Solace says winter is coming and he is taking action.

Sharing a comment from Solace, an ASSI guest blogger. It has been a while since he wrote and this piece is a heartfelt one.

Solace says:

In trying to navigate through personal finance, I have learnt not to set conventional limitations on myself.

When I first started out, I thought I should only work from 8am – 5pm, Monday to Friday. No work for me on public holidays and on weekends.

Such thinking limits options to increase our income.

I know people who monetise their free time on weekend and public holidays to give tuition. Others work as relief taxi drivers on weekends.

I have 2 friends who are passionate about sports and music, respectively. Both hold full time jobs in the corporate world. One transforms himself into a swimming instructor during weekends and evenings while the other teaches music on his off days.

My industry and skillsets have allowed me to change from working regular hours to doing shift work. 

Now, I am required to work on some weekends and public holidays. Sometimes, I am also rotated to work night shifts. I would also volunteer for overtime as long as I can make it. All this translates into higher income as a result.

Human capital is limited, make hay while the sun shines.

Try our best to make more money while we are younger and healthier.

"Winter is Coming" is a motto in Games of Thrones.

The meaning behind these words is one of warning and constant vigilance. There are always dark periods (“Winter”) in our lives even if things are good now ("summer").

In our context, winter can come in the forms of economic recessions (leading to retrenchment, pay cut, pay freeze, for examples). Of course, sickness and old age are inevitable.

I do hope that I am well prepared when “Winter” eventually comes into my life.

AK hopes that all of us are well prepared.

Do the right things because our lives can be and should be better.

Related post:
A young father says money not enough.

A chat on FDs, SSBs, OCBC 360 and CPF Top Ups.

Solace is a regular guest blogger here at ASSI and he has shared generously, without any agenda, his thoughts on personal finance and investment matters. He is sharing with us a conversation he had with a friend recently:

I had a conversation with a friend recently about FD, Singapore Saving Bonds (SSB), OCBC 360 and CPF.

Friend: u know hor, now got SSB, very good, very stupid to put money in FD.

Me: if u aim 10yrs, then it is better than FD, but if gt saving targets of 1-4 yrs, yearly renewal in FD for 1.X% is higher.

Friend: Then like that, isn't OCBC 360 better than FD. But I think I looking for long term risk free like 10 yrs.

Me: ocbc 360 can be better than FD only if u meet all their criteria plus they could change their terms and conditions anytime. since u want to look at risk free rate for long term time frame, why not consider your CPF SA risk free rate 4%?

Friend: erm, I don't trust or like CPF system, I might not even get my money back. I think Singapore bonds more "Reliable" than CPF

 

Me (internal thoughts): wah Lao aey, Singapore bonds more reliable than CPF? CPF is used mainly to buy govt bonds. Their nature is the same......

 

I gave up without speaking further. Cos need to spend too much time to explain further. Plus my friend might not listen to it as I sense that he is fixed in his views......

We need to do a very common sense when treating topping up SA

U know ppl in their 30s and 40s easily earn mid 4 figure pay. I am sure they hit the 7% tax bracket one of the year. U know what I talking abt right.

A 7% tax saving and a 4% interest, combine together, isn't it like 11% return in a year!

Sth we can't even get in equities market!

Or I shld say, majority cannot achieve 11% return in a yr....

Count it as my short version of guest blog haha

This is my version of "common sense investing" LOL

"Starting 2016, members 55 and above will enjoy an additional 1% extra interest on the first $30,000 of their combined balances. This is on top of the current 1% extra interest earned on the first $60,000 of their combined balances." CPF Board.

It seems that many more CPF members are warming up to the idea of topping up their CPF-SA and RA. This, I believe, is a good thing.

We should make full use of the CPF and make it a cornerstone in our plan for retirement adequacy. It is, quite simply, the sensible thing to do.

In investments, we go for low hanging fruits first. Why should it be different when it comes to planning for retirement adequacy?

Some blog posts in which CPF-SA was discussed:
1. Do you want to be richer? (2010)
2. Build a bigger retirement fund with CPF-SA. (2012)
3. Don't see money, won't spend money. (2013)
4. Upsize $100K to $225K in 20 years. (2014)
5. AK reveals his CPF-SA numbers. (2015)

Related posts:
1. Singapore Savings Bonds: Good or not?
2. Why fixed deposits over structured deposits?
3. UOB ONE Account or OCBC 360 Account?

Get ready for investment with Solace: here.

