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APTT: 1 for 4 rights issue at 12.8c a unit.

Wednesday, April 29, 2020

I am taking some time off from "Legends of Runeterra" which is a free to play game recommended by a reader, Azrael, in order to blog about APTT.

As a new player in both "Legends of Runeterra" and "Magic the Gathering: Arena", I find the former to have a better free to play model.

So, a shout out to Azrael for the recommendation.

Here is a short video on one of the regions in game:



OK, onward to victory, er, I mean APTT.

In late 2018, I increased my investment in APTT substantially as its unit price plunged.

A little more than half a year later, I sold those units as the stock market rallied, making some pocket money in the process.

I am still holding on to a legacy position in APTT which is largely free of cost by now.

At today's market price, this legacy position is a really small percentage of my portfolio.

How small?

Off the top of my head, probably less than 1% or maybe even less than 0.5% of my portfolio.

As this legacy position is largely free of cost, I am quite happy to simply hold and collect whatever money the Trust decides to distribute to me regularly.

The DPU was last fixed at 1.2 cents per annum which means a yield of 9.37% based on a unit price of 12.8 cents.

Of course, as my investment is largely free of cost, whatever income distribution I get is almost like getting free money and the yield is pretty much infinite.






Now, the proposed rights issue.

As an investor for income, the first thing I ask is what happens to the DPU after the rights issue?

With the proposed 1 for 4 rights issue, the immediate guidance is for a reduced DPU of 1 cent per annum.

This reduced DPU means a yield of 7.81% based on a unit price of 12.8 cents.

For my legacy position, I will just hold on because, like I said, it is almost like getting free money.

The question is whether should I take part in the rights issue?

Regular readers know that I like rights issues more than private placements.

I always get the option to participate in rights issues but I don't ever get invited to private placements.

Rights issues allow small investors like me to participate in the equity fund raising exercises of our businesses.

Some readers might remember my series of blogs on REITs and rights issues.

If you are new to my blog or don't remember, here are a couple of blogs from 2011 on the subject:

1. REITs and rights issues: A Singaporean tale.

2. REITs and rights issues: Dilutive or not?

Of course, to be fair, rights issues can also mean an invitation to throw good money after the bad.

So, what do I think of APTT's proposed rights issue?

Would I take part in the rights issue?






Rights issues are good if the funds raised will go towards efforts to generate more income and hopefully that means higher DPU for the investors for income like me.

Generally, I do not like rights issues which raise funds to pare down debt or to strengthen the balance sheet as it is not rewarding for me as an investor for income.

After this proposed rights issue, to reiterate, APTT's DPU will reduce to 1 cent per annum from 1.2 cent per annum.

We want to take note that this would be achieved on the back of increasing the distribution payout by 4.2% too.

Income is not increasing.

The payout is increasing.

We also want to take note that there is also no guarantee that DPU will stay at a minimum of 1 cent per annum.

Could we see further reductions in DPU in future?

It is a pertinent question.

There is a chance it could happen.





The big reduction in DPU in 2018 was necessary so that APTT would be distributing only a percentage of its earnings to their investors which allowed APTT to fund their transformation strategy without having to take on more debt.

Prior to that, APTT was funding distributions by taking on more debt.

Apparently, that big reduction in DPU in 2018 was not enough for them to pare down debt fast enough.

The management say a key focus of their strategy is to pare down debt.

So, another reduction in DPU in future is not improbable.






It is interesting to see that if no one else is interested in the rights issue, some insiders will buy all the rights units available.

It is said that it is a vote of confidence by the insiders because even the super rich would not want to lose money.

Peter Lynch would say that these insiders are buying probably because they think they will make money.

Well, to be fair, the rights issue will raise about $46 million which is a drop in the ocean for the super rich insiders like Mr. Lu Fang Ming, Mr. Hsiao Han Shen and Mr Dai Yung Huei.

When we have a lot of money, we can also be less calculative when it comes to money.

We can also afford to be more adventurous.





From all that I have said, it should be obvious that I will pass on this rights issue.

What?

My equity participation in APTT will weaken?

So be it.

I will still get free money from my legacy investment in APTT and I will keep it that way.

Simply from a distribution yield perspective, a prospective 7.8% yield isn't all that attractive when I can get a similar yield from IREIT Global which has greater clarity when it comes to income generation and it is also financially a stronger outfit, for example.

APTT could grow to be a very good investment in future and if that should be the case, I would still benefit from my existing investment.

Not participating in the proposed 1 for 4 rights issue is not going to make a big difference to me.





Till my next blog, be socially responsible and stay safe.

Things might get worse before it gets better.

When I went to the neighborhood supermarket last evening, I saw a group of elderly people lounging and chatting in public.

They were either not wearing masks or using them only to cover their chins.

In the supermarket, there was a family of four shopping.

The youngest in the family, a girl, was rollerblading in the supermarket.

Sigh.

There will always be irresponsible people amongst us.

We should stay united and do the right things.

We should be #SGUnited.

Related post:
Insider buying in APTT and Lu Fang Ming.
"The Monetary Authority of Singapore (MAS) added that the recession ahead is likely to be deeper than first thought."




6 comments:

keng said...

Hi AK,

I still don't know what to make of this.
The result of their strategic review looks like getting another entity to save the parent and asking for money? Doesn't seem right.

I'm not holding on the shares for free, so will probably have to subscribe to the rights :(

Distribution guidance to be announced at Q3 2020, fingers crossed.

AK71 said...

Hi keng,

We should do what we feel is best for ourselves.

If you feel that something is off, then, you might want to think carefully before plonking more money into APTT.

Of course, if it is a relatively small position and if you are OK with speculating, then, no issue.

The fact that insiders are willing to inject more of their own money into APTT shows that they really want it to succeed.

So, there is that but I am sure they are risking what they can comfortably risk.

Peace of mind is priceless. :)

Reference:
Investors eat crusty bread with ink slowly for peace of mind.

The Dreamzola Traveller said...

Hmmm, I much prefer a game with some nice costumes to farm. Play power is a moment of glory, but play smart looking is eternal. LOL.

I also got APTT, but after 2018 I simply dumped it to one side of the corner and treat it as some kind of Fixed Deposit.

Qiongster said...

Hi AK,
OUE Commercial Reit has reported strong growth in income after merger with OUE HTrust. At 0.40 and potentially more than 8% yield, does it begin to offer any value to this? Many years ago, you have analysed this before. Also, it's parent coy OUE limited seems to be offering tremendous value now. Will you be able to provide some insights on OUE Com Reit and OUE limited again? Thanks.

AK71 said...

Hi TDT,

I know fashion and cosmetics or what we call "skins" in game are a big thing for some.

Tera is probably a good example.

I know not to argue with people who want to look good in game or in RL. ;)

A fixed deposit called APTT?

Sounds atas. ;p

AK71 said...

Hi Qiongster,

Yes, blogged about them in the past and I think the underlying analyses are still partly valid.

The last blog about OUE C-REIT:
OUE C-REIT will see DPU declining.

And OUE H-Trust:
OUE Hospitality Trust: Considerations.

From those blogs, it is obvious I don't have a good impression of either Trust.

Of course, I could be bias and just want to invest in what I am familiar with.

As for OUE Limited, all I will say is that it is very undervalued but just like other property developers here, it could stay undervalued for a long time.

Reference:
An incomplete analysis of OUE Limited.

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