Yongnam: Worried about warrants?

Yongnam has been doing very well in recent years. Its management also shows a commitment in sharing the fruits of its achievements with shareholders as it paid steadily higher dividends in the last four years.

Yongnam's order book remains robust although its Q1 revenue and profit declined due to delays in starting up of a couple of projects. Is this why its share price has been languishing? Does Mr. Market expect Yongnam to underperform from this year on?

Well, to be fair, the broader market has been languishing too. It remains to be seen whether the 3,000 points pyschological resistance on the STI could be overcome.

With Yongnam, I am not so worried about its fundamentals. In fact, I expect the company to win more contracts as regional governments spend more on infrastructure projects. This will generate steady revenue for the company. With increasing contribution from its specialised civil engineering arm, profits are likely to improve at a steady clip.

What could be holding back its share price is its outstanding warrants. Warrants? Yes, the company had a 3 for 10 warrants issue in 2007. 3 for 10 is quite a big proportion. If all the warrants were exercised, we could see a 23% dilution in EPS. Then, its shares would look more expensive.

So, the question is whether Yongnam is able to make use of the funds productively to improve its EPS proportionally or more to negate any dilution concerns. This is something that no amount of foresight would be able to throw light on. So, a cautious Mr. Market is understandable.

Now, I would like to suggest that it is possible that holders of the warrants might not exercise the warrants. Reason? The exercise price is 25c a piece. With Yongnam's share price at 23.5c at the last closing, these holders could be better off allowing the warrants to expire and buying more shares of the company in the open market if they wanted to add to their long positions.

Also, if I remember correctly, the warrants were not free. They were sold at 3c a piece. So, the full price of a warrant turned share is actually 28c for the original warrant holders.

There are rather bullish 12 months target prices for Yongnam's shares by various research houses from 30c or so upwards. Unless Yongnam's share price is able go past 25c a piece, the exercise price of its warrants, I doubt holders would exercise their warrants and worries of dilution would evaporate, therefore.

The warrants expire 14 Dec 2012. That is only five months away. I guess I can only wait and see.

Related posts:
1. Yongnam: 3 new contracts worth $63.8m
2. Yongnam: FY2011 results.

Yongnam: 3 new contracts worth $63.8m.

Yongnam announced that it won 3 new contracts worth $63.8m. This will add to the company's current order book of $469m, making it $532.8m. These new wins are expected to have a positive effect on the company's numbers for 2012. Yongnam is a leader in its field and expectations are for more contract wins in the coming months.

Yongnam's net profit for 1Q 2012 came in lower compared to 1Q 2011 because of delays in projects starting up in 1Q 2012. 2011 was also a very strong year due to completion of higher margin projects. An improvement in 2H 2012 is expected, however. 

"Nonetheless, we continue to win notable projects both in Singapore and overseas. As at March 31, 2012, our order books stood at a healthy S$469 million. We remain cautiously optimistic that the Group will perform reasonably well in FY2012 in view of a strong pipeline of projects that we are bidding for and the two delayed projects ramping up in the second half of the year." Seow Soon Yong, CEO

Gross profit margin: 29.3%
Net gearing: Lower at 0.28x
NAV/share: 24.13c
EPS: 0.91c

If we were to annualise the weaker quarterly EPS of 0.91c, we will get 3.64c. This would give us a PER of 6.45x with a share price of 23.5c.

Read announcement: here.
See 1Q 2012 results: here.

Tea with AK71: Lipton, Twinings, TWG et al.

I think we would not have missed much if we stayed away from the stock market the last few days. So, we might as well take it easy and have a cup of tea once in a while. My usual is a cup of Lipton tea which is inexpensive and quite good, I feel.

I had Twinings before which is supposedly more atas. Is it really?

Then, when a friend from Hong Kong came to visit, he went into this very atas looking tea drinking place, TWG, in ION Orchard. He was looking to buy some TWG tea because they were not available in Hong Kong. He and his wife bought some in Canada and enjoyed it. I looked at the prices and anyone looking at me then might have wondered whether to call an ambulance. Super expensive!

What inspired this blog post? I recently ordered some supplements and was given a packet of very atas looking tea. It is St. Dalfour Classic Breakfast Tea. It is organic tea from Ceylon and blended in St. Dalfour, France. Wah! If it doesn't sound atas to you, you must be drinking more atas tea than this. Please help to educate me.

