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BREXIT and 1H 2016 income from non-REITs.

Wednesday, June 29, 2016

Were there any major development in the non-REIT space for me in 2Q 2016? 

Selling most of my investment in NeraTel probably qualifies. I sold about 90% of my investment in NeraTel. 

Being a relatively substantial part of my investment portfolio, the sale, as you might have guessed, bumped up the cash level in my portfolio by quite a bit.

A happy problem?

In the short term, with the divestment gains, it is probably a happy problem but if I do not put the money to more productive work, we would have to remove "happy" from the phrase. So, I put some of the money to work.

In the non-REIT space, in 1Q 2016, some readers might remember that I bought DBS, DBS and more DBS. Even now, DBS is trading at a discount to NAV and a relatively low PE ratio of about 8x. Paying out about a third of its earnings as dividends, the yield is almost 4%. 

Thanks to BREXIT, I was able to add to my investment in DBS as its share price declined, breaking a technical support. I would like to collect more on any further weakness.

In 2Q 2016, I also added to my investments in Starhub, VICOM, QAF Limited and Croesus Retail Trust on lower prices offered by Mr. Market.

Investing for income, I am interested in entities which have strong income generating abilities. Of course, they must pay meaningful dividends.

A handful of readers asked me for my thoughts on Croesus Retail Trust's proposal to be internally managed. It is quite interesting since it would be the first investment trust to be internally managed in Singapore if the deal is accepted by its unitholders.

All else remaining equal, internal management is a good thing for Croesus Retail Trust as it would mean that profits which would have gone to the external manager could be distributed to unitholders instead. The probability of conflict of interest between an internal manager and the unitholders will also be lower.

Of course, an external manager of any investment trust is a profitable enterprise, earning regular fees. No external manager in his right mind would give this up for a song. The price to internalise Croesus Retail Trust's manager is set at a princely sum of S$50 million.

For FY2015, the external manager recorded earnings of about S$500,000. Paying S$50 million to internalise the management would mean paying a PE ratio of 100x. Comparatively, ARA which manages a portfolio of REITs like Suntec REIT is trading at a PE ratio of about 15x. Go figure.

Although I like the idea of an internal manager for Croesus Retail Trust, I think paying S$50 million for this would be a price too high.

Post BREXIT, I also added to my investment in OUE Limited which I first blogged about in 2014 as a possible asset play. I basically paid 50c for what was worth $1.00. It was a smallish position as I was wary of the situation with Twin Peaks condominium. See my past analysis: here.

I decided to add to my investment because the situation with Twin Peaks has improved with many more units sold but the stock traded at an even bigger discount to NAV. While waiting for value to be unlocked, I will get some pocket money from the regular dividends OUE Limited declares.

Very much along the same line of thought, I decided to also increase my investment in Wing Tai Holdings. Although they have much more exposure to development properties compared to OUE, they have a stronger balance sheet. Mr. Market could be overly pessimistic. See my past analysis: here.

In 2Q 2016, I received income from:

2. ST Engineering
3. SPH 
5. QAF Limited
6. Wilmar
7. ARA
8. Hock Lian Seng
9. SCI
10. SMM
11. OUE Ltd
12. Hong Leong Finance
13. DBS
14. NeraTel
15. Accordia Golf Trust
16. Croesus Retail Trust
17. Starhub
18. Ascendas H-Trust

I hope I have not missed out anyone.

Total income received from non-REITs in 1H 2016:

S$ 58,545.01

That is about S$ 9,757.00 a month.

I will continue to nibble at stocks and if a correction in the magnitude of 10% or more should happen, I am prepared to buy much more.

Related posts:
1Q 2016 income from non-REITs.


Kevin said...

Hi AK,

Good insights about Croesus Retail Trust. Coincidentally, I picked up DBS(D05) too during the BREXIT's jolt and will continue to do so when markets become more volatile when article 50 is finally executed by the UK.

I also added Sheng Siong(OV8) for its steady growth and defensive earnings. Dividend yield is about 4%.


AK71 said...

Hi Kevin,

Everyone keeps telling me about Sheng Siong but I don't enjoy shopping in their supermarkets. LOL. On a serious note, I do think that their valuation is somewhat expensive. PE ratio is in excess of 20x (23x?) and their dividend yield of 4% is from an almost 100% payout of earnings.

