NeraTel: Aggressive selling as 3Q disappoints.

Attention grabbing headline in the news for NeraTel:

"...earnings of $2 million for 3QFY2015, down 43.3% from earnings of $3.5 million in 3QFY2014."

This news led to some rather aggressive selling of the stock and I wondered if it was justifiable?

I made the observation before that NeraTel's revenue recognition can be lumpy because it is a project based business. It would be a mistake to place too much emphasis on any one quarter's results.

Could we see 4QFY2015 doing better which might give the full year results a boost? Of course, I don't know but looking at the first nine months' results, year on year, things don't look so bad.

The numbers are not pretty, for sure, but they don't look as bad as the headlines in the news which is about 3QFY15.

Quite obviously, revenue is down and expenses are up. 

A very competitive environment is old news, of course. In such an environment, remarkably, more or less, NeraTel has been able to maintain their gross profit margin. This is encouraging.

The question is whether am I going to stay invested?

I first invested in NeraTel at 40.5c a share and later added to my long position significantly in the middle of 2013 at prices from 60c to 63c a share. Given my rather large investment, the question of whether to stay invested or to partially divest is not one to be taken lightly.

As I invest primarily for income, I am mainly concerned whether NeraTel is still able to pay a meaningful dividend. I am also concerned if the balance sheet is still strong, naturally.

NeraTel is still a profitable business although it is not doing as well as before. 

To be honest, I would be pleasantly surprised if NeraTel is able to report a full year EPS of 4c which would mean having to report an EPS of 1.51c in 4Q2015, equivalent to 60% of earnings achieved in the first 9 months of 2015.

However, it would be equally surprising to me if NeraTel is unable to achieve at least a full year EPS of 3c which would suggest 4Q2015 coming in worse than 3Q2015.

Barring a bombshell of a 4Q, assuming that NeraTel should pay out most of its earnings as dividends, I believe a 3c dividend per share (DPS) is reasonable.

NeraTel's balance sheet is still strong. Operating cash flow has also remained positive.

I see challenging conditions for NeraTel but I do not see NeraTel going the way of the Dodo in the near future.

So, I will stay invested but, at this juncture, I won't add to my investment although I believe that NeraTel should be comfortable paying an annual dividend of 3c a share. 

I want to remember that given the stiff competition that NeraTel faces, earnings could continue to come under pressure.

If a DPS of 3c is a more realistic expectation based on a 100% payout of earnings, then, I would need a higher dividend yield for me to add to my investment.

Related posts:
1. NeraTel: 1QFY15.
2. NeraTel: 2QFY15.

Saizen REIT: A lesson on the right prices and luck.

A reader, Felix Leong, left me a comment on how Saizen REIT's shareholders are just lucky to get a good offer.

As I was replying to his comment, I decided that there is a lesson in this and that I should blog my response instead.

Felix Leong's comment:

Hi Felix,

Indeed, luck has a role to play in this and we should not think that this development at Saizen REIT has nothing to do with luck.

Whenever anyone tells me that he doesn't believe in luck, I would wish him luck.

When people buy any REIT that is trading at a discount to NAV, I would ask them why?

If they are hoping for the value to be unlocked, then, I would wish them luck. They would need it.

Why?

It might or might not happen.

When we buy into a REIT, to me, the main motivation should be for income.

This is a reason why although some are waving flags around for Sabana REIT now, shouting that it represents good value for money because of the huge discount to NAV, I am not convinced. 

I am not saying I am right and they are wrong. I am just saying that I am not convinced that they are right. I have shared my thoughts in a couple of blog posts on why I feel this way too.

I do feel sorry for those who got into Saizen REIT at its IPO so many years ago at $1 a share. We should all take it as a good learning experience and hopefully become wiser investors.

I rarely get anything at IPOs and when Saizen REIT had its IPO, I told friends and family that it wasn't worth the asking price. It just wasn't attractive. That was during my pre-blogging days, of course.

An important thing I try to remind myself all the time (although sometimes I forget) is that all investments are good at the right price.

So, I make an effort to keep an open mind about opportunities. Those stocks which are unloved and neglected could turn out to quite rewarding.

As investors, it is important to know what we want from an investment and if it is able to bring home the bacon.

