SembCorp Industries (SCI) investment larger now.

There were a few comments from readers regarding the rights issue by SembMarine (SMM) and also how SembCorp Industries (SCI) would distribute its stake in SMM as dividends to SCI shareholders.

Basically, SMM is issuing rights in a 5 for 1 rights issue priced at 20 cents per rights.

Depending on the response to the rights issue, each SCI shareholder will get between 427 to 491 SMM shares for every 100 SCI shares they hold.

The question some might ask is "how much is each SMM share going to go for after the exercise is over"?

Well, your guess is as good as mine.

If we use the rights issue price of 20c per rights share, getting 427 SMM shares means getting $85.40 worth of shares.

If we were to buy SCI at $1.95 per share today, the implication is that our cost for what is the new SCI is approximately $1.10 per share.






The biggest drag on SCI's performance for so long has been the loss making SMM.

Like I said in reply to a reader recently:

"Things have been bad for oil and gas for way longer than expected and that has impacted SembMarine really badly."

Full comment: HERE.

This exercise has been called a "demerger."

Basically, SCI will divorce SMM while SCI shareholders will become SMM shareholders if they are not already so.

It is like SCI saying to SMM:

"Take the money and get out of my life!"

And maybe SMM should say or sing:

"Do you think I will crumble?

"Do you think I will lay down and die?

"No, no, not I!

"I will survive!"






Anyway, some readers will remember that an important reason why I was attracted to SCI was its utilities business.

In a reply to another reader recently, I said:

"I have a smallish investment in SCI which I am holding onto with the belief that its energy and waste management businesses will remain resilient."

and also:

"With urban (development) being a small component, SCI is more of a utilities company after the whole exercise is over and should be seen as a defensive investment."

Full comment: HERE.

As an investor for income, I like reliable recurring income.

So, after not doing anything to my investment in SCI for a long time, I increased my investment in SCI today.

Upon completion of the exercise, SCI investors can choose to keep their investment in SCI's mainly utilities business and sell their new or enlarged investment in SMM if they so desire.

SMM is still loss making as the environment remains very challenging for oil and gas businesses.

However, those who believe that the oil and gas sector is simply in an extended down cycle should hold on to their investment in SMM while they wait for the cycle to turn back up.






Of course, this blog would not be complete without a comment on SCI as an investment for income.

With loss making SMM out of the way, SCI is likely to be more profitable in future, all else remaining equal.

A DPS of 5c might even be viewed as conservative then.

Even so, at $1.10 a share, a 5c DPS would translate to a dividend yield of about 4.55%.

Of course, depending on the assumptions we make, we would get different results.

However, to be realistic, we could first see a reduction in dividends with the COVID-19 pandemic's negative impact on the global economy.

"Utilities and marine group Sembcorp Industries expects the performance of its energy business to be markedly lower than last year due to reduced demand and falling prices.

"Sembcorp said on Monday (May 18) that while its energy operations continue to be supported by long-term contracts, the impact of the pandemic and the reduction in economic activity amid lockdowns have hit the business.

"Power demand in Singapore, India and Britain declined by about 10 to 25 per cent in April compared with the same month last year, the company noted."

Read full article at: The Straits Times.






I have doubled the size of my smallish investment in SCI today.

I am mindful that although there is an investing for income angle here, there is also a speculative element.

So, I will remain cautious and not throw in everything including the kitchen sink.

For a quick summary of the whole exercise, watch the short video by CNA below.

"Sembcorp Marine unveiled plans to raise S$2.1 billion through a rights issue backed by Sembcorp Industries and Temasek Holdings."

9M 2015 passive income from non-REITs.

Some wonder if Mr. Market could go into a depression? I don't know but I do know that many stocks became much more attractively priced in the last three months.

Consistent with my strategy to diversify my portfolio to reduce reliance on S-REITs for income, I added to my long positions in the following as their stock prices declined more significantly recently:

1. Accordia Golf Trust

2. Ascendas Hospitality Trust

3. ST Engineering

4. Starhub

5. SembCorp Industries

In the last three months, I also initiated long positions in the following as investments for income:

5. VICOM
"A 15x PE ratio would give us a fair value of $5.36 or so per share."

6. Religare Health Trust
"Trust has demonstrated its ability to improve its revenue organically quite strongly which makes up for the expiration of the sponsor's waiver to their share of the distributable income."

7. King Wan
"King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018."

Finally, I accumulated the following stocks which have a bit of an income investing angle but the main reason is because I think they are worth much more and at lower prices, they became even more attractive:

8. Wilmar

9. OUE Limited

If you should be interested, you could search ASSI for more of my blog posts on these stocks and why I decided to add them to my portfolio when I did.