Kevin said...

Hi AK,

I do agree Sheng Siong is a tad expensive but I do like their good corporate governance and their strong balance sheet. They are growing organically in a steady pace and their venture into Kunming,China will start to bear fruit by this year. One of their senior management personnel personally placed a 10% stake out of his own pocket for the Kunming JV.

On a jovial note, they are giving out cold hard cash every week through their Sheng Siong Show on Mediacorp Channel 8 and strong earnings are expected from next earnings report due to current ongoing Muslim Ramadan period. :)

justin said...

Hi AK,

OUE, last year received $40 dividend

only $10 this year.


Solace said...

I have increased my exposure slightly when share price hit $1.50 recently for OUE. I have attended OUE AGM recently.

There were of plenty of angry shareholders around, dismayed at the slow long term downtrend of OUE for the past 3 years, from about 3 dollars to current 1.50 dollars region.

I have a chat with the management with regards to OUE Twins Peaks, They have contingency plans to avoid paying for QC charges when it is due. When press further, they did not reveal it.

From my memory, there is a couple of ways for companies to do that.
1. One is to delist, e.g Popular Holdings declared that it wanted to delist to avoid QC penalties. Soilbuild delisted in 2010 and became a Singapore company, got its QCs for its private project cancelled, then re-listed in 2013.
2. sell all the units in the development to a privately-held Singapore company. This buyer could be the foreign developer's privately held parent company or subsidiary. Hiap Hoe comes to mind

Recently, they have came up with creative methods in marketing to sell more units.

On a side note of dividend of OUE in your blog. Attendees of OUE AGM were given Voucher for Chatter Box chicken rice at Mandarin Orchard. It costs about $30++. So in a way, it is also a form of "Dividend"? LOL haha

AK71 said...

Hi Kevin,

Sounds promising! I might get some if Mr. Market goes into a depression. ;p

AK71 said...

Hi Justin,

1c DPS is actually the norm for OUE Limited. ;p

AK71 said...

Hi Solace,

Thank you for weighing in on the matter. Undervalued, OUE Limited is hard to pass on. ;p

Alamak, vouchers for the famous Mandarin Hotel Chatterbox chicken rice? You have just made me regret not attending the AGM. :(

AK71 said...

Rusmin Ang:
"66% vote for CRT internalisation"

Assi AK:
"Silly goats...
Thanks for the update..."

AK71 said...

Croesus Retail Trust:

NOTICE IS HEREBY GIVEN that in connection with the Preferential Offering of 27,682,070 new Units (representing 3.8% of the existing number of issued Units as at the date of this Announcement) to raise gross proceeds of S$22.1 million.

The Trustee-Manager is pleased to announce that the issue price of the Preferential Offering Units has been fixed at S$0.797 per Preferential Offering Unit.

The Units will trade on a “cum-rights” basis on the SGX-ST up to 5.00 p.m. on 29 July 2016 and the Units will trade on an “ex-rights” basis from 9.00 a.m. on 1 August 2016.


AK says:
This will result in slightly lower DPU, all else remaining equal.

AK71 said...

Croesus Retail Trust:

Eligible Unitholders will be entitled to subscribe for Preferential Offering Units on the basis of ten (10) Preferential Offering Units for every two hundred and fifty nine (259) existing Units held by each Eligible Unitholder as at the Books Closure Date (fractional entitlements to be disregarded).

AK71 said...

By my friend and fellow blogger:

Croesus Retail Trust Preferential Offering.
"If you own 10,000 shares of Croesus before XR, you'll need to fork out $30.77 to subscribe to the new shares..."

Kevin said...

Hi AK,

Will you be subscribing for your full entitlement of Croesus Retail Trust's Preferential Offering Units?

Kevin said...


"If you own 10,000 shares of Croesus before XR, you'll need to fork out $30.77 to subscribe to the new shares..."

I think it should be $307.7 instead.

AK71 said...

Hi Kevin,

Alamak, my friend typo. Must tell him. Haha.

Yup, I will subscribe to my entitlement. :)

Nicole said...

Hi AK,

Thanks for sharing your thoughts on OUE and your past analysis :)

Would like to ask what do you usually do when your stocks go up in prices?