Tea with Solace: A review of Dividend Machines.

The following is a voluntary review by a guest blogger, Solace, who signed up for the income investing course, Dividend Machines.

Solace says:

Disclaimer : I am not paid or given free access to the course materials to do this review. Solace has paid $XXX USD like everybody else to take a look at the course content. These are my personal views and readers should make their decision on whether the online course is value for money.

The online course has 4 Modules:

- Personal Finance (Covers the mindset, psychology and own personal financial situation.

- Dividend Machines (Covers 8 checklists/steps in screening for dividends stock)

- REITs (All about REITs, business, valuation, financial, management etc)

- Portfolio Management

In addition, there are also:

1. Video lessons

Where they do in depth case studies and how to screen for stocks based on their methodology.

Video Lessons will commence from 25 March 2015, Wednesday onwards.

2. Q & A session

You can post your question in this segment. The Trainers have been rather prompt in answering your queries. All questions are usually answered within 24 -48 hours from observation.

Website: Dividend Machines.

I leave it readers to read more about it.

Who is the course suitable for?

In short, this course is excellent for all who are looking for insight and a consistent method to screen for dividend stocks.

This is especially so for beginners who are still trying to find their way. Even for seasoned investors, time to time we might need to defrag all knowledge we have in our mind and this course helps to do that. It helps to streamline our thought process.

While many of the fundamental concepts are not new to me, I still look forward to the case studies where I can exercise my brains to practice analyzing. I am also attracted to the Q&A section where there will be interesting discussion with fellow investors and trainers.

In my interactions with many people who are starting out with investment, I would recommend them to read different kinds of investment books. This has worked extremely well for me. However, there are people who have difficulties digesting the content inside the book and find it hard to apply them. Another group might be overloaded with many schools of thought and do not know which methods work best for them.

This particular group will always wonder: 

"What is the essence of investing? Is there an easy method which I can follow?”

What the Fifth Person has done is basically summarize the key points and presented them in a very clear, easy to understand and easy to follow manner. And there we have it, the very “essence” to dividends investing.

If you can follow the method well and are able to identify a good dividend stock that will serve you well for many years, then, paying a course fee of $XXX USD would well turn out to be a “multibagger investment” for you.

There is still slightly more than a day to sign up for the course and have a workshop session thrown in for free. Please go to the related post below for the link to sign up for the course.

Dividend Machines by The Fifth Person

Related post:
Listen to AK and create your own Dividend Machines.

AK might nibble at King Wan Corp. Ltd.

The past few years were characterised by very low interest rates as money supply was ramped up by the U.S. Federal Reserves. Many businesses and individuals probably benefited from this. However, interest rates cannot stay so low for too long.

In preparation for an environment of higher interest rates, I have mentioned a few times before that I am on the lookout for businesses which are net cash or have very low gearing. I would also like to have them pay regular and meaningful dividends. I said the same thing too during an interview I gave recently.

To this end, together with a handful of companies, I have also been keeping an eye on King Wan which is a company introduced to me by Solace, a guest blogger here in ASSI, some time ago. Solace also wrote a very good piece on King Wan then and I have appended the link at the end of this blog.

Of course, it is not enough that a business is in a net cash position or has low gearing. That only represents balance sheet strength. We should also want the company to have earnings visibility.

King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018. Just like how I like Hock Lian Seng's order book which provides earnings visibility until 2020, I like the health of King Wan's order book too.

As I invest primarily for income, I am also attracted to King Wan because they pay dividends regularly. A DPS of about 1.5c per year seems undemanding given their more normalised EPS of about 2c.

What do I mean by normalised EPS?

Well, I know that King Wan made quite a bit of money from savvy investments which gave them extraordinary gains at times but it is the health of their core businesses' which is more important in helping to determine sustainability of their dividend payouts.

So, at a price of 30c a share, for example, a 1.5c DPS, representing a pay out ratio of 75%, gives us a dividend yield of 5%. Doesn't sound too bad, right? Then, why did I not buy some of its stock?

Well, as I shared with Solace in a chat before, I have a certain amount of money to be allocated and, after some thought, I decided to put King Wan in the same category as Hock Lian Seng which comparatively gave a higher dividend yield with a lower payout ratio of about 40%.

Am I going to invest in King Wan now, I asked myself, as Hock Lian Seng's stock price has shot through the roof? Why not a nibble?

OK, if Mr. Market should give me a better offer, I might.

