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2016 full year passive income from non-REITs (Part 1).

Friday, December 30, 2016

During an "Evening with AK and friends", someone asked if I was going to sell my stocks as market guru Hu Li Yang was expecting a stock market crash. I said we should stay invested as the market was still awashed in liquidity and money will go to where it is treated best. See: Evening with AK and friends.

So, what did I do in 2H 2016 in the non-REITs space? I made various purchases but, mostly, I was buying DBS shares. Besides DBS, I also bought some shares of OUE Limited, PREHWilmar, OCBC, Breadtalk and Starhub.

(I am impressed by DBS' cost management. Their cost to income ratio keeps declining.)

The narrative for investing in OCBC was similar to the one for DBS. Although all three local banks' stocks looked cheap to me, my preference was for DBS because of the perceived cheaper valuation.

The reason for me putting some money in OCBC's stock was mostly because my long position in DBS grew so big (and I do mean BIG) that it was prudent for me to step on the brakes. 

Using a strategy I employ frequently for stocks which I am highly confident in, my relatively large position in DBS included both a core position for income as well as a trading position.

Why not UOB

Well, I think UOB has been a bit laid back. I am not saying that it is a bad thing, mind you, but its growth story seems less exciting.

Of course, some might say that DBS and OCBC have been more "adventurous" but I like to think that they are more enterprising.

I feel that growing their wealth management business more aggressively will continue to set them apart from UOB as that business contributes more and more to their earnings.

Next, Wilmar. I continue to like Wilmar's business strategy and their very impressive scale of operations. It is an amazingly complex business and, to be quite honest, I have no way to analyse most of its operations.
However, when Mr. Kuok thinks their shares are cheap and bought more at $3.00 a share, that was a pretty clear signal to me. At that price, we would also be buying at around its NAV which seems conservative.
Source: RHB.
Having accumulated a rather significant long position in Wilmar in recent years, I am quite happy to wait while being paid to do so.

Now, for OUE Limited. I blogged about my rationale for increasing exposure to OUE Limited when I shared my numbers for 1H 2016 (see related post #1). Back then, I added at $1.51 a share. In 2H 2016, I added more at $1.53 a share.
Twin Peaks.
My decision to increase exposure was mostly driven by the even larger discount to NAV from the time I initiated a long position. 

There is much value in OUE Limited but waiting for value to be unlocked requires a lot of patience. Well, remember, a wise man did say before that the big money is in the waiting.

Along similar line of reasoning, I also added to my investment in PREH at 80c a share a few days ago. This is the lowest price I have ever paid for PREH. The last time I bought any PREH shares was more than a year ago. 

It is interesting to me that Mr. Ron Sim, Mr. Pua S.G. and Mr. Kuok K.H. have been increasing their stakes in PREH on price weakness. 

PREH is an asset play but it is also a growth story. It is not for the faint hearted.


As for Breadtalk, I have a more recent blog post on my decision to initiate a position. I compared it to Old Chang Kee and QAF Limited, both of which I have been a shareholder of for many years. 

If you are interested to know why I had a change of heart and decided to initiate a smallish long position in Breadtalk, go to the related posts at the end of this blog post (see related post #2).

Starhub. In June last year, when I did a technical analysis for Starhub, I said:

"The widening of the Bollinger Bands indicates increased volatility. The OBV shows selling pressure. The MACD is declining and shows no sign of a positive divergence. These are all on the weekly chart which suggests that continuing weakness in the longer term should not surprise us." Read blog post: here.

We saw Starhub's stock price sinking and I nibbled  again in late November. I feel that Mr. Market is right to be concerned but might be overly pessimistic about Starhub's prospects with the introduction of a 4th telco.

There is plenty of speculation now but, to be realistic, it will take time for the new entrant (which is expected to enter the market in 2018) to gain traction and it remains to be seen how successful it will be.

Back in June 2015, I also said that SPH and Starhub were similar:

"They could see earnings come under pressure for different reasons but that makes them similar too as the challenges are very real.... I would like to have some buffer in terms of dividend yield buying into SPH and Starhub because I am investing in them primarily for income and not growth." Read blog post: here.

I believe I am getting a much thicker cushion buying Starhub at under $2.80 a share and that was what I did.

As for SPH, let me share here a recent conversation with a reader:

I have been a SPH shareholder for many years and I am happy enough to be paid while I wait.
As this turned out to be a very long blog post, I chopped it up into two parts. Read Part 2: HERE.
Related posts:


Gark said...

Nice writeup. :)

Have you consider Singtel or FCL?... as an alternative to Starhub and PREH.

AK71 said...

Hi Gark,

I have SingTel and added to my position last year when its share price plunged. FCL, nope.

My plate is pretty full and I keep telling myself not to take on more than I can cover. I guess it is inevitable that I will miss some opportunities.

ThinkNotLeft said...

Hi ASSI, I also bought a lot of DBS this year, but I stop when it hit 10% of my portfolio.

Just curious, Startup seems to have a weakening most ie entry of 4th telco, ppl can choose TV box over pay tv. Thought SingTel seems more high quality with its stakes in telco in other countries. Anyway, I don't own any telco.

AK71 said...


Good position sizing, 10%.

I have positions in SingTel and Starhub. Will see how things go.

AK71 said...

We project new entrant TPG to gain 8.5% mobile revenue share by 2022.

StarHub expects service EBITDA margins to drop to 26%-28% in FY17, due to lower grant income and higher costs. In addition, the company has cut its dividend to 4 Scts per quarter in FY17 from 5 Scts in FY16. The revised dividend levels should be sustainable in our view, considering that StarHub is likely to see cashflow improvements due to the higher level of network sharing with M1.

As an inexperienced operator, TPG could struggle to deploy and maintain a network that could challenge the network quality of the incumbents. Further, as the company has limited bundling capabilities, incumbents may be able to limit their revenue share losses. In this scenario, we expect TPG to only capture 6% of the revenue share from the incumbents. Under this bull-case scenario, our TP is S$ 3.24 for StarHub.

DBS Research

AK71 said...

Loke Oilin:
Yes when DBS was trading at 14 plus sometimes back my friend said will only buy when DBS crashed to 8 dollars in the next GFC.Well...hmn.I did not buy blue chips yet as my focus is on small and mid caps...well 8 dollars...hmmn.But GFC not yet happened leh..And DBS is now...hmn

There is a lesson in this somewhere.
Wait for a big crash to pick our durians?

Kevin said...

Hi AK,

Loke Oilin probably didn't realize DBS was trading below NAV due to their exposure to the O&G sector which harmed their books. 2016 was really 1 of the rare occasions whereby a financial crisis didn't happen but DBS was deeply discounted. Even DBS CEO Piyush Gupta bought 2.8m worth of DBS shares from his own pocket last year and sold it for a big gain this year. ;)

For banks, they clearly hold top quality assets and a big chunk of their assets are in cash. If DBS were to go underwater, cash will always be cash. It cannot go on a firesale or get devalued. ;)

AK71 said...

Hi Kevin,

I just blogged about this again, incidentally:
Sold DBS and want to buy back.

AK71 said...

Are you buying more DBS?

Nope. I still have DBS from my stock purchases in 2016.

"...someone asked if I was going to sell my stocks as market guru Hu Li Yang was expecting a stock market crash. I said we should stay invested as the market was still awashed in liquidity and money will go to where it is treated best... I made various purchases but, mostly, I was buying DBS shares."

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