If what we want an investment to deliver depends on luck, then, it is more speculation than investment.

When I got into Saizen REIT when I did, I was looking at an estimated distribution yield of almost 10%. Of course, there were many other considerations which, to me, made it a great investment for income at the price Mr. Market was offering.

The investment was a good fit for my motivation.

Saizen REIT has been a good investment for me and now Lady Luck has decided to smile on me.

I just hope that she would continue smiling until the sale is completed.

Yes, we still need luck on our side as it is not over until it is over.


Related posts:

1. Saizen REIT: Deeply undervalued but is it a buy for you?

2. Sabana REIT: What is the right price to pay?

Saizen REIT: Can we make some money from arbitrage?

Saizen REIT is suddenly getting a lot of attention. This is certainly a far cry from the time when I first blogged about it in 2009.

Now, with a price of $1.10 a unit, many are wondering if they could benefit from arbitrage.

Buy at $1.10, get one round of income distribution and get to receive $1.17 sometime middle of next year.

In a comment I made last evening in my last blog post on Saizen REIT, I said that we might not get $1.17 a unit next year because the buyer will only pay 95% of the consideration with the balance 5% to be retained in an escrow account.

Basically, if the buyer should identify some engineering work required for the assets being acquired, they have the right to draw upon the money in the escrow account for remedial work. They will have 28 days to do this.

We can only hope that there isn't that much engineering work required and that most of the money in the escrow account would be released to Saizen REIT in due course.

There was also a worry about exchange rate and how a weaker JPY in the next few months could affect payment to shareholders in S$.

This is no longer a concern because the very prudent management at Saizen REIT have entered into a currency hedging arrangement.

So, for those who would like to buy into Saizen REIT to enjoy some arbitrage benefit, what should we do?

Anything below $1.11 would be safer. Buying at prices higher than that would be making a wager on the buyer not drawing too much upon the funds in the escrow account.

Finally, take heed the warning provided by Mr. Chang Sean Pey that there is no assurance or certainty that the transaction will be completed. So, trade with caution.


See: Hedging arrangements.

Related post:
Saizen REIT: Firm offer by Lone Star.

The "secret" to AK's success as an investor.

I was talking to a friend over a cup of tea recently and we agreed that most people naturally do not have the temperament to be good investors.

Most of us are not born into a family of good investors. Those who are will have an advantage, for sure. For the vast majority of people, AK included, we might start the journey later in life and we might have to try a bit harder but unless severely disadvantaged, financial freedom is definitely not beyond us.

Having the right philosophy in life is essential as our philosophy will guide all our thoughts and actions. I have achieved what I have today financially largely because of my philosophy in life. Remember the story about the grasshopper and the ant? (See my blog post on being a happy peasant.)

Regular readers would know that I believe in saving money, the more the merrier, of course.




Something I blog about pretty often is the CPF and how we should try to take full advantage of it as Singaporeans. 

I said that if we bulk up our CPF-SA as soon as we could, we would be helping the CPF to help us build a more meaningful retirement fund more quickly. Compounding at 4% per annum over a long period of time without risk would be more magical if there is a larger base to start with.

Imagine compounding $10,000 over 20 years at 4% per annum versus compounding $100,000 over 20 years at 4% per annum. How much we get at the end of 20 years would depend on how much we put in right at the start, everything else remaining equal.

Quite easy to see that, isn't it?




Many of us are probably familiar with the idea that our CPF savings is not going to be enough for us to retire on and that we should save more money. 

Of course, a more sophisticated idea is that we should have investments that will help to fund our retirement and this argument is a very attractive one too.

At this point, let me tell you a story.

One of the stories which I enjoy sharing is how I bought my very first lot of ST Engineering's stock at $1.55 a share donkey years ago. I was attracted to how they were paying 100% of their earnings as dividends to shareholders. 

Back then, when I told some friends what I did and I had more friends donkey years ago, some went:

"Wah! So expensive! That is $1,550 a pop and then there is brokerage fee! You so rich!"

Well, something like that. 

Brokerage fee was more expensive in those days and, yes, one lot was 1,000 shares until not so long ago.