Related post:
Tea with Solace: King Wan Corp. Ltd.

Tea with Solace: Mapletree Greater China Commercial Trust.

This is a guest blog from a regular guest blogger, Solace, on a REIT in his portfolio. I always appreciate Solace's guest blogs which show how much thought he puts into every single one of his investments in the stock market. I hope you find Solace's guest blogs beneficial like I have.

So, here is Solace's Review of 
Mapletree Greater China Commercial Trust (MGCCT):

MGCCT got listed on March 2013. It was oversubscribed and the general feeling of the stock market at the time was bullish. I subscribed to this IPO and was one of the lucky people who received allocation of shares. I did a quick flip on the first day of IPO and realized a gain of about 11%.

The reason for selling during the first day of trading and my subsequent relook at the stock more than a year later will be discussed further.

Asset Portfolio

MGCCT consists of just two mixed use assets - Festival Walk and Gateway Plaza.

Festival Walk

A landmark territorial retail mall and lifestyle destination with an office component, comprising a seven-storey retail mall with a four-storey office tower and three underground car park levels, located in the upscale residential area of Kowloon Tong, Hong Kong.

Gateway Plaza

A premier Grade A office building with a retail atrium, consisting of two 25-storey towers connected by a three-storey retail atrium and three underground floors, located in the established and mature prime Lufthansa Area in Beijing, China.

The two properties cover a gross floor area of approximately 2.4 million square feet and the total net lettable area is about 1.9 Mil square feet.

With only 2 properties, it is easier to do an analysis but it also presented a problem of its own, Concentration Risk.

One has to take note that Festival Walk alone contributes to 75 per cent of the asset value and gross revenue of the Reit. The performance of the REIT is tied to the fortunes of the Festival Walk. As an investor we should do our homework to ensure that we can predict the earning power of the mall or we might be in for a big surprise if the earnings tumble down the road along and, with it, the share price.

Portfolio Performance thus far

Gross revenue and Net Property income has shown to be beat initial forecasts in prospectus and reported to outperform Y-O-Y comparing FY Quarters to Quarters.

Festival Walk remained fully occupied at 100% for both retail and office sectors. Shopper traffic and tenant sales in 1Q FY14/15 increased slightly at 0.5% and 0.1% respectively year on year. Of the retail leases expiring in FY14/15 at Festival Walk, 90% have been renewed or re-let with rental uplift of 21%. Weighted Average Lease Expiry (WALE) by Gross Rental Income of Festival Walk is 2.9 years. Do take note that for FY16/17, 22% of Gross rental income is due to be renew.

The committed occupancy at Gateway Plaza was 98.6% as of 30 June 2014. These committed leases represented tenants from the automobile and machinery sectors. As of 30 June 2014, 80% of the leases expiring in FY14/15 have been committed, with a significant rental uplift of 33% against preceding rental rates. WALE for Gateway Plaza it is 2.5 years.

Key Financial Indicators and Capital Management.

Gearing Ratios: 38.6%

Interest Coverage Ratio: 4.8 x

Total Debt Outstanding: HK$11,455 m

Weighted Debt Maturity: 2.7 years

Annualised DPU (cents): 6.257 cents

Distribution Policy: Semi- Annual Basis

Gearing Ratio is definitely on the high side. A silver lining would be in order to mitigate the risk of rising interest rates; more than 70% of MGCCT’s debt has been fixed for FY14/15 and FY15/16.

To ensure stability of distributions, MGCCT has hedged 90% of HK$ Distributable Income forecasted for FY14/15 and is actively monitoring the market to progressively convert RMB Distributable Income to SGD when the rates are favourable.

Management Fees Structure.

How Reits pay their manager through fees has been questioned from time to time. MGCCT is one of the first Reits to adopt DPU-based fee model rather than the traditional asset based fee structure that most S-Reits use. This is touted to be superior as most of the return from a Reits is delivered via DPU yield.

However, some would argue tying fees based on DPU may or may not necessarily better align the interests of the management and unit holders. A group will believe that fees tied to assets are more stable and makes it easier to pursue asset enhancement activities. There is also a possibility of managers using the DPU based model to focus on short term gain through increase use of gearing to boost DPU, but set itself up for disaster over the long term.

There is no evident of MGCCT behaving this way currently. I do not have opinion on this matter as I believe no fee structure is fool proof. Concentrating on the track records of the manager seems to be a wiser choice.

Solace's Recent Actions.