Of course, stocks could stay undervalued for a long time but regularly receiving some dividend in the meantime makes the waiting more palatable. I like to be paid while I wait.

If you suspect that I have dipped into my war chest in the last three months, you are right. 

Could we see another big decline in the stock market? We could and we should be ready. So, being cautious, I have not exhausted my war chest.

I have a couple of fixed deposits maturing next month in October and I will probably be keeping the money close at hand instead of putting it in another fixed deposit or two.

In Q3 2015, the following non-REITs paid dividends:

1. SATS

2. Old Chang Kee

3. APTT

4. SingTel

5. SCI

6. SMM

7. Wilmar

8. NeraTel

9. ST Engineering

10. QAF Ltd.

11. Starhub

12. HongLeong Finance

13. Croesus Retail Trust

For the first 9 months of 2015, total passive income received from non-REITs: S$ 57,747.59. 

This works out to be S$ 6,416.40 per month.

Have a shopping list and be ready to pounce if Mr. Market becomes depressed.

Related post:

6M 2015 passive income from non-REITs.

SembCorp Industries: Partial divestment.

Yesterday, a reader asked me if I would be selling my investment in SembCorp Industries. 

I replied that if I thought SembCorp Industries was fairly valued at $5.00 when I made my first purchase a few months ago, would I sell at a lower price?






Honestly, the investor in me said to stay invested while the trader in me said to look at possibly selling at least part of my investment. 

Let me talk to myself and throw some light on the matter.

As SembCorp Industries' stock price fell in recent months, I added to my position at various price levels: $4.80+, $4.50+, $4.20+, $4.10+. 

My memory is a bit patchy but something like this. 

I believe that SembCorp Industries is a good company and that Mr. Market was overly pessimistic as the stock kept falling in price.

Then, whether I would sell or not would depend on whether the investor or the trader in me wins. 






Finally, the trader won but only after giving a concession to the investor. 

What do I mean?

I initiated a position in SembCorp Industries at what I thought was a fair price and I said so in a blog post soon after the purchase. 

I went in with my eyes open and knew what I was getting for the price I paid. 

However, given a choice, the investor in me would prefer to purchase an undervalued stock.






So, having added at lower prices as well, recovering the capital utilised for purchases made at higher prices which fairly valued SembCorp Industries, retaining the purchases made at lower prices which undervalued the conglomerate somewhat is a palatable proposition.

After looking at the charts this morning, I determined that there should be stronger resistance at $4.84 if the stock price continued its ascent today.

So, I put in sell orders at $4.82 and $4.83.







I still like SembCorp Industries and if its stock price were to weaken to retest its lows in the last few months, I would probably be adding to my position again. 

If its stock price should rally after taking a breather, I would stand to gain with my remaining investment in the conglomerate.

Related posts:
1. SembCorp Industries: A safe price.
2. AK went shopping in the stock market.
3. Investing for income and position sizing.

A tale of two Keppels: Win, lose or draw?

Keppel Corporation is going to try to take Keppel Land private. This news came shortly after Keppel Corporation declared a generous dividend per share of 36c.

If I were a shareholder of Keppel Corporation's, I would have been elated and, then, worried by the recent string of events.

The following is taken from the comments section of my blog:

When I was asked in the last few months why did I choose to invest in SembCorp Industries instead of Keppel Corporation since both of them are blue chips in the O&M category, I said that I felt better about the former's utilities business in the current environment than the latter's real estate business. Although this latest development involves Keppel Corporation's real estate arm, quite honestly, I could never have seen this form of corporate action coming. I am just a frog in a well, after all.

Paying $4.60 a share (eventually), Keppel Corporation is not getting Keppel Land at a discount to NAV since Keppel Land's NAV/share is about there. In fact, it is going to be at a slight premium. So, there is nothing for Keppel Corporation's shareholders to rejoice about. At least, if the purchase was going to be at a discount, it might make Keppel Corporation's resulting weaker balance sheet easier to swallow.

For Keppel Corporation's action to make sense, it has to be because the management feel that Keppel Land will add value either in terms of income generation or capital appreciation in the years to come. However, near term prospects are challenging as Keppel Land is still mostly dependent on income from real estate development (property trading) although they have increased the size of their recurring income stream in recent times.

Could we see Keppel Corporation's stock price weakening next week? With a 36c dividend dangling, Mr. Market might close an eye to the eventual weaker balance sheet, for now.

Related post:
SembCorp Industries and SembCorp Marine.

