K-Green Trust: A bad investment?

There has been much discussion regarding K-Green Trust (KGT) and its yield. I agree that KGT's estimated DPU of 7.82c represents a partial return of capital.

Unlike Saizen REIT which owns freehold properties, for example, KGT's assets have limited lifespans. At the end of their lifespans, they would be returned to the Singapore government and there is no guarantee that their concessions would be renewed and if they were renewed, at what price?

KGT has a total of 3 assets:

1. Senoko Waste-to-Energy Plant

(Concession: 15 yrs fr 1 Sep 09: 14 yrs left)

2. Keppel Seghers Tuas Waste-to-Energy Plant

(Concession: 25 yrs fr 30 Oct 09: 24 yrs left)

3. Keppel Seghers Ulu Pandan NEWater Plant

(Concession: 20 yrs fr 28 Mar 07: 16.5 yrs left)

The Senoko Waste-to-Energy Plant is estimated to contribute to 50% of the Trust's income.  The Tuas Plant is estimated to contribute to 35% while the NEWater Plant is estimated to contribute to 15% of income.

Assuming that KGT pays out 100% of its free cash flow (and this makes it a self liquidating trust), does not engage in any acquisitions over the lifespans of its three existing assets and continues to have a DPU of 7.82c (representing 100% of its free cash flow) while it still has ownership of the said assets, buying KGT at $1.11 would take 14 years to get back my investment.  By then, KGT would be left with its Tuas Plant and NEWater Plant, the Senoko Plant's concession having ended.

Assuming that its DPU is halved after taking away the Senoko Plant, DPU would become 3.9c. This would continue for 2.5 years before the NEWater Plant's concession terminates and we would get a total DPU of 3.9 x 2.5 = 9.75c. Then, we would be left with 7.5 years of concession for the Tuas Plant and assuming the DPU is then reduced by 30% to 2.7c, we would get a total DPU of 2.7c x 7.5 = 20.25c.  In total, I would gain 30c for the $1.11 I invested earlier in August over a 24 years period or a total of 27% return which means a simple return of 1.13% per annum.  This rather simplistic estimation, however, assumes that KGT maintains the status quo which I think is highly unlikely.

KGT is a business trust and it does not have a gearing cap. It could have a gearing level of more than 45% and as long as it is able to generate income in excess of its interest payments and any regular debt repayment, we could see DPU increasing.

If it could land lucrative acquisitions with cheap debt, we could also see it reducing its payout ratio and keeping cash for asset renewal purposes. To think of KGT as a static business trust with no growth opportunities could be rather short sighted.  Why? Because it has zero gearing unlike CitySpring Infrastructure Trust.

Remember that KGT has Right of First Refusal (ROFR) granted by Keppel Corp on four projects which, more likely than not, would be DPU accretive acquisitions as KGT would most probably fund these with debt to begin with since its gearing level is zero:

1. Biopolis DCS Plant Biopolis@one-north, Singapore
2. Changi DCS Plant Changi Business Park, Singapore
3. Woodlands DCS Plant Woodlands Wafer Fab Park, Singapore
4. Amotfors Energi WTE Plant Sweden

Of course, this assumption has its premise on KGT having a competent management team that would take care of unitholders' interests. This remains to be seen.

Would I buy more of KGT? At $1.00, the price I originally thought of on 3 July, I would.

Related post:
K-Green Trust: Weak technicals.

Hock Lian Seng: Buying more?

On 12 Oct, I mentioned that I bought some shares of Hock Lian Seng at 30c support. I also said "Although the uptrend is still intact, could prices weaken further? Why not? The MFI is still in overbought territory while the MACD has just completed a bearish crossover with the signal line.  We could see price weakening to test the 50dMA at 29.5c or even the 200dMA at 29c. The latter being a long term MA should provide a rather strong support and I would probably buy more at 29c, if ever tested." Has the technical picture changed?

The rising 50dMA is now at 30c and 29c is still where we find the 200dMA, a long term MA which should provide a stronger support. If price tests 29c, I would buy more. 29c is also where we find the 138.2% Fibo line. This should lend support in case of retracement.

The MFI is now below 50% and is no longer overbought.  OBV does not show any sign of distribution.  I believe we are seeing weaker holders selling out. The 100dMA is rising strongly and seems on course to forming a golden cross with the 200dMA in time.

Related post:
Hock Lian Seng: 30c support.

Raffles Education: Oriental Century to delist.

News of delisting of Oriental Century seems to have impacted the share price of Raffles Education negatively today as price closed at 28c on higher volume. That 28c support is still holding up perhaps shows that the bad news has already been factored into the price.

Although we could see price going lower once the news is digested by market participants, fundamentally, I do not see Raffles Education's numbers too badly affected since Oriental Century is really old news.

Despite today's somewhat higher volume, a picture of low volume pullback is still quite clear. Higher lows on the MFI and RSI also suggest underlying support in momentum. OBV does not show any signs of distribution.

If 28c breaks, the next support is at 26.5c. Immediate resistance is at 29c.

I would keep an eye on the technicals as this counter could still have a nice recovery story.

Oriental Century to liquidate, delist from SGX. As Oriental Century is insolvent with very limited resources, it will not be able to make any exit offer to its shareholders. Raffles Education holds 29.9% of Oriental Century.
Wednesday, 27 October 2010

© 2010 - The Edge Singapore

Tea with AK71: MacDonald's Monopoly game.

The last time MacDonald's conducted a game of chance with Monopoly, I was not aware of it until it was halfway through. I found the idea quite ingenious. However, by then, the top prize had been won.

This time round, I am quite early in my discovery and I stand a chance of winning the top prize of S$80,000 cash! I have "Marina Bay" and need "Sentosa Cove".  There is only one "Sentosa Cove" tile in the whole of Singapore since there is only one top prize.  Whoever wins in the end is very lucky.

There is also one car to be won, a 1.6 litre KIA SOUL.  I have two of the three tiles now: "Ardmore Park" and "Holland Road".  I need "Orchard Road".  There is probably only one "Orchard Road" tile in the whole of Singapore too.

It seems that I will be having more value meals at MacDonald's for some time to come.