I started out with a small portfolio of REITs and blue chips for passive income purpose. Their price recently gone up by 10% and I am still holding them.

How could I take advantage of the increased price to make my passive income larger without selling those stocks? Or must I sell those stocks to buy in more stocks to increase my passive income :)?

AK71 said...

Hi Nicole,

I am going to be lazy and refer you to these blog posts:

1. When to buy, hold or sell? (Part 1)

2. Should I sell my investments to lock in gains?

Gambatte! ;)

Nicole said...

Cheers AK :)!

frenchbriefs said...

hi AK,how old are u?everytime i see ur dividend payouts,i think to myself this is insane!!!and this is only one quarter of the u build such an incredible portfolio.

AK71 said...

Hi Jon,

My age? The answer is in my blog somewhere. ;p

You might want to read this blog post:
How did AK create a 6 digits annual passive income?

AK71 said...

Investments in digitising DBS Bank has opened up new revenue streams at lower costs for Singapore’s biggest lender.

DBS CEO Piyush Gupta said on Tuesday (Jul 12) that digital customers yield more than double the amount of revenue per customer, while costs of local transactions done digitally can be as little as 5 per cent of traditional channels.

Over the last six years, DBS has invested up to S$5 billion on technology, around half of which, Mr Gupta said, has been spent on redesigning its systems, giving it the "nimbleness" to introduce new applications.

The CEO spoke to Channel NewsAsia about the changing landscape for banking and tapping on technology to stay ahead of its competition and opening up new market opportunities.

Big, traditional banks run the risk of being slowed down by legacy systems.

Gupta: "I think if you can digitise your entire setup, you can actually achieve higher revenues at lower cost. So your efficiency ratio improves, which means that you can give your customer a better deal, and still drive a better return on equity. We are already seeing that.

"Our DBS Remit product, for example, has allowed us to both increase our cross-border remittance traffic by almost 100 per cent in the last two years, with substantial increase in revenues. We are also able to reduce our cost. Through digitising, our call centre volumes have come down by 10 to 15 per cent in one year. Our branch volumes have come down by 4 to 5 per cent.

"Finally, by using a digital distribution approach, we can attack the big countries - India, Indonesia, China - in a way that we could not through a brick-and-mortar approach. The brick-and-mortar strategy requires many years of payback and very deep pockets - 10, 20, 30 years. But a digital strategy could allow you to access the retail market at a substantially better cost point, and get scale in a way that is actually affordable."


Unknown said...


Could you please share with us how you conclude that DBS is/was below NAV and that it's P/E is relatively low?

Thank you! and sorry for noob question.

AK71 said...

Hi jcsemaj1,

NAV/share and earnings per share are usually revealed during presentations by companies. You can go to DBS website to look for this information (either in their quarterly reports or annual reports).

As for P/E ratios, you could compare historial earnings per share and historical share prices against current day earnings and share prices.

Kevin said...

Hi AK and Solace,

Fantastic 2Q 2016 results for OUE and shareholders were rewarded with 1 cent per share as interim dividend and 2 cents per share as special dividend.

Thank you AK for sharing about OUE as I became a shareholder thereafter too. :)

I will continue to monitor OUE closely and buy more when the right opportunity presents itself.

Solace said...

OUE Declares interim dividend of 1 cent and special dividend of 2 cents per share.

So this year got 2 cents special dividends from divestment of Crowne Plaza Changi Airport hotel
extension (CPEX) divestment to OUE Hospitality.

Can OUE faster inject more properties into their REITS Please? hahaha LOL

AK71 said...

Hi Kevin and Solace,

Trading at such a huge discount to valuation, OUE is a bargain. It is just a matter of waiting for the value to be unlocked. An asset play demands patience from investors. :)

Solace said...

Hi Kevin and AK,

Q2 results is encouraging.

However, do note that recent news have suggested property cooling measures will not be removed anytime soon and OUE revenue also tends to be lumpy/inconsistent over the years. There is still a shadow over property developers now. So let's be cautiously optimistic.

Waiting to see how value is being further unlocked. I always remember Haw Par is still under NAV up till now lol.

AK71 said...

Hi Solace,

We must be patient to fish but we might not always get a fish. ;p

AK71 said...