SembCorp Industries and SembCorp Marine: Recovery?

Here are a couple of interesting chart formations:

SCI. A long white candle formed on a high volume day.
It could be a double bottom formation.
The MACD has formed a higher low.
Neckline approximates $4.50
If that should break, eventual target is provided by the declining 200d MA (the light blue line) which is approximating $5.00 now.

SMM. Another long white candle formed on a high volume day.
Looks like it could be a double bottom formation too.
The MACD has formed a higher low.
Neckline approximates $3.30.
If that should break, the declining 200d MA is the eventual target.
Currently, the 200d MA approximates $3.70.

Based on TA, SCI and SMM look promising.

Investing for income and position sizing for peace of mind: Inspired by an exchange of words in Kallang Wave Mall.

Some time back, a reader said it must be a good feeling to be out and about and overhearing people talking about AK71 without them knowing that AK71 was listening in. I replied saying that it had never happened before and AK71 was not as popular as he thought.

Well, you know what they say about never saying never.

I was out one evening, visiting the new Kallang Wave Mall to take advantage of the opening promotional deals when it actually happened. I don't know about having any good feeling. In fact, the experience was rather spooky.

Before I go on, in case you are wondering what lobang (Singlish for "a good deal") I had in Kallang Wave mall, it was this:

I spent $200 in NTUC Fairprice using the Citibank SMRT Card and got a 7% rebate. At the information counter, I showed them the receipt and the Citibank SMRT Card and I was given a $10 Kallang Wave voucher, an Olaf plush toy (Olaf as in the Olaf from the Disney animation "Frozen") worth $19.90, a chance to spin the wheel to win more "Frozen" products and to take part in the grand lucky draw to win a trip for 4 to Hong Kong.

OK, now, you know why I went to such an ulu (Singlish for "in the middle of nowhere") mall.

Now, back to the spooky experience I had.

I was in an aisle in the supermarket looking for some biscuits when I overheard 2 ladies talking about me behind my back! I mean, literally, they were behind my back!

A: "This AK recently like very bad luck. Bought SembCorp and price dropped so much."

B: "Ya. I followed him and bought too. Now, lost about 20%."

A: "OMG! Did you buy a lot?"

B: "Not cheap. Buy a few lots also a lot of money. Now stuck. (Sigh)"

A: "Don't worry. AK says strong company. He buy for the dividends..."

Then, they walked away. I was wondering if I should follow them discreetly to see what else they had to say. I know, terrible! I was eavesdropping! Anyway, I decided not to. Imagine them calling security because an old, fat and ugly man was stalking them. Yikes!

Anyway, if you know me, I didn't write to simply share a spooky tale. There is enough stuff in that short exchange between the two ladies which disturbed me enough to blog about my thoughts.

It is true that I started buying SembCorp Industries at $5.04 per share not too long ago and I blogged about my motivations for doing so, admitting that it was not a cheap purchase at the time. It ticked all my boxes but because it was not undervalued, I nibbled. I initiated a small position.

As its share price fell, I nibbled again at various points. Some might be interested to know that I actually nibbled a bit more at $4.14 a share just yesterday. I will probably continue to take small bites because although I feel that the stock is now undervalued, I am reminded of the saying that Mr. Market can stay irrational for a long time.

Although my initial entry price of $5.04 has lost almost 20% in market value, it might be useful to know that the nibble formed less than 1% of my entire portfolio. So, it means that my portfolio has lost 0.2% in value because of that purchase. If we add my other recent nibbles and their paper losses along the way, the total paper loss due to these is probably between 1% to 2% of my portfolio's value.

So, although the absolute dollar value might look substantial to some, we must remember that it is about percentages. We should always look at our own circumstances and decide how to size our positions in the stock market accordingly. Don't bite off more than we can chew.

Finally, because I am more interested in investing for a regular income, most of my portfolio ensures that I always have funds coming in on a regular basis. Yes, even my badly timed investment in SembCorp Industries will, in all likelihood, generate income for me in 2015 and beyond. This is an important reason why I am able to stay level headed, well, most of the time.

I thought for a while whether to blog about this because the two ladies I mentioned will probably read this blog and I don't know how they would feel but I guess I should just do it for everyone's benefit, including mine.

Related posts:
1. How to make recovery easier?
2. Motivations and methods in investing.
3. Do not love unless it is worth the loving.
4. Managing exposure in investment.
5. What should I do when I am down 25%?
"... the important thing to know is "What should I do?" given a certain set of circumstances." AK

AK went shopping in the (stock) market.