At Listing Date of 7 March 2013, issue price was $0.93 (NAV/unit $0.91). It had a projected dividend yield of 5.6% for FY 13/14 and 6.1% for FY 14/15. I sold the shares when the price reached $1.04. Translates to about 11.8% gain.

At the price, I felt that it makes sense to cash in. It was above NAV, the projected yield of 5.6% didn’t justify the concentration risk and high gearing in my opinion. I needed to have bigger safety margins and want to see that the management can achieve its DPU while paying close attention to the performance of Festival Walk.

When prices break below 90 cents towards the end of last year, I decide to the put the Reits back in my watch list. Also during the waiting period, it has shown that the Mapletree pedigree had delivered again with reports of DPU and NPI beating forecasts in prospectus.

It was a game of waiting patiently to see if the price would drop to a level where the dividend yield was more acceptable to me with the concentration risk in mind.

I pick up some shares in at prices from 83 cents to 85 cents a unit. Average entry is about 84 cents. This gives me a dividend yield of about 7.5% which is more acceptable to me. It was revealed that some of the senior managements also bought shares in recent months at $0.805 and $0.80. It is always a plus point if one can load up at about the same price as the board of directors.

If the share price declines to a level close to dividend yield 8% again, I might be interested to increase exposure again.

Read some of Solace's other guest blogs:
1. Frasers Centrepoint Limited (FCL).
2. King Wan Corp. Ltd.
3. Common Sense Investing.

Tea with Solace: A review of Saturday with Victor Chng.

This is a guest blog by Solace who spent last Saturday morning attending a talk by Victor Chng and friends.

Review on "Level Up Your Investment Profits"

I first knew about Victor Chng and Rusmin Ang when I came across the book "Value Investing in Growth Companies". I was impressed with their results in many of the local stocks and how they used scuttlebutt effectively.

They are in similar age group as me and when I know that they are hosting a talk at SPH on a Saturday morning which is near my house, I did not want to miss the opportunity to hear them speak. Solace is always curious to know how some people in his age group can be so good in investing. We must always case study successful investors, see what they have in common and model their techniques to suit our own style.

One recurrent advice that Victor gave was to invest within our "circle of competence". This is something that all investors have heard of but very seldom practiced. Their approach is primarily based on fundamental analysis. It involves lots of research and hard work. It does not involve looking at numbers in the annual reports alone but also encompasses looking at business model, industry macro factors, quality of management and finally valuation. It formed a nice little frame work.

 

Number	Business
Valuation	Management

My Personal Opinion:
If a person does not have sufficient knowledge in the four factors, one cannot say he is investing within his "circle of competence".

The speakers went on to spend some time explaining about common valuation methods, identifying good management, picking up important numbers in annual reports etc. I shall not go into details and bore everybody. I presume most readers of AK’s blog already have some kind of knowledge of investing.

For people who want to know more, just pick up any Pat Dorsey, Peter Lynch or Warren Buffett books to read. Ask AK for recommendations. (AK says: Food for thought found in the right sidebar.)

Victor also spoke about the differences between a good company and a fair company. Even if it is a fair company, we can still profit from it if we buy undervalued. He then went on to explain about distressed industry, where we can actually profit by buying into fundamentally strong company when the price has hit rock bottom. "Fallen Angels" was also mentioned; we need to able to deduce if it is a temporary setback or a permanent decline.

My Personal opinion:
There is a fine line between fallen angels that are value stocks and those that are headed straight towards bankruptcy. Needs experience and good judgment.

Several case studies were shared. Many are stocks that the speakers have invested in before. One of them is LMA international and why it has a unique economic moat. Cerebos, the company behind Brands and how it was so profitable. The comparison between Hanwell Holding (Product: Beautex Tissue) and NTPM (Product: Premier Tissue). A look at the financial numbers would tell us a lot why one is superior to the other.

There was a question from an audience which I thought was excellent. Cerebos, the company behind Brands can potentially be hard hit by a massive outbreak of birds’ flu or a change in consumer preferences, leading to a worse case scenario where no one wants to drink chicken essence any more.

My Personal opinion:
This is a very valid concern and highlights the importance of safety margins in investing, even for stocks which seems invincible. Anyway, Cerebos has already delisted from the Singapore Stock Exchange.

Finally, Victor touched on one sector of the industry which is in distress. The Baltic Dry Index (BDI) has fallen to records low in recent times and value can potentially be found in the Dry Bulk Shipping Sector. Weaker players are out of the game and the search is on for companies with competitive advantages can lead the recovery which may be taking place.

