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Investment in ComfortDelgro is larger now.

Saturday, November 21, 2020

On 1 June, I wrote a piece on the new normal and how I was less sanguine about ComfortDelgro's near term fundamentals then.

From a technical analysis perspective, at that time, ComfortDelgro was also trading firmly beneath the declining 50 days moving average (50dMA).

The MACD, a momentum oscillator, was also in negative territory, forming a lower high and a lower low.


With COVID-19 vaccines on the horizon, things are set to improve although, realistically, numbers might not return to pre COVID-19 levels soon.

Having said this, I believe that the worst is over for ComfortDelgro.

There is still that competition from Grab, of course, but Grab is facing the same difficult environment right now.

Anyway, when I invested in ComfortDelgro, I did it with the worst case scenario of a complete write off of its taxi business in mind.

At the time, basically, even without its taxi business, ComfortDelgro would still be able to maintain its dividend to shareholders.







ComfortDelgro is mostly a public transportation company and the entire sector is under immense pressure due to the COVID-19 pandemic.

However, is ComfortDelgro going the way of Singapore Airlines (SIA)?

As things are now, it is highly unlikely.

Apart from my feeling that SIA is less essential compared to ComfortDelgro when it comes to the day to day operation of Singapore (and I could be wrong about this), SIA had a much weaker balance sheet in comparison going into this crisis.

ComfortDelgro's balance sheet is relatively stronger and they should be able to weather the crisis without having to raise funds.

ComfortDelgro was also prudent in not declaring an interim dividend earlier in the year although its balance sheet could support a payout to shareholders.




As investors for income, if ComfortDelgro was a major passive income generator for us, the loss of dividend from ComfortDelgro could be a big hole to fill.

Although there is reason for optimism now, we have to be prepared for more of the same especially if the COVID-19 pandemic drags on.

As an investor for income, this was a major reason for my strategy during this crisis to concentrate my firepower on the accumulation of banking stocks.

The local banks have stronger balance sheets and the ability to pay dividends with relative ease.

Dividend visibility always gives income investors peace of mind while waiting for things to improve.





Still, in my blog of 1 June 20, I said that although I was less sanguine about ComfortDelgro, I would still add to my investment in the business.

At the time, I was thinking of adding to my investment if Mr. Market offered me a price similar to the NAV per share of ComfortDelgro.

However, as things are surely looking up for ComfortDelgro now, this is no longer a realistic expectation.

As ComfortDelgro's share price shot up and broke long term resistance on high volume a few days ago, I bought some.

However, as the stock became quickly overbought, I decided to wait for Mr. Market to take a breather and a possible retracement to support to happen before adding more to my investment.

Prices don't usually move up or down in a straight line for an extended period of time.






Having said this, the COVID-19 pandemic has reminded me of a major weakness in the business of public transportation. 

As passive income generators, these essential businesses might not be as dependable as I thought them to be.

I hope that ComfortDelgro will become a meaningful income generator in my investment portfolio again soon.

If Mr Market were to offer me lower prices from here, everything else being equal, I would probably add to my investment in ComfortDelgro again.






Related post:
COVID-19, ComfortDelgro and the new normal.

48 comments:

garudadri said...

Hi Ak
Thanks
I agree with you
I added a decent few thousand shares
throughout the pandemic at around 1.50 plus average
Will add more if it declines








AK71 said...

Hi garudadri,

Looking at the chart, there should be strong support at or around $1.50 a share if a retracement happens.

Of course, if sentiments remain positive for longer, stocks could stay overbought for some time to come.

CupcakedCrusader said...

Hi Ak,

Market is so unpredictable! With the run up in prices for most of the counters, what will be the plan going forward.

AK71 said...

Hi CupcakedCrusader,

Yes, Mr. Market is so unpredictable.

So, we shouldn't try to predict what Mr. Market is going to do although many would still try to do it and some even claim that they can do it with great accuracy. ;p

My investment philosophy is to mainly invest in good income generators and it has not changed.