Mr. Market has been feeling rather pessimistic of late.

Winter has come?

In the last trading session, I bought stocks of the following companies':

1. SembCorp Marine
2. SembCorp Industries
3. ST Engineering

These companies have relatively strong balance sheets and order books to keep them busy for years. It is hard to imagine that they might be going the way of the Dodo.

Of course, prices could weaken further. If they should weaken significantly, I would probably buy some again. Buy some again? Yes, I will continue to pace my purchases in the face of possible continual market weakness. We do not know when prices have bottomed until we are past the bottom.

So, nibble, don't gobble.

Not quite the Great Singapore Sale, for sure.

During the GFC, we saw SembCorp Marine and SembCorp Industries trading at PE ratios of 7x to 9x. Personally, I do not think that we will see another GFC but we could see a soft landing. So, PE ratios of 10x to 11x, perhaps? Based on my estimates, SembCorp Industries could see its share price at between $4.00 to $4.40 then. What about SembCorp Marine? Perhaps, as low as $2.50 a share.

ST Engineering's PE ratio has always been somewhat higher and even during the GFC, its PE ratio was still pretty high at about 15x. Currently, ST Engineering is trading at a PE ratio of almost 20x which isn't crisis cheap but seems fair enough with a prospective dividend yield of about 3.8%, assuming a 75% pay out ratio. Compared to about $4.40 a share more than a year ago, current price level presents a more comfortable entry in more ways than one.

Learn from the squirrels?

Of course, it is hard to say whether Mr. Market would go into a depression or not. So, it is important to have a war chest ready. When to roll out that war chest? When valuations approach crisis levels and if that should happen, we want to be able to take advantage of the much cheaper valuations.

Related posts:
1. SembCorp Industries: A safe price.
2. SembCorp Marine: A nibble.
3. Mystical art of wealth accumulation.

SembCorp Industries: Where are the supports?

I was asked if I feel upset with SembCorp Industries' share price plunging. Well, I don't know if I feel anything, actually.

I know what motivated me to become a shareholder of SembCorp Industries. I know that I got in at fairly good prices which meant that I did not overpay. This is because I made fairly conservative earnings assumptions from the start and I also bought at a realistic PE ratio of about 12x or so.

Now, with its share price having moved much lower, I could, perhaps, accumulate at a PE ratio of about 11x which would represent better value for money. What about a PE ratio of 10x?

I don't know if prices would move higher or lower. I could make a guess, of course, but I wouldn't know. However, I do know what I would do if the share price were to move lower to test stronger supports.

Related posts:
1. SembCorp Industries: "A safe price of entry."
2. SembCorp Industries: Increasing exposure.
"I feel that it is probably another fair entry price and, so, I did not bring out the heavy artillery."

SembCorp Industries: Increasing exposure.

In a sea of red, I had many choices and I decided to increase my exposure to SembCorp Industries at $4.84 a share. This was one of the supports I identified in a reply to a reader. Read reply: here.



Based on what I feel are undemanding assumptions of a 40c EPS and a 15c DPS, my additional investment has an assumed PE ratio of 12.1x and a dividend yield of 3.1%. I feel that it is probably another fair entry price and, so, I did not bring out the heavy artillery.

With $4.84 failing to hold and the stock closing at $4.82 a share, we could see lower prices if sellers should continue to overwhelm buyers. Then, we could see $4.78 and $4.72 tested next.

The trading volume is very high on a massive down day. I cannot help but wonder if I could have a chance to buy SembCorp Industries at a PE ratio of 10x or lower in the coming weeks or months.

That would be when I bring out the heavy artillery.

Related post:
SembCorp Industries: "A safe price of entry."

SembCorp Industries: "A safe price of entry."

A reader, Dexter Choo, asked me how did I value SembCorp Industries and determine a "safe price of entry"? Before I go on, I must establish that if we believe that valuation exercises are subjective and this is something I have blogged about many times before, then, it follows that "safety" is also relative.

So, with that in mind, I am going to share in this blog my approach in this instance. Now, please note that I am not saying that this is the right or best approach. It is simply something that makes sense to me and that I am comfortable with. After all, what we do should have a strong connection to our motivations.

For a while now, in view of rising interest rates in the not too distant future, I have been looking to increase my investment in companies which:

1. Are net cash or have very low net gearing.
2. Are able to generate stable earnings.
3. Pay out a good portion of earnings as dividends.

If we look at SembCorp Industries' numbers for the 5 years to 2013, we see that it is generally a net cash company which generates stable earnings. It is also a company with growing NAV/share from $1.86 in 2009 to $2.93 in 2013. Now, as an income investor, the fact that they also pay consistent and meaningful dividends of at least 15c a share (DPS) is important to me.