As strong iron ore demand from China drives up price of ship charters, the worst could be over for the shipping sector. Using the framework that Victor has explained, he has identified 2 companies in the region that appeal to him,

This is a cyclical industry which has gone through multiple boom and bust cycles before and this time is no different. Some of the big names and billionaire are believed to have already invested in this sector. Based on the information provided, retail investors can potentially ride on recovery in this sector by carefully investing in fundamentally good stocks in the sector.

My personal Opinion:
I generally agree with the findings of the speaker on this sector. I am monitoring it myself. But as a prudent investor, we should still do our homework to verify the facts and macro industry situation before leaping in. As mentioned before, always invest in your "circle of competence" and with a margin of safety.

Victor will be organizing a roundtable discussion forum where he will be sharing his findings of the sectors in details. He will also show how the methods could be replicated to find opportunities elsewhere. If you are interested to learn more, you can contact Victor and friends for more details on the discussion forum.  Email: Contact@fifthperson.com

Conclusion
I agree with the investing methods that the speakers have touched on. Many successful investors succeed based on hard work, fact finding and many hours of learning and research. I always believe that is no short cut to riches in investing. I believe the investment methods shared by Victor and Rusmin are very relevant and should be studied carefully.

Finally, I just want to add, if one comes across marketing gimmicks that promise instant riches and instant success by attending courses which charge ridiculous prices in the thousands of dollars, one should open one's eyes to see clearly and think carefully. At that kind of prices, one might actually get better value for money by investing in an ETF or reading some good investment books.

Related posts:
1. Saturday morning with Victor Chng: Level up!
2. Saturday with Victor Chng: Becoming a better investor.

Tea with Solace: Frasers Centrepoint Limited (FCL)

A Peek into Frasers Centrepoint Limited (FCL)

Frasers Cpt (FCL) has been spun off by F&N, the real estate division carved off from its operation business. It was listed on the SGX Mainboard on 9 Jan 14. The stock opened at $1.61, reaching a high of about $1.70 a couple of days later before retreating to the current price of $1.41 to $1.42.

FCL operates as an international real estate company. It owns many properties that we are very familiar with. It has major stakes in two REITs – FCT and FCOT.

Souce: FCL 1Q14 Results Presentation. Click to enlarge.

Financial Highlights

Revenue increased by about 87% and PBIT increased by about 63% Year on Year. The strong set of 1Q14 results showed year on year gains in all segments. Strong overseas development sales were the key driver.

Development PBIT rose by about 121% year on year. It was led by Australia with the completion of One Central Park (CP) and Park Lane Block 5A in Sydney. As for China, around 750 units were sold in 1Q14, but the overall residential market remains cautious in China. In Singapore, Overall prices declined 0.9% q-o-q in 4Q13. Around 15,000 new homes were sold in 2013, 32% lower compared than 2012

Given the increasingly cautious sentiment in the local property market which has been affected by cooling measures, Frasers Centrepoint’s strategy of venturing overseas can put it in a good position for further growth,

There was also an increase in commercial rents and room rates with higher contribution from One@Changi City . Construction of Waterway Point is progressing well, slated to be completed in 2015.

Currently the Net Asset Value per share is $2.15. At current price of about $1.41, it is about 35% discount to its NAV. I am vested at this price

I resisted entering when it was trading at $1.50 or $1.60. Recently, I make a comparison of similar real estate companies listed in Singapore. On average, they are trading at about 0.75x book value. At current price of $1.41, with about 35% discount to NAV, I feel comfortable vested in FCL properties. Valuation is attractive in my opinion.

FCL has a net debt to equity of about 50%, which I am uncomfortable with. Recent media reports suggest that FCL will launch a hospitality trust, which could raise S$600m. Once they spin out the hospitality REIT, they should be able to move some debt off their books. This asset recycling move is beneficial to FCL similar to what OUE and SPH have done in recent times.

This move can fund new acquisitions and allow them to be asset light. This strategy also allows them to earn more REIT management fees and improve its commercial portfolio.

Potential Risks

FCL has a small free float of only about 12%. This does not sit well with large investors. Hopefully, this will change over time. Increasing FCL free float will improve investor participation and narrow the valuation discount. This remains a uncertainty and likely to depend on market forces.

Another potential risks lies in the majority shareholder. In this case, it is Thai boss, Chaoren, holding a direct stake at 76%. It is of utmost important that the Thai towkay's interests are aligned with minority shareholders.