Note for non-Singlish speakers: The word "atas" in Singlish means "high class".

Borrow money and be paid to do so!

No, there is no typo in the title of this blog post. Yes, you read it correctly!

So, where can we go to borrow some money and be paid to do so? Who are the people lending us money and paying us for it? Maxi-Cash?

Nope, not Maxi-Cash. What I am describing is happening in Germany and, unfortunately, the option is not open to us. So, it would remain a dream.

Hey, day dreaming is actually good for health, you know?

BERLIN: Investors paid to lend Germany money for six months at an auction on Monday, the country's central bank said, as they flocked to the safe haven of Europe's top economy.

The yield or rate on the auction of six-month debt was a record low -0.03 percent, the Bundesbank, which organised the auction, said in a statement.

Source: CNA, 9 July 2012.
Read the full story: here.

In ASSI, we talk of growing our wealth and beating inflation. We also say that if we want to protect our wealth, we have to take risk. So, to find investors parking billions of Euros in bonds with a negative yield is simply mind boggling! For these investors, they cannot even talk about how the interest they receive is not keeping up with inflation. Upon maturity, they would get back a smaller amount! (Keeping my money at home would at least ensure that the nominal value stays the same, wouldn't it? I think I am missing something here.)

Some would argue that these investors are paying the borrower to keep their money safe. Now, I am going to say something which you might find enlightening (or not): Keeping our money safe is not the same as keeping our wealth safe.

Related posts:
1. Grow your wealth and beat inflation.
2. To protect our wealth, we have to take risk.

China Minzhong: Crossroads.

China Minzhong's share price has been forming a base. It is clear that immediate support is now provided by the 20dMA which has stopped declining and is, in fact, gently rising. A rising MFI suggests that there is an underlying and growing demand while the sharply rising OBV suggests that smart money is moving back into the counter as its share price moves sideways with an upward bias.

The MACD, although rising, is still in negative territory. However, this could change soon as it could cross into positive territory next week, everything remaining constant. Could a change in trend take place soon? It looks possible.

The 50dMA is still declining sharply and we should see it crossing the 20dMA in the next week or so. If the share price is able to stay above the 50dMA then, we could see much more room for moving upwards.

A major resistance would be a gap fill at 82c which, incidentally is where the 100dMA and the 261.8% Fibo line are approximating. Before that, however, I expect resistance to manifest at 71c which is where the 161.8% Fibo line approximates.

Immediate support is at 59c thereabouts.

Sound Global: Would I buy now?

Fundamentally, a top down approach suggests that the industry Sound Global is in will continue to do well as governments invest in solutions to water related problems. My past research and experience with the company when it was known as E-pure also gave me the confidence required to invest in the company again although my initial re-entry price of 59c was less than ideal.

In the subsequent market sell down, I bought more shares at 46.5c on 31 May 2012 which means that my long position is now in the black. I am looking to possibly locking in some gain as the charts seem to suggest that this could be a good idea.

In the last session, a black candle was formed on the back of higher volume, suggesting that the bulls had a hard time pushing the share price higher. Do I see signs of distribution? Well, the OBV is still rising which does not suggest that smart money is leaving as price moves higher. Accumulation is still going on.

However, the lower high on the MFI which measures demand suggests to me that buying momentum is slowing down. Then, looking at the MACD histogram (MACD-H) which is a measurement of the distance between the MACD and the signal line, we see lower highs too. The MACD-H usually precedes the MACD itself. So, a change in trend could be on the horizon.

Could Sound Global's share price move higher from here? It could but the technicals suggest that it could be a slow grind upwards if it should happen. Would I buy more then? Probably not as I feel that, technically, selling could be a more palatable proposition.

Capitaland: Leveling up.

"People’s Bank of China slashed its one-year deposit and lending rates by 25bps and 31bps respectively just a month after it cut interest rates by 25bps. Beijing also announced further easing of interest rates, with banks expected to lower lending rates by as much as 70% against benchmark rates." Further expectations are for the bank RRR (required reserve ratio) to be cut by another 50bps in 3Q 2012.  (Source: The EDGE)

All these measures would serve to improve liquidity, helping businesses and consumers gain easier access to cheaper loans. As Capitaland has a significant presence in China, improving liquidity in the country will only benefit its projects over there.

