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Friday, May 10, 2024

I have been thinking of taking another long break from social media to focus on other things in life.

Tentatively, I am thinking of coming back in June.

So, this might be my last blog until then.


This is probably my most rewarding investment for income.

I have been holding to the relatively large investments made during the Global Financial Crisis till today, enjoying a distribution yield in excess of 10% on my cost.

The price appreciation is nothing to shout about but as an investment for income, it has been very good to me.

I would liken it to a bond that has been paying me a very good coupon.

As at 31 March 2024, the REIT has a gearing level of 32.6% which is on the low side.

However, I am mindful of the fact that it has some perpetual bonds which are due for a relook next year and those would likely increase in financing cost.

This is because interest rates and yields are significantly higher now than a few years ago.

This is a good reason to stay cautious if we are thinking of plonking more money in the REIT.

Offering a 7.4% distribution yield, it isn't much higher than what our local banks offer in dividend yields.

The REIT also has to distribute all its income in order to achieve this.

I simply will continue to hold on to my investment since it is already free of cost.

I am partial to receiving "free" money.

2. T-bill

The latest 6 months T-bill auction had a cut-off yield of 3.7% p.a. which wasn't too bad.

I made a video about why CPF OA money should go into T-bills, especially those with auctions in the first half of the month.

Someone told me it was all my fault that non-competitive bids were only 80% filled this time.


Bad AK! Bad AK!

Well, like I mentioned recently, my plan is to simply grow my exposure to T-bills unless there is another stock market crash.

This is something I have given some thought to.

I really don't have to do too much on the investment front which is what I plan to do when I turn 55.

So, this is a taste of what's to come, maybe.

I would probably be sending dividends coming in from DBS, OCBC and UOB in Q2 and Q3 into T-bills.

3. Singapore Savings Bond and CPF

This month's SSB is tempting with a 3.33% p.a. 10 year average yield.

In a blog post many months ago, I said it would make more sense for me to buy SSBs with 10 year average yield in excess of 3% p.a. than to do voluntary contributions to my CPF account.

I have already front loaded this and bought enough SSBs to replace voluntary contributions till this year.

With the bombshell dropped by Lawrence Wong on how the CPF SA will vanish once we turn 55 years old, I took a hard look at my CPF savings.

In a recent blog post, I said I would have some $800K in my CPF OA by then and I think that should be enough for me.

I could use it to buy more T-bills if yields stay high or I could simply leave the money in the CPF OA.

Use the interest generated as spending money.

By extension, I don't think I need more SSBs now.

Well, I could change my mind if the 10 year average yield goes to 4% p.a. ;p

Right now, I would rather have a stronger T-bill ladder which means a bigger war chest while waiting for the next stock market crash.

Although it is true that we can redeem SSBs, we wouldn't be able to get the higher 10 year average yield in such a case.

So, T-bills are more attractive for my purpose.

4. UOB

In my video on DBS, I said that it was clear that DBS would continue to do reasonably well even if interest rate were to decline.

DBS does not depend solely on net interest income but has other sources of income.

The same is true of UOB.

Net interest income dipped 2%, year on year.

However, fee income increased 5%.

Other non-interest income increased 3% due to record trading and investment income.

Non performing loan ratio is at 1.5% which means asset quality remains stable.

CET-1 ratio is at 13.9% which is the lowest amongst the 3 banks.

So, little chance of a special dividend from UOB. ;p

By next year, UOB will complete the integration with Citibank's Vietnam consumer banking business.

Of course, the integration with Malaysia and Indonesia was completed last year.

The integration with Thailand completed recently.

Trading at about 9x PE and 1.2x NAV, UOB is offering a dividend yield of some 5.5%, paying out 50% of its earnings to achieve this.

It doesn't look as attractive as DBS but it is attractive enough when I remind myself that DBS pays out a higher percentage of its earnings as dividends.


OCBC is my largest investment in the banking sector.

Alone, it is larger than my investments in DBS and UOB combined.

I really like OCBC because I think it offers the best value for money.

Well, more accurately, it did.

With its stock price having risen quite a bit, it now trades at about 9x PE, 1.2x NAV while offering a dividend yield of some 6%.

It isn't as cheap as it was, for sure.

Paying out about 50% of its earnings as dividends, it offers a dividend yield of 6%.

So, like DBS and UOB, OCBC grows in value as an investment over time.

Like I said several times recently, there is no need to worry about OCBC's exposure to the Chinese property sector.

Non performing loan ratio is at 1.0% which is even lower than UOB's 1.5%.

Like DBS and UOB, OCBC has demonstrated its ability to generate higher non-interest income.

Net fee income increased 4% while net trading income increased 67% to a new high.

With a very high CET-1 ratio of 15.9%, I am still crossing fingers that we might see a special dividend in future.

As OCBC is the largest investment in my portfolio, it would be something to celebrate if it should happen.

This is a pretty long blog post which I hope it enough to satisfy anyone who is eavesdropping until my proposed return in June.

Until then, if AK can do it, so can you!

AK is on YouTube too:


KA said...

Hi AK,

Since my parents are old and it's too late for me to buy any insurance for them, I use SSB as a form of self "insurance" for them. I mean, instead of paying the insurance company, why not just get paid for it right? Plus its 10 years without reinvestment risk. What do you think of this strategy?

Sandra said...