Now that we have some numbers, we might ask what would be a sensible price to pay for the stock? Depending on the valuation technique we use, we would get different answers.

Personally, in this case, I use a very simple metric, PE ratio (TTM). This looks at the price of the stock today and the earnings in the last 12 months. I might also discount earnings a bit to be more conservative but if by annualising the earnings in the last 6 months I would get a more conservative estimate anyway, I would use that. So, what is a reasonable PE ratio for SembCorp Industries?

Given more normalised circumstances without considering the effect of the Global Financial Crisis in 2008 and the Fiscal Cliff panic in 2011, Mr. Market seems quite happy to pay a price that has a PE ratio of about 11.4x to 13.6x for SembCorp Industries.

Based on an estimated 40c EPS for 2014 and my entry price of $5.04 a share, I got in at an estimated PE ratio of 12.6x. Is it undervalued? Not by a long shot, I don't think so. Then, why did I buy?

Well, apart from the fact that it ticked all my boxes, I reminded myself of an idea by Warren Buffett:

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

A buy price of $5.04 a share is not fantastic but I believe that it is fair enough.

As an investor, I am also informed by Technical Analysis (TA) which tells me that what price Mr. Market is willing to pay often has to do with sentiments and not fundamentals. So, I also look at charts in an effort to time my entries at prices more reasonable. Of course, we have to remember that TA is about probabilities and not certainties. So, there is no guarantee that prices would not go lower.

I will end by saying that there could always be "safer" prices at which to buy a stock. So, buying SembCorp Industries' stock at the depths of the Global Financial Crisis, for example, at a PE ratio of 7x would have been much safer but that is all I dare to say.

Related posts:
1. When to BUY, HOLD or SELL?
2. SembCorp Industries: A nibble.

SembCorp Industries: A nibble.

Today, a reader asked if I was interested in SembCorp Industries since I bought into SembCorp Marine recently. Answer? Yes, I am interested and I have been looking at it for a few days.

SembCorp Industries' share price has not suffered as dramatic a decline compared to SembCorp Marine's. I think it would be correct to say that it is less volatile. If we think about it a bit more, this is quite natural since they are a conglomerate and have an interest in other businesses such as utilities which probably helps to cushion their earnings.

Here are some numbers:

Click to enlarge.

So, in line with my effort to increase the proportion of companies in my portfolio which are net cash and which pay consistent dividends, I decided to take a nibble at $5.04 a share as the stock price hit a low of $5.03 today.

With 1H 2014 EPS at 20.1c, expectation for a full year EPS of 40c is reasonable. This gives a PE ratio of 12.6x which seems reasonable. Well, it is definitely more attractive than in July this year when it was trading at a PE ratio of about 13.75x when the stock was about $5.50 a share.

Assuming a dividend per share of 15c, it would give us a dividend yield of 2.98% which doesn't seem as attractive as SembCorp Marine's but I reminded myself that this is based on a lower assumed payout ratio of 37.5% and not 50%.

Could we see the stock price going lower in the near future? We could possibly see $4.99 a share but because momentum oscillators such as the MACD and the CMF did not form lower lows as the stock price formed a lower low, I feel that selling pressure in the near term has somewhat abated.

About SembCorp Industries:
Sembcorp Industries is a leading energy, water and marine group operating across six continents worldwide. With facilities of over 7,200 megawatts of gross power capacity and over eight million cubic metres of water per day in operation and under development, Sembcorp is a trusted provider of essential energy and water solutions to both industrial and municipal customers. It is also a world leader in marine and offshore engineering, as well as an established brand name in urban development. The Group has total assets of over S$14 billion and employs approximately 10,000 employees. 

See Press Release: here.

Related post:
SembCorp Marine: A nibble.

Sembcorp and SembMarine.

SembCorp's share price broke through the 20dMA as if it didn't exist. Could we see the rising 50dMA tested for support eventually? It is now at $4.70.

SembMarine's share price gapped down dramatically on the back of extremely high volume. It would not surprise me if the 50dMA should be tested for support in the next few sessions. It is now at $4.74. If the selling pressure is strong enough, we could see that giving way too. $4.36 in time? Possibly.

Temasek raises $328m from SembMarine stake sale
Tuesday, 06 March 2012

© 2012 - The Edge Singapore

Sembcorp Marine shares fall after news of Temasek stake sale
Tuesday, 06 March 2012

© 2012 - The Edge Singapore