Although many stocks have gone up in price, if we are investors for income, there are still many good investments for income such as IREIT Global, AIMS APAC Industrial REIT and CapitaLand Retail China Trust which haven't moved up in price.

Of course, it is important to know what we want to achieve and to have an appropriate plan.

好人 said...

Personally, I added SBS instead of comfort even though I have both in portfolio.
Will look at comfort more closely.

Midlife Crisis said...

Sorry to be random! what do you think about chip eng seng?

laurence said...

Our Oracle of Reits and Dividend Stocks has spoken!!!
Can't wait to add more now !!!!

AK71 said...

Hi Midlife Crisis,

I don't have Chip Eng Seng.

Don't intend to look at it as my plate is full.

I do have Hock Lian Seng which I still think is a pretty decent investment. ;)

Reference:
Hock Lian Seng returns 100% and more.

AK71 said...

Hi 好人,

CDG owns most of SBS but it has the taxi component which has headwinds.

When I looked at both SBS and CDG, I decided to stick with the latter because CDG had better dividends and also a stronger balance sheet.

Having said this, SBS is probably still a good investment although somewhat pricier.

I blogged about this before:
AHT and CDG (SBS).

AK71 said...

Hi Laurence,

I am just talking to myself here, as usual.

Be careful hor.

Remember this? ;)
What is AK's way of investing in stocks?

David said...

Hi AK,
Appreciate your comments.

I didnt have the gut to average down CD when its ~$1.4x.

But its good that i almost breakeven on CD now.

Thank you very much for your generous sharing.

I will study Hock Lian Seng:-)

Best Regards
David

sugarhoney said...

Hi AK,

I am in my mid 30's. I subscribe to notion of topping up my CPF and transferring my funds from OA to SA. I recently realised that once my SA hits the full retirement sum of 181,000 (currently). I will not be able to continue transferring my funds from OA to SA.

Any advise on how to further grow my CPF?

AK71 said...

Hi David,

Always better to err on the side of caution.

Can't make all the money in the world but it is quite easy to lose all the money we have.

Helps when we put things in perspective. ;)

Hock Lian Seng has a conservative management that is unlikely to create any excitement but I am contented as long as they continue to pay me. :)

AK71 said...

Hi sugarhoney,

Congratulations on hitting the FRS in you CPF SA. :)

You have to find other ways to grow your wealth from now on. ;)

I blogged about this many times before and one example is:
"Purpose of the CPF is to make the rich richer."

AK71 said...

For readers who might have stumbled upon this comments section and read the bit on transferring funds from CPF OA to CPF SA, read this blog too:
Sensible to do CPF OA to CPF SA transfer?

Remember to consider our circumstances and also what we want to achieve before making any decision because the transfer is irreversible.

Unknown said...

Dear AK,

How do you see Hock Lian Seng at this point at $0.25 price? Its dividended definitely coming down now, and with the challenge in the construction industry, what do you think?

Thanks!
Bryan

David said...

Thanks, AK.
https://www.sgx.com/securities/equities/J2T

Interesting, being a construction & engineering coy, Hock Liang Seng has NO Debt!
Still can give $12 in July 2020.
Listed in Dec 2009.
Paid average ~$10+ dividend Every year from 2010 To 2020.
The Chua family has ~60% of total shareholding.
Net profit margin ~8%
P/B ~0.6
P/E ~11

David

Verseun said...

Hi AK,

I respect your view on dividend investing and you conservative and pragmatic approach to investing.

And am keen to know your view on Sabana and EST merger. I understand you view AA REIT as the best in class but what about Sabana's recent developments. This is particularly interesting to me because

1) Activist shareholders (quite rare in SG), Quarz Capital and Black Crane saying that the purchase of Sabana is undervalued
2) Potential GFA increases of Sabana's properties when redeveloped, around 1 million sq ft , translating to an increased DPU. Better prospect in 2021.
3) Consistent undervaluation of its properties when compared to AA REIT.
4) Significantly lower leverage and cost of Financing.