What are the things the management can do to the detriment of minority shareholders? They can set unreasonably high directors remunerations or, worse still, IPT (Interested Person Transaction) which will solely benefit the majority shareholder instead of all shareholders. I believe IPT risk possibility is low but still it is a risk.

As Warren Buffett said, integrity of management is very important. This is an area which I have to pay attention to.

Conclusion

I believe at current valuation, FCL is attractive, trading at about 35% discount to its book value of $2.15. The portfolio is spread across residential, commercial and hospitality properties in markets such as Singapore, China and Australia which reduces the risk of downturn in any particular country dragging down the whole company. It has a good history of increasing its profits and assets. FCL also has a potential catalyst in the form of REIT listings in the near future,

Key risks like free float and management integrity still remains. The financials of FCL look extremely attractive and there is huge potential upside to go but it also holds hidden risk that goes beyond financial statements.

While many people are proclaiming doom for the real estate, my strategy is to invest at attractive valuation and sit tight to wait for events to unfold. I like to stay invested in good counters for longer period of time. All counters are good investments at the correct valuation.

I came across a recent quote from the papers which best explains my strategy in holding this stock.

"We believe that if you don’t believe in holding a share for 10 years, then don’t even think about holding it for three days… Speculators can still get their thrills through other means. But let’s not make the mistake of confusing investing with gambling"

- Mr David Kuo, Chief executive of Motley Fool Singapore.

Some other guest blogs by Solace in ASSI:
1. King Wan Corp. Ltd.
2. Common Sense Investing.
3. Getting ready for investment.

Tea with Solace: King Wan Corp. Ltd.

Business Structure

 

King Wan Corporation Limited is a Singapore-based integrated building services Company with principal activities in the provision of mechanical and electrical (M&E) engineering services for the building and construction industry. It also operates in three other business segments, namely Property, Manufacturing and Services.

It operates principally in four business segments:

 

Engineering segment: Provides multi-disciplined M&E engineering services such as the design and installation of electricity distribution systems, fire protection, alarm systems,

communications and security systems, and air-conditioning and mechanical ventilation systems for the building and construction industry;

 

Property segment: Engages in the development, marketing and sale of residential and commercial properties in Singapore, China and Thailand;

 

Services segment: Provides rental and other services for mobile chemical lavatories and other facilities for construction worksites as well as public and nation-wide public events.

 

Vessel owning and chartering segment: Buys suitable vessels for chartering to third

parties.

(Source: King Wan's website.)

 

From M&E Engineering to developing property, providing mobile toilets and even vessel owning, this seems like a Rojak company to me at first glance. However, bearing in mind that a well mixed Rojak can be delicious, I decided to dig further.

 

King Wan's true strength lies in its engineering segments. It has more than 30 years of experience in the building and construction industry and has established a sound and stable foundation. 

 

Within the mechanical & electrical (M&E) space, King Wan is a company that is involved in the fields of electrical, plumbing, air-conditioning and fire protection. Its economies of scale give it a contract-winning cost advantage.

 

Recently, King Wan Corporation won S$26 m worth of new M&E contracts. Total M&E contracts' value stands at S$168.9 million, lasting to 2016. This will keep them busy.  This core segment contributes an estimated S$5 m to S$7 m, which should be sufficient to meet the 1.5 cents of dividends.

 

 

On the property front, King Wan together with TA Corporation, Hock Lian Seng and Far East Distillers Pte Ltd ventured into condo development. They have recently unveiled “The Skywoods” at Dairy Farm Road. Some people believe that Kingwan is late to the party but I believe it is better late than never. I am paying close attention to how this property segment can contribute to their overall performance.

 

In 2013, the company ventured into vessel ownership and chartering business through Gold Hyacinth. The first vessel purchased called “Hai Jin” is a bulk carrier. The vessel has since been chartered to a 3^rd party. This operation should contribute to the group’s results in the new financial year, which I am keeping an eye on to see how it can value add.

 

The rental of mobile toilets contributes about 4% of group's total revenue. It provides a diversified and steady income stream.

 

Perhaps, the biggest reason why the stock jumped this year was the announcement of Share Sale Agreements signed with Kaset Thai Industry Sugar (KTIS). KingWan has agreed to sell to KTIS its entire shareholding in Environment Pulp and Paper Company (EPPCO) and Ekarat Pattana Company Limited (EPC), comprising 5 percent in cash and the rest in listed KTIS shares. Barring unforeseen circumstances, KTIS shares are expected to list on the Stock Exchange of Thailand.