Capitaland's share price has been climbing steadily higher on the back of higher volumes. This has attracted the attention of bulls and bears alike. Yes, undoubtedly. Although bulls are enjoying the ride, at the first sign of weakness, bears would rush back in.

Volume is the fuel that drives rallies. With the high volume seen, we won't be wrong to expect price to possibly go higher. Now, how high can the share price go? No one can say for sure. Bummer!

However, what I can say is that price has touched a major resistance, a many times tested resistance. People who bought at this level during the period of 11 April 2012 to the first few days of May 2012 could be looking to break even. The desire to break even is why this resistance is likely to be a tougher one.

The bullish momentum has to be strong enough to break through the barrier decisively. Any hesitation by the bulls will bring back the bears. Even as the OBV suggests that accumulation is powering on, there is no sign that the counter is overbought on the MFI.

Managing to break the immediate resistance could possibly see the double top formed in February and March 2012 tested. This is at $3.15. Incidentally, the 150% Fibo line approximates this price level as well which adds to the expectation that this resistance could be a stronger one.

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Cambridge Industrial Trust: 30 Teban Gardens.

Cambridge Industrial Trust is looking at buying 30 Teban Gardens for S$41m.

"Cambridge Industrial said 30 Teban Gardens Crescent is a high quality asset, with prominent exposure to the Ayer Rajah Expressway. The acquisition will further reduce the reliance of the trust’s income stream on any single asset or tenant."

Eurosports Auto at 30 Teban Gardens distributes Lamborghinis.

What I am immediately interested in is how are they going to fund the purchase and how will it impact my income received from the REIT.

The REIT has a gearing level of some 35.9% as of March 2012. Not excessive but it is not low either.

The manager has said that the acquisition will be funded through a mixture of equity fund raising and debt. In what proportion and in what form is the equity fund raising going to take? I guess we will have to wait for more details.

If the acquisition goes through, the manager expects the net property income (NPI) of the trust to improve some 4.6%. If the acquisition is fully funded by debt, DPU could be impacted similarly but with equity fund raising involved, depending on how many new units are issued, DPU would probably not increase by as big a percentage. If a rights issue is involved, we would also have to see the asking price before we can calculate the distribution yield.

Cambridge Industrial Trust has improved on its DPU for four consecutive quarters and it seems like a relatively good investment for income. However, I am unable to forget Chris Calvert's spotted track record before this. So, this remains a smallish investment in my portfolio.

I have a nagging feeling that this acquisition is not a good idea. Although the acquisition would only go through on a condition that the vendor (seller) obtains a further 22 years lease from JTC, the initial lease term was for 10 years only (from 1 July 2007). This means that 5 years have lapsed. Even with a further 22 years of lease, it would mean a total of only 27 years is left to the lease and would expire in 2039.

Is the valuation overly optimistic and is the REIT overpaying?

Slides presentation 26 - 28 June 2012: Here.

See announcement on acquisition: Here.

Croesus Retail Trust.

"Croesus Retail Trust is planning a Singapore initial public offering of about $800 million (US$634.22 million), backed by mainly Japanese assets, IFR reported on Wednesday."

It is an interesting choice of name. Croesus was the wealthy King of Lydia (part of modern day Turkey) and in Greek culture, the name is synonymous with a wealthy man. Would the REIT live up to its name?

Although I find this REIT interesting, I am not too excited about it at least for now because I remember Starhill Gobal REIT's Japanese retail properties to be a drag on its performance. The lacklustre Japanese economy has caused its retail sector to decline year after year.

Unlike demand for housing which is rather inelastic (which is a reason for liking Saizen REIT), demand for retail spaces is very sensitive to a country's economic performance.

This was what Starhill Global REIT's management said in its 2011 Annual Report:

The Japanese retail environment remains challenging. The Manager is continuously optimising asset performance through active management of the leases.

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Let us wait for more details.

Croesus Retail Trust plans $800m Singapore IPO: IFR
Wednesday, 04 July 2012

© 2012 - The Edge Singapore

AIMS AMP Capital Industrial REIT: Making money.

The issue of how REITs must constantly raise funds in order to expand has been beaten to death and I have also blogged about it more than once. The debate can and probably will go on forever but, as far as I am concerned, it has little value and serves to distract us from what really matters.