StarHub said it achieved customer growth for both pre and post-paid mobile, and also grew revenue for its broadband and enterprise fixed services.

According to the earnings report, mobile continued to be the major contributor, accounting for 51 per cent of the telco’s total revenue mix for the half year. Enterprise fixed services made up for 17 per cent, overtaking pay TV as the second largest contributor. Pay TV, broadband, and equipment sales contributed 16, 9 and 7 per cent respectively.


Solace said...

So, interestingly, a share buy from OUE, it has been the longest time since i saw OUE buy back any shares from my memories.

Total Shares Purchased: 118,000
Price Paid Per Share: 1.5312

AK71 said...

Hi Solace,

Thanks for sharing this.

I have been nibbling. ;)

Kevin said...

Hi AK,

DBS has been doing lots of share buy-back this month. :)

AK71 said...

Hi Kevin,

In its recent retreat in price, I collected more at under $15 a share. ;)

Kevin said...

Hi AK,

I did the same too and also nibbled on the 3 telcos when it declined after the announcement of the possible 4th telco.

Hopefully, sales of the newly announced apple iphone 7 and 7S will be able to give Q4 financial earnings a boost. ;)

AK71 said...

Hi Kevin,

The last time I bought more of Starhub was at $3.30 a share earlier in the year. So, that has become my anchor. Bad AK! Bad AK! -.-"

Kevin said...

Hi AK,

I feel that Hong Leong Finance is quite undervalued at the moment. The current share price is more than 50% lower as compared to NAV per share of 3.79.

It currently has zero debt and operating cash flow is doing fairly well too. Dividend yield is more than 4%.

With the impending rate hike, net interest margin will set to rise and in return will boost earnings.

Your thoughts on them? ; )

AK71 said...

Hi Kevin,

Hong Leong Finance and Singapura Finance both have about 80% of their total income as interest income. So, a rise in NIM will be more significant for them compared to the banks which have about 60% of their income as interest income. However, if interest rates remain depressed, then, banks which are more resilient due to a more diversified income base will continue to be better investments.

Kevin said...

Hi AK,

Congrats to another windfall from ARA this time(previous windfall from Saizen REIT).

It seems like M&A activity is very hot currently. Could it be that valuations in general are very attractive on the STI? :P

Are you planning to sit on cash or reinvest the windfall from ARA(if the deal goes through successfully)?

AK71 said...

Hi Kevin,

When credit is readily available and relatively cheap, many investments look more attractive. These days, junk bonds in Singapore yield about 5% which would have been considered pretty low prior to the GFC. We see HNW individuals flocking to them (and some getting burnt).

So, well run companies like ARA that pay good dividends must look even more attractive. Of course, as a shareholder, I won't complain if the offer price is reasonably good.

The challenge is in finding other attractive income generating investments to park my money.

AK71 said...

In 2Q 2016, OUE’s revenue jumped by 40.4% YOY to S$134.3m, thanks to the consolidation of revenue from One Raffles Place. Profit attributable to shareholders was S$25.7m in contrast to a loss of S$16.3m a year ago.

OUE’s NAV per share is S$4.31. It is currently trading at more than 60% discount to NAV.

AK71 said...

Feb 3 Starhub Ltd

* Q4 net profit s$54.0 million versus s$80.8 million

* Q4 total revenue s$634.8 million versus s$633.8 million

* In first half of 2017, we will see general spectrum auction and 2g network shutdown

* Expect our group's 2017 service revenue to be at about 2016's level and group ebitda margin to be between 26% to 28% of service revenue

* "we expect challenges from streaming boxes and other entertainment alternatives to continue in 2017"

* In 2017, capex payment is expected to be at about 13% of total revenue

* "For broadband, we expect pricing pressures to linger and will focus on upgrading customers to higher speeds, to maintain arpu"

* "Intend to pay a quarterly cash dividend of 4 cents per ordinary share for fy2017."

blazingruby60 said...

hello AK
i remembered u had OUE Ltd long time ago.
can you give your opinion on the recent OUE buyback at 1.25
i am in two minds to sell even though at a loss cos this company
doesnt pay decent dividends and have low trade volume.
thanks and cheers

AK71 said...

Hi blazingruby,

It is likely the OUE would stay undervalued for a long time.

So, I would accept the offer and put the money to work elsewhere.

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