 

This event can unlock shareholder value. In the latest announcement, Kaset Thai Industry Sugar (KTIS) has applied for IPO. The Securities and Exchange Commission (SEC) in Thailand has allowed KTIS to begin marketing its shares. This adds another level of certainty to the anticipated IPO as well as the declaration of the 1.5 c special dividend.

 

 Financials Fundamental

 

Market Cap ~ $103M @ $0.295 per share

EPS ~ $2.35 cents

P/B ~ 1.21

NAV ~ $0.2431

PER ~ 12.55x

Dividend Yield ~ 5% (Based on core 1.5c dividend)

Dividend Distribution ~ Aug/Nov Semi-Annual Distribution

Current Ratio: 1.46

Quick Ratio: 1.43

Gross Debt to Total Equity Ratio: 18.3%

 

Conclusions

 

I like the strong core M&E business. The strong order book can sustain a few years of core 1.5 cents dividends.  I like to be rewarded with dividends while I monitor the company growth. Semi-Annual distribution has been consistent even during the crisis year which is good.

 

With the impending listings of the group’s two Thai associates, EPPCO and EPC, the financial position should be boosted. I will be looking closely whether King Wan can explore new investments that can add value to share holders.

 

Some risks are also on my mind. The risk in property development has increased with more cooling measure introduced. We have yet to see result from Vessel Ownership and Chartering business; profits may get dragged if it does not perform well. Revenue will decrease with a lack of contribution from its Thai associates after sale.

 

I would usually write down the reasons for investing in a company. If the company takes a turn for the worse, I take out the piece of paper and analyse whether the reasons for buying the stock still makes sense.

 

For King Wan, if the competitive edge of the engineering segments gets eroded by competition and if the listing of Kaset Thai Industry Sugar (KTIS) gets into trouble, it will be enough for me to admit I made a mistake. This will be the right reasons for me to sell the stock.

 

Disclaimer: The article is my personal opinion and is not a recommendation to buy or sell. Any increase in popularity of the stock that leads to an increase in share price will benefit Solace in the long run, Haha.

 

Read other guest blogs by Solace: here.

Tea with Solace: Valuation, PER and Value Trap (Part 2).

In order to study sustainability of earning, I have learned to identify the economic moats of company. Successful growth companies should still be profitable in the years ahead.

Recommended Reading:

The Five Rules for Successful Stock Investing, Chapter 3

To study the qualities of earning, I tend to look at whether a company is well managed with growth prospect. I sometimes refer to Philip A. Fisher 15 investments points as guide. I check whether a company has worthwhile profit margin? Does the management have the determination to continue to develop products or processes that will still further increase total sales potentials?

Recommended Reading:

Common Stocks and Uncommon Profit, “Fifteen Points to look for in a Common Stock”


I look for a stock that has a higher earning yield compare to a lower one. Businesses that return a high return of capital are better than businesses that earn a low return on capital.

Points taken from

The Little Book That Beats the Markets

Making sure that a company is in good financial health without excessive bad debts is another thing I pay close attention to.

Recommended Reading:

The Little Book of Value Investing, Chapter 11 -14

 

Finally, if analyzing individual company is really too challenging and tiring. We can just try to buy the whole basket of stocks that track the index. Exploring the idea of investing in index fund can also be rewarding in the long term.


Recommended Reading:
The Little Book of Common Sense Investing

 

Learning to identify truly undervalued companies with good fundamentals while avoiding value traps is truly a skill that will take time to master. This is a huge topic which can be further discussed in the future.

Read Part 1: here.

Read other guest blogs by Solace:
Tea with Solace.

Tea with Solace: Valuation, PER and Value Trap (Part 1).

This guest blog by Solace is very helpful to any new investor looking for some pointers and I also feel that it is useful to investors who might be in need of some defragmenting regardless of the number of years they have been investing in the stock market. I know I need this from time to time.

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From: http://singaporeanstocksinvestor.blogspot.sg/2013/08/how-to-be-one-up-on-wall-street.html

Once, a relative who had 30 years of stock market experience told me that we need to distinguish between a growth company and a growth stock.

 Many times, growth companies are not growth stocks because the hype of expected growth had already been reflected in the share price. Growth stocks are stocks whose prices are likely to increase because their values or business fundamentals are unappreciated. We should try to look for growth stocks not growth companies.