If REITs are raising funds for activities that are yield accretive, I would readily support the exercise and would, in fact, try to subscribe for more than my entitlement of rights if the offer is very attractive. Bearing this in mind, I have been able to profit from rights issues. To me, as an investor, I want to make money and if I could profit from rights issues, I would.

To this end, one of the rights issues which I have made the most money out of was AIMS AMP Capital Industrial REIT's. The rights were priced at 15.5c per unit. I applied for many excess rights and received quite a large number of rights units in that exercise. Post consolidation, these rights units cost 77.5c per unit. At today's price of, say, $1.22 per unit, there is a capital gain of about 57.5%. From then till now, I have also enjoyed an annual distribution yield (on cost) of some 13% on these units.

Of course, there are some who would point out that the units I was holding on to, pre-rights issue, suffered some dilution and loss in value. The suggestion is that Mr. Market would recognise this and that it could be reflected in the unit price. Well, at today's price of $1.22 a unit, it would translate into a pre-consolidation price of 24.4c per unit. I don't remember ever paying as much as 24c a unit, pre-consolidation, for AIMS AMP Capital Industrial REIT. There is something to be said about a penchance for buying into REITs which are trading at a (large) discount to their NAVs, perhaps.

Why am I quite suddenly talking about AIMS AMP Capital Industrial REIT and rights issues?

OK, before you go clicking on SGX looking for announcements, no, they are not having a rights issue. Then why?

Well, some people say that I am always using First REIT as an example of how investing in REITs can be very rewarding. So, this is another example to the same effect, isn't it?

It is also a more powerful example since there were many who cursed George Wang et al. from the days when it was known as MI-REIT and in need of recapitalisation, declaring that the REIT would never amount to much after the rescue.

(Pause...)

29 Woodlands Industrial Park E1.

OK, if you have guessed that this is not the real reason behind this blog post, hurrah! You guessed correctly.

I try to be forward looking and care more about the future than I do about the past. Caring more about the past could become an obsession as I grow older though. I hope it would not happen although I am sure it is only a matter of time. I see enough examples of how it is happening to older people all the time.

The catalyst for this blog post is the annual report from AIMS AMP Capital Industrial REIT which I was flipping through over the weekend. Specifically, it has to do with the fact that quite a number of properties in the REIT's portfolio have re-development potential.

As we have seen in the current redevelopment of 20 Gul Way which is to be completed in two phases (phase 1 by November 2012 and phase 2 by December 2013), redevelopment is a very good way of delivering more value to unitholders.

The redevelopment of 20 Gul Way did not require any rights issue although there was a private placement to CWT Limited (and regular readers know that I would very much prefer rights issue but the private placement was rather small and a rights issue would have been rather costly.)

10 Soon Lee Road

Well, there are a few more properties in the REIT's portfolio which could be considered for re-development to take advantage of the maximum plot ratios allowed. Examples are:

10 Changi South Lane (Lease expiry: June 2056)
Current plot ratio: 1.60
Maximum plot ratio: 2.50

541 Yishun Industrial Park A (Lease expiry: June 2054)
Current plot ratio: 1.28
Maximum plot ratio: 2.50

2 Ang Mo Kio Street 65 (Lease expiry: March 2047)
Current plot ratio: 1.31
Maximum plot ratio: 2.50

103 Defu Lane 10 (Lease expiry: June 2043)
Current plot ratio: 1.20
Maximum plot ratio: 2.50

8 Senoko South Road (Lease expiry: October 2054)
Current plot ratio: 1.30
Maximum plot ratio: 2.50

10 Soon Lee Road (Lease expiry: March 2041)
Current plot ratio: 0.88
Maximum plot ratio: 2.50

With gearing level at 30% or so, I would not be surprised if a major rights issue is required if there should be plans to redevelop these sites. In fact, I expect it to take place. When will it take place? Ah, that one, I don't know.

If you think that I am quite excited with the prospect of another rights issue, you are right (pun unintended). I am pretty sure I am not the only one too.

Related posts:
1. REITs and rights issues: Dilutive or not?
2. REITs and rights issues: A Singaporean tale.
3. AIMS AMP Capital Industrial REIT: Accumulate on weakness.

My very first blog post on AIMS AMP Capital Industrial REIT in December 2009:
AIMS AMP Capital Industrial REIT (MI-REIT).

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