AK71 said...

Hi Bryan,

Hock Lian Seng is a reasonably safe choice for anyone who believes that the construction sector will recover once we have a handle on the COVID-19 situation.

Recently, after not doing anything to my investment in Hock Lian Seng for a long time, I bought some. ;)

See David's comment after yours as he did some work for us on Hock Lian Seng. :)

AK71 said...

Hi David,

Thanks for sharing your research with us.

Whether individuals or businesses, the ones with stronger balance sheets are more likely to survive the COVID-19 pandemic.

It is good to be paid while we wait for recovery. :)

AK71 said...

Hi Verseun,

I have a small legacy position in Sabana REIT and I am inclined to agree with the activist investors.

It is no secret that I did not like VIVA Industrial Trust but they were lucky as their problems are now ESR-REIT's problems.

See:
Merger of ESR-REIT and VIVA Industrial Trust.

Of course, ESR-REIT was the former Cambridge Industrial Trust.

Some say that the merger will be DPU accretive for Sabana REIT but this does not tell the whole story.

There could be a hefty price to pay for this short term DPU accretion.

See:
VIVA Industrial Trust more attractive?

If this merger happens, ESR-REIT will have more people to share the financial cost of their mistakes.

In 2017, I blogged about my thoughts on how Sabana REIT could see a change for the better.

See:
Sabana REIT could see a change for the better.

Now, with this proposed merger, it seems like Sabana REIT is getting a poor deal.

H said...

AK, do you see a risk that ESR tries to buy/combine with AA reit at some point in time?

AK71 said...

Hi H,

ESR's ambition is all too obvious and they are probably eyeing AA REIT too.

However, I believe that Mr. George Wang is unlikely to let it happen unless a very attractive offer is made. ;)

AK71 said...

"ESR Cayman and ESR HK have both been increasing their investments in AA REIT.

"Their most recent purchase happened earlier this year in March and that was worth more than $2 million, if I remember correctly.

"DBS said AA REIT "could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit."

"The Business Times (November 2019):

"ESR Cayman Ltd (ESR) acquired 26,827,400 units in AIMS APAC Reit (AA Reit) for a consideration of S$37,290,086 at S$1.39 per unit."

See:
AIMS APAC REIT investment is larger now.

Verseun said...

Hi AK,

Thank you for your reply.

Indeed, ESR REIT was one of the worst managed REIT (just one notch above Sabana). I am in doubt of their ability to allocate capital or even improve upon Sabana's situation. Price or management wise, Sabana is not getting a good deal.

Like what the activists suggested, I think an internal REIT manager like Netlink trust would be the most effective. So keeping my fingers crossed that the sale (or merger as they call it) wont go through.

AK71 said...

Hi Verseun,

When there is a chance that things might change, there is always hope that it might be for the better. :)

Of course, it doesn't always turn out the way we hope it would. ;p

ok said...

https://links.sgx.com/FileOpen/Sabana%20EGM%20Results%20Announcement%204%20Dec%202020.ashx?App=Announcement&FileID=641493

ok said...

https://links.sgx.com/FileOpen/Sabana%20EGM%20Results%20Announcement%204%20Dec%202020.ashx?App=Announcement&FileID=641493

Verseun said...

Hi AK,

As per EGM this afternoon at 2pm. The unitholders have voted in favour of a no-merger and like what you mentioned, the unitholders agreed that they are getting a poor deal.

So there is still hope for the better for the activists to unlock value for Sabana REIT. I feel a sale would be out in the near future since they need JTC approval and an internal REIT manager would be better for the REIT and a welcome change from the existing one.

https://www.theedgesingapore.com/news/reits/no-merger-sabana-reit-esr-reit

Siew Mun said...

