FCF positive! $1 billion cash pile! Higher dividends?

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this the transcript of another recent video I produced.

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All investments are good investments at the right price.

I like to ask myself this question whenever one of my investments is suffering a paper loss.

"If I was not already invested in this at a higher price, would I buy at the price now?"

If the answer is "yes", then, I could possibly add to my position in the investment.

If the answer is "no", then, I could either hold or sell.

To hold, there must be some redeeming qualities like a strong balance sheet, the ability and the will to pay dividends consistently.

To sell, it could mean that I think the business has weak numbers, would lose money, stop paying me and maybe even struggle to stay afloat.

To be sure, I could also sell some if I must raise cash for another investment which I think could be more rewarding.



For some time now, ComfortDelGro has been getting "BUY" calls from many experts, citing the cheap valuations.

Although ComfortDelgro isn't what it used to be, no thanks to senselessly destructive competition brought on by money burning GRAB, it is trading at a level which is really inexpensive now.

In a recent video, I said that ComfortDelGro was not a basket case and that it still has a place in a diversified portfolio of investments for income.

I elaborated on this in a blog which shared the transcript through my reply to a viewer's question.

Please find link to the blog below.

For people who are more concerned about the future of the business, there are many analyses available but all of them have this one thing in common.

All of them say that ComfortDelGro will see numbers continue to improve.

Here, I will share some points in an analysis by RHB research.



Expect earnings to improve in second half of 2023 "amidst reductions in taxi rental rebates and benefits from the annual indexation of overseas bus contracts."

"Public transport earnings seem to have bottomed, and improvement should be seen in overseas operations during second half of 2023 amidst indexation of higher operating costs in the UK.

"Singapore should continue to see improvement in ridership in rail.

"Reduction in Singapore taxi rental rebate from 15% to 10% and the scope to increase commission rates for taxi bookings.

ComfortDelGro charges only 5% versus 20% charged by GRAB.

I keep saying that ComfortDelGro is still a profitable business unlike money burning GRAB.

In Q1 2023, ComfortDelGro generated free cash flow of almost $90 million.

This brings its cash balance to more than $1 billion.

It is in a net cash position of $715 million.



"Even with our estimate of its CAPEX reaching pre-pandemic levels by 2025, we expect it to continue building on its current strong net cash position."

This supports what I said in my recent video on ComfortDelGro.

That to invest in ComfortDelGro is to invest in a business that is generating a lot of cash while keeping a very strong balance sheet.

It has also shown its ability and will to pay dividends through good and bad times.

RHB research estimates a normalized dividend yield of 4.5% to 5.5% based on a 65% payout ratio.

During "Evening with AK and friends 2023", I mentioned that I sold half of my investment in 

ComfortDelGro at $1.35 a share and bought back some at $1.15 a share last year.

$1.15 a share was a fairly good price.

There is much market pessimism surrounding ComfortDelGro now and according to RHB research, it is trading at minus 1 deviation compared to its historical average which reflects this.

A mean reversion could eventually happen.



ComfortDelGro has shown its willingness to reward shareholders whenever it felt it had more funds than it needed to hold.

With a growing cash pile, we could expect higher dividends too.

Having said this, I remind myself that investing in ComfortDelGro is not to invest for growth.

If we are looking for growth, we should look elsewhere.

If AK can talk to himself, so can you!

Related post: 
ComfortDelGro Q1 profit plunged!

Cannot 4X money with MUST but what about a 70% growth?

This is the transcript of my most recent video on Manulife US REIT and how we could possibly grow our money 70% if we should invest in the REIT?

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In one of my recent YouTube videos, I talked about an analysis which suggested the possibility to grow your money 4 times by investing in Manulife US Real Estate Investment Trust.

However, I said that the real estate investment trust would probably have to do an equity fund raising exercise which would make that claim untenable.

Today, I read another analysis but by DBS Research House this time.

In the report, DBS said that with gearing at 49.5%, just a little below the 50% limit by the Monetary Authority of Singapore, the need and urgency for a capital injection becomes more apparent.

I like to remind myself that the 50% limit was allowed because of the pandemic.

Could we see the limit going back to 45% regardless, since the stresses caused by the pandemic are eventually going away?

This is another reason why we want to invest in real estate investment trusts with stronger balance sheets.

The proposed sale to Mirae which would result in the creation of almost 10% more in new units to help recapitalize the real estate investment trust would dilute the current shareholders' interests.

Still, it is unlikely to be enough.

More unlikely still is the possibility to 4 times our money.



To be sure, Mirae is doing this deal not because it is altruistic.

It isn't a charitable organization.

It is acquiring a stake in the real estate investment trust and the REIT manager because it thinks it will make money from this deal.

It will heavily dilute current investors' interests.

It is also buying the REIT manager at what DBS research house estimates to be 6 times PE ratio which sounds like a pretty good deal.

If it plays its cards right, Mirae should be able to recover its investments in just a few years.

Post acquisition, DBS Research estimates Manulife US REIT should see gearing level reduce to 42.8%, all else being equal.

In economics, we always like to say this.

All else being equal.

That phrase encompasses everything else that could change the picture.

In this case, the gearing level could change because the value of the properties held by Manulife US REIT could see significant declines.

I remind myself that the average physical occupancy in many of its properties is under 40%.

This suggests more tenants downsizing their space requirements when their leases eventually expire.



DBS research is cognizant of this as they said, "gearing may be stretched if capital values continue to fall again by end of 2023."

"This may turn out to be true, depending on how the current turmoil pans out with the US commercial real estate space."

So, we could see things worsen as soon as end of 2023.

Due to this, DBS research also says that while a gearing level of 42.8% which is below 45% which is what Monetary Authority of Singapore allows if interest cover ratio is below 2.5x, this is still not a comfortable level for investors.

"As such, we take a step further to evaluate if a rights issue should be considered to bring the gearing level a notch lower."

"With new equity capital raised to bring gearing to a more palatable level of 40%, we believe this will provide sufficient flexibility to defend against further asset declines in the future, which will need an assumed further 20% decline in asset values to bring gearing back to 50%."



Taking all this into consideration, DBS research revised their target price lower to 24 cents a unit.

If we go with this projection, we might not be able to 4 times our money, but we could see it grow some 70%.

However, if we want to try our luck here, be prepared for a rights issue which I have said many times before is to be expected.

It is almost like Hobson's choice.

Not too hard to understand.

If AK can talk to himself, so can you!

Related post:
4X your money with MUST!