Hi AK, can you talk to yourself with regards to OCBC Bank's $1.4 billion bid to take its insurance arm Great Eastern Holdings private? Thanks!

Siew Mun said...

OCBC to pirvatise GE buy offering to buy the rest of it's shares at $25.56

AK71 said...

Hi KA,

Sounds like an emergency fund for your parents.

Always a good idea to have one.

If maxed out to $200K each, that's quite a lot of money.

Together with Medishield LIFE, staying in Class B2 ward should not be too burdensome.

That is something all of us have to think about and be prepared for.

AK71 said...

Hi Sandra and Siew Mun,

I only found out after I published this blog post. ;p

Well, OCBC has a lot of excess capital and this is one way to make use of the money.

They wouldn't have to deal with demands from activist minority shareholders anymore if privatized. ;p

HH said...

Hi AK:

Seems like UOB is now not loved as much as DBS and OCBC.

Had a small nibble today. Valuation wise is ok and mgt guided for better performance in 2nd half of 2024. Fingers crossed. :P

BobbyG said...

Hi AK and all,

Just a little trivia to share, Lee Foundation (one of Top 3 biggest shareholders / owners of OCBC) do own DBS shares too ($448mil+ worth and is top 20 shareholders of DBS- at No. 15).

Looking forward to better days for the Singapore banks ahead. Technically, the 3 banks' uptrend is intact, 2024 should be a good year if this continues.

Good luck and see you back in June, AK!

AK71 said...

Hi HH,

UOB does seem like it is lagging its peers in terms of performance.

The bank should do better next year when Vietnam's business is fully integrated.

Meanwhile, they are doing well enough that it is still a better investment for income than many other options available.

With an earnings yield of 11% per year, I am satisfied. :)

AK71 said...

Hi BobbyG,

I have no doubt that DBS, OCBC and UOB will continue to bring home the bacon.

If interest rates decline, their earnings would slow their pace of growth but the banks would still become more valuable over time.

HH said...

Hi AK, hopefully it can do better next year. If got weakness can add. Decided to divest part of my investment in Fraser logistics trust and switch to the banks. Tough decision but in current climate, in long run, banks should do better than REITs

AK71 said...

Hi HH,

All risk assets including REITs will struggle in the current environment.

Has been so for a while.

No question about that.

This is why I have been adding to my investments in DBS, OCBC and UOB on and off in the last couple of years but not in REITs.

Have to be pragmatic. :)

Shaun said...

Hi AK,
Given that UOB has been seeing some trading softness after ex dividend. May I know if you could do your own view/TA analysis of it?

HH said...

Hi AK, UOB 90th anniversary coming. Maybe got chance special dividend. This is just pure speculation. Haha

AK71 said...

Hi Shaun,

UOB's stock seems to be struggling to make $30 its new support.

For now, it seems like a weak support.

If it fails to hold, we could see price going down to $28 a share but $29 could provide some support too.

$28 just looks like a stronger support to me.

AK71 said...

Hi HH,

I doubt it would happen.

Still, crossing fingers! ;p

Shaun said...

Thank you for your analysis AK, but Im curious, are you still bearish on hong kong banks like BOC hk etc? they seem rather insulated from the china crisis

HH said...

Hi AK, this is extracted from UOB AGM notes and is a comment from UOB CFO

"The low interest rates seen in the last 10 years were anomalous and
are unlikely to recur. In the short term, the Bank targets a steady
growth model with eight per cent in asset growth and eight to 10 per
cent in profit growth. If we meet these targets, shareholders should
see steady growth in their dividends."

I would like to think 8 to 10% growth is achievable. Fingers cross for higher dividends. At current valuation perhaps is undemanding still :P

AK71 said...

Hi Shaun,

There is no way the Chinese banks are insulated from the problems China is facing.

It isn't just the property sector crisis.

There is also enormous amount of debt at the provincial level.

The NPL could be understated.

Of course, China has the capacity to increase monetary supply but we could see the RMB being devalued in such an instance.

I just don't see any need to take on that kind of risk and policy risk is impossible to deal with.

China should recover given enough time but it could be 10 years or more.

I don't want to lose sleep in the meantime.

AK71 said...

Hi HH,

If UOB grows at 8% to 10% per annum, then, with a PE ratio of 9x today, it is fairly valued based on PEG ratio. :)

HH said...

Hi AK, all 3 local banks are fairly valued. I am just building my position slowly. I do see them getting more valuable over time. Hence paying a fair price is ok for me.

HH said...

For REITs, is really hard to be excited now. I think they are still ok investment. Just that may not do as well as previously when interest rates were so low. Of cos, as what u say, all investment is good investment at the right price :p

HH said...

UOB very conservative. For them to say that, I take it that they are 99% confident :p

AK71 said...

Hi HH,

I do like your approach. :)

As for UOB, whether conservative or 'kiasu', if they bring home the bacon, I am happy. ;p

HH said...

Hi AK, just to share, even Capitaland mentioned in one of the KOPI session with investor that they expect REITS to grow at a much slower pace. Previously 10% to 12% a year. Now maybe 8% to 10% a year due to higher interest rates. I guess that says it all for REITS.

AK71 said...

Hi HH,

I agree and people should be more realistic when it comes to REITs.

With risk free rates being where they are and where they will be for some time to come, REITs and all other risk assets must offer much more to be attractive investments.

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