ESR reit got a black eye. Hmm, it really take a good deal to win over AA.
https://www.businesstimes.com.sg/companies-markets/proposed-merger-between-esr-reit-and-sabana-reit-falls-through?utm_source=emarsys&utm_medium=email&utm_campaign=BT_Newsletter_Debrief&utm_term=Proposed+merger+between+ESR-Reit+and+Sabana+Reit+falls+through&utm_content=04%2F12%2F2020

AK71 said...

Hi ok, Verseun and Siew Mun,

Thanks for the sharing the update.

We are very fortunate to have the activists on our side.

Retail investors have more often than not gotten the shorter end of the stick when it comes to things like this.

Hopefully, a better deal comes along.

At least, it must be fair.

laurence said...

BREAKING NEWS !!!!!!!!
Privatisation of Soilbuild Reit @ $0.55 per share!!!!!!
Our exalted Oracle laughs all the way to the bank ............ yet again !!!!!! ;)

AK71 said...

Hi Laurence,

The writing was on the wall for Soilbuild REIT, really.

It was just one bad thing after another.

When too many things go wrong in quick succession, it suggests that the problem could be more than just a stroke of bad luck.

Alarm bells ringing, when Soilbuild REIT's unit price had a bounce 3 years ago, I got out.

At the time, I blogged about how I felt Soilbuild REIT investors would have greater peace of mind if they invested in AA REIT instead.

Reference:
Was Soilbuild REIT a shabby investment?

Jimmy said...

Hi AK,

As you know, Careshield Life was launched recently and there are options to upsize (i.e. Careshield Life Supplement from private insurers).

Would you be able to talk to yourself on this? :)

Thanks in advance.

Jimmy said...

Hi AK,

As you know, Careshield Life was launched recently and there are options to upsize (i.e. Careshield Life Supplement from private insurers).

Would you be able to talk to yourself on this? :)

Thanks in advance.

AK71 said...

Hi Jimmy,

It reads like an upgraded version of Eldershield.

They are basically disability insurance.

So, do we need it?

I believe that this blog might be helpful:
Eldershield: Is it really necessary?

Jimmy said...

Hi AK,

Thanks for sharing your 2 cents.

Look forward to your next blog post! ;)

AK71 said...

Hi Jimmy,

Hope you did get 2 cents worth from it. ;)

It could be worth only 1 cent or nothing at all. ;p

laurence said...

Quote.
Hope you did get 2 cents worth from it. ;)
It could be worth only 1 cent or nothing at all. ;p
Unquote.

Every word from our Oracle of REITs and Dividend Stocks is PRICELESS !!!!!!!
O:)

David said...

Soilbuild Business Space REIT's will be privatised at $0.55.

AK71 said...

Hi Laurence,

"Priceless" means that the price tag of 2 cents could be a mistake. ;p

Thank you for the kind comment but even true oracles like Warren Buffett make mistakes.

So, when AK talks to himself, take it with a grain of salt or two. ;)

AK71 said...

Hi David,

It could have been worse.

So, privatisation is possibly good news for some. :)

Midlife Crisis said...

Hi Ak71,

What's your view on First Reit? =)

Best Regards,
XXX

AK71 said...

Hi Midlife Crisis,

I haven't really looked at First REIT since I got out more than two years ago:
Sold First REIT..."

Would you like to share your thoughts on it as I supposed you are looking at it? :)

Unknown said...

Happy holidays AK71!

AK71 said...

Hi Unknown,

Ah, I see Christmas is a few days away.

After so many years in retirement, I often find it hard to tell which day of the week it is.

Merry Christmas. :)

Wentworth Scofield said...

Happy New Year AK! will you be talking to yourself regarding QAF and Singtel, while enjoying Gardenia bread and using Singtel Wifi network? Thank you!

AK71 said...

Hi Wentworth Scofield,

My plan is to blog whenever I feel like it.

Could be a few blogs in some months and none in some months.

So, don't hold your breath waiting. ;p

Happy new year! :)


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