A very popular valuation ratio is price to earnings (P/E Ratio). The easiest way to use P/E ratio is to compare it against a benchmark, such as

 

1) Stock P/E to the average P/E of the entire market,

 

2) compare against another company in the same industry,

 

3) compare the same company at a different point in time, company’s Historical P/E.

Some of my friends think that P/E of more than 20 is considered overvalued and P/E of less than 12 is considered undervalued. If only life were so simple.

When looking at P/E, we need to open our eyes and see whether the E makes sense.

The most common way to calculate the PE ratio is to use price divided by a company's reported earnings per share over the last 12 months. This is known as the trailing twelve month (ttm) PE ratio, or the historical PE ratio.

What happens if the company sold its asset or business in the last quarter? It is going to have a very big E, and results in a lower P/E. The stock may suddenly look cheap, but in reality based on operating earnings, the stock isn’t that cheap!

Some investors prefer to look forward and project next year's earnings. This is known as forward P/E. Very often, estimates of future earnings by professional analyst are too optimistic. If enough investors believe in the wrong projection, a bubble will develop. An earnings disappointment will result in a steep price drop!

Some stocks trade at low P/E for a reason. When we are looking at stocks that seem very cheap, we need to look deeper. They could be value traps, in that the stock price would go lower as the company continues to have problems in their operations.

So when we look at stocks that are cheaply price, it is important to look at the quality of earnings and the sustainability of the earning. We have to make sure underlying business is sound before buying into low P/E stocks.

And how are we going to make sure the company fundamentals are sound? Based on my current limited knowledge, I will do a short sharing on some of the points going through my head whenever I try to look at stock that appears cheap.

Continue in Part 2: Here.

Tea with Solace: Common Sense Investing.

This is a book recommendation by Solace, the same person who recommended "The Little Book That Beats The Market" a few weeks ago:



The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

Bogle's main point is that the best (most efficient) investment strategy is to buy and hold all publicly traded US businesses at a low cost. He recommends this very simple approach as a superior alternative to the incredibly complex array of specific investment options available today. He describes this as Bogle's Corollary: "Don't look for the needle in the haystack. Just buy the haystack!" - Chad Warner

Related posts:
1. The Little Book That Beats The Market.
2. Tea with Solace.
3. Blue Chip Investment Plan.

Tea with Solace: Getting Ready For Investment. (Part Two)

Solace continues:

Building up Investment Knowledge

To me, this is the most tedious and tiring part. I was not educated in the field of finance and accounting. So, I have to learn everything by myself from scratch.

I need to create my own personalized winning plan. In order to do it, I need to know what I want, specifically my investment objectives and risk profile. This should be the first step before I start to invest.

I am only investing in stocks but note that there are other products available such as commodities, FOREX and derivatives (Options, Futures, Contract for Difference). Many of these products, however, are riskier than stocks and often involve trading with leverage. I believe that we should not invest in something which we do not have enough knowledge in. So, I avoid these.

There are two main approaches when it comes to the analysis of stocks. They are fundamental analysis and technical analysis.

Fundamental analysis involves making an assessment of a company operations. Various factors such as profit, forecast profit, outlook for the industry, key personnel in senior appointments and members of board of director are considered in a fundamental analysis.




Three key financial statements are used:
1. Statement of Cash Flow 
(see Cash Flow Statement)
2. Balance Sheet
(see Balance Sheet)
3. Profit and Loss Statement
(see Income Statement)

They are available in the annual reports.

I watch the valuation of a company carefully. Even the most wonderful and fundamentally strong company is a poor investment if purchased at too high a price. Look out for P/E, P/B, PEG, earning yield, cash return and discounted cash flow etc.

Always have a margin of safety when purchasing shares.

Safety first!

Technical analysis is the study of a stock's actual price, to help form an opinion on the likely future direction of a stock. It makes use of charting software and looking at trends. Some of the common indicators I used are moving averages, Relative Strength Index, MACD, Stochastic Oscillator and On Balance Volume (OBV).




Conclusion

In closing, I think that we need to arm ourselves with the necessary tools to be a successful investor. I am continuously learning and discovering new things from time to time. Never think we have learnt enough about the markets, one should always continue to seek further knowledge.

The day we believe we have learnt enough about investment will also be the first day on our way to failure as we have become complacent.

Related post:
Tea with Solace: Getting Ready For Investment. (Part One)