reduction is a more modest 1.2%. So, it would be quite fair to say that NeraTel's results were flat, year on year.

NeraTel has declared a final dividend of 2c per share. Full year DPS is, therefore, 4c. EPS for the full year was 4.48c. So, the payout ratio is about 90%.

At 76c a share, we are looking at a PE ratio of almost 17x. With a DPS of 4c which is undemanding, we have a dividend yield of 5.26%. About a year ago, NeraTel's stock was priced lower at about 71c to 73c a share. Given that profits after tax in FY13 and FY14 are similar (stripping out gains from negative goodwill in FY13), I don't think it is cheaper now to buy into NeraTel compared to 12 months ago.

NeraTel's balance sheet is relatively strong with very little long term borrowings. They do have a debt facility which they can draw upon to grow their business and they have indicated that they might be doing this soon with regards to their plan to build and lease in building mobile coverage network in Indonesia.

So, what am I going to do?

I will stay invested as I feel that a 4c DPS is sustainable. For me to add to my long position, however, Mr. Market would have to offer me a much lower price, all else remaining equal.


See:
1. Financial Statements FY2014.
2. Slides Presentation.


Related posts:
1. NeraTel: Added to my long position.
2. NeraTel: How high could its share price go?

What would I do if I had $750,000 to start investing?

By now, I have almost 2,500 blog posts here in ASSI and most of them are about personal finance and investments although not all of them are related to investing in stocks.

Sometimes, I worry if I am sending the right messages to readers and I am actually quite happy, even grateful, when readers write to me to clarify their doubts. I try to do a good job in communication but there will be times I can do better.

I received a letter recently from a reader which sent alarm bells ringing in my head:

Dear AK

Thank you very much for sharing your knowledge because i am learning a lot from it.

I am considering investing Saizen Reit which yield 7-8% p.a. If i do my mathematics right, i will need 750'000 to yield $5000 per month to support our family household expenses.

Correct me if i am wrong.

If i have $750'000 cash to invest into Saizen Reit, wouldnt it be better investing the money elsewhere. My question is would you invest $750'000 all into Saizen Reit to give you passive income $5000 per month.

Please forgive my ignorance.

Regards
B

My reply:


Hi B,

Welcome to my blog. :)

You will have to understand a couple of things:

1. Investing in a REIT is not like locking money in a fixed deposit. So, you shouldn't be looking at yield and yield only. It is more than that.

2. Putting all your money in a single investment to have the income it generates cover all your household expenses exposes you to concentration risks.

If I had $750,000 to start investing with, I wouldn't put all of it into Saizen REIT or any one single investment. I wouldn't be fully invested either.

Without knowing more, I cannot say what I would do in your shoes but although my own investment in Saizen REIT is a significant part of my investment portfolio, it is not my entire portfolio.

Best wishes,
AK


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Related posts:
1. How to have peace of mind investing?
2. Income investing and position sizing.
3. Saizen REIT: Is the DPU sustainable?