Of course, for us young people who just graduated and drew a salary of about $3,000 a month, $1,550 was a lot of money. Yes, I was a young person once upon a time.

A reader's little niece drew this.

What was even more amazing to many, including my mom, was how I bought more of ST Engineering's stock as its price rose. I remember buying at $1.70, $1.80, $1.90 etc. Well, not at those exact prices but you get the idea. 

I was buying almost every month and I have reaped the benefits of being a shareholder over many years. The very first 1,000 shares I bought are probably free of charge twice over or so by now.

So, similar to my narrative on the CPF and my strategy, it is about saving as much money as possible early in life and putting the money to work as early as possible in life, investing in good dividend payers. 

We don't have to be a genius to do this but the will to save more money right from the start must be strong.








Not too long ago, a fellow blogger whom I respect said that he admires my money habits. He commented that I am probably successful more because of my money habits than my investment acumen. I cannot remember his exact words but his comment is in my blog's comments section somewhere. 

I will be the first to say that I am not a very good investor but I can grow my wealth relatively quickly. This is not because I make a lot of money. It is because I do save a lot of money relatively quickly.

Be much better savers as early as possible in life. 




If we do this, it will allow us to become wealthier faster as it gives us more capital to invest with earlier in life and we will have more time to reap the rewards of being invested (i.e. becoming wealthier). 

If we are able to save much more money than our peers, even if we are not fantastic investors, just by investing prudently for income, all else being equal, we are most likely going to enjoy a much better outcome financially compared to our peers.

Related posts:
1. To be a happy peasant.
2. How did AK create a 6 digits passive income?
3. Greater financial well being is not beyond us.
4. The Millionaire Next Door.
5. Buying a $500,000 watch after 3 years of work.

AIMS AMP Capital Industrial REIT: 2Q2016 DPU 2.8c

One of the few friends I have complained that I don't do quarterly reports on REITs anymore. I told him don't be lazy. Go see the presentations and financial statements published by the REITs. 

Don't rely on what bloggers write. Sometimes, we blog practically useless stuff and we are wrong many times too. Yes, even very eminent bloggers are not infallible. Don't think got bloggers means he no need to work as an investor, I told him.

So, why am I doing this? 

Well, a reader just asked me whether AIMS AMP Capital Industrial REIT is good to buy. I think must be a new reader because readers who have been following my blog know that I don't answer such questions with a 'yes' or 'no'.

Anyway, the reader read some disturbing headlines in the papers regarding AIMS AMP Capital Industrial REIT and wondered if it was a good investment. I gave him a link to the financial statement and said he should find out for himself. Don't rely on newspaper headlines.

AIMS AMP Capital Industrial REIT remains my biggest investment in the S-REIT universe. The REIT continues to do what I expect it to do which is to generate meaningful income for me in a sustainable manner. The fact that they are doing this while staying prudent in their finances makes me happy.

As shareholders, I have said before that we should be more concerned with performance on a per share basis. The fact that net property income (NPI) increases is meaningless if distribution per unit (DPU) should decrease and we have seen this happening with a couple of other REITs recently especially if they continue to distribute 100% of their distributable income.

AIMS AMP Capital Industrial REIT improved on their quarterly DPU and 2.8c per unit will be distributed on 23 December 2015. 

7.82% distirbution yield based on $1.42 unit price.

They did this while reducing gearing level to 30.9%. NAV per unit is $1.52.

Their interest cover ratio is at 4.8x which is healthy and they don't have any debt due till August 2016. Financially, the REIT is very sound.

AIMS AMP Capital Industrial REIT faces the same problem that all industrial landlords in Singapore do. There is more supply and, so, more competition for tenants but the REIT has been doing a very good job of getting new tenants and renewing leases at modestly higher rates. This is a sign of diligence and also competence.

There is no reason for me to reduce my investment in the REIT at this point in time as it continues to do the job I expect it to do and, in fact, if Mr. Market should go into a depression and decide to sell the REIT cheaply, all else remaining equal, I would probably buy more even though it is already my largest investment in S-REITs.

For now, I am looking forward to more passive income in December.

See presentation: here.
See financial statement: here.

Related posts:
1. AIMS AMP Capital Industrial REIT: Opinion.
2. 9M 2015 passive income from S-REITs.