Sheng Siong: A good investment for income?

Last year in August, Sheng Siong's IPO created a bit of a buzz. The company promised a pay out ratio of 90% in FY 2011 and FY 2012 to woo investors and offered shares to the public at 33c a piece. It was 1.3x oversubscribed.

For FY2011, net profit fell 36.1% while revenue fell 8%. Net profit margin declined to 4.7% in FY2011 from 6.8% in FY2010. This is although gross profit margin improved somewhat to 22.1% compared to 21.8% in the previous year. Frankly, I find its net profit margin to be rather unattractive and it actually looks worse than some local construction companies'.

However, delivering on its promise of a 90% pay out ratio, the company has proposed a dividend of 1.77c per share for FY2011. At its last traded price of 48c a share, it translates to a dividend yield of about 3.69%. For those who got their shares at IPO, they would have a dividend yield of 5.36% on cost.

Many invested in Sheng Siong thinking of its business as recession proof and that it is a defensive stock to own. However, its numbers suggest that it does not have much of an economic moat and is not really defensive per se. In fact, the leaner margins have been attributed to keen competition from rival supermarket chains.

Debt free and with more cash on hand, let us see if the company would be able to deliver more value to shareholders in the new financial year. However, for any would be investor, it pays to note that after FY2012, there is no guarantee that Sheng Siong would continue with its 90% pay out ratio.

If the payout ratio were to be reduced to 50% or even 30%, what would the dividend per share amount to then? Would its earnings per share grow fast enough to compensate for the lower pay out ratio in order to continue delivering a similar quantum of dividend per share?

Sheng Siong might be a good place for grocery shopping but is it a good investment for income?

The jury is still out on this one.

See slides presentation: here.
See results announcement: here.

Trading to put food on the table.

I read an article in today's Sunday Times by Goh Eng Yeow on how to sniff out good stocks to invest in. However, I am not going to blog about sniffing out potential winners in the stock market. I am going to blog about something that's probably less exciting: the day trader who wrote to him saying how he lost a big fortune in the stock market last year.

"With mounting bills, and zero financial reserve left, and no job, the current state of mind is like losing a wing man in Tom Cruise's Top Gun. Every day is a challenge mentally and physically to put food on the table..."

I know of friends who have lost big time in the stock market. Personally, I lost a six figure sum in the stock market before as well. It was definitely a nightmare and no one should have to suffer like this. So, can we avoid such an experience?

Well, the only way is probably not to invest in the stock market. As long as we are going to invest in the stock market, we are taking on risks. The idea is to reduce such risks as they cannot be removed.

I think a very pertinent question to ask before we take that first step as an "investor" or a "trader" is to ask ourselves if we are ready. By this, I do not just mean if we have the necessary knowledge required to do fundamental and technical analyses. I also refer to whether we have our safety nets in place. This is even more pertinent a question if we were to be a full time "investor" or "trader".

I know of people who dream of making it big as an "investor" or a "trader". Personally, I am not qualified in any way to say that their dreams are just dreams. Although I do not know of anyone on a personal basis who has become very rich investing or trading in the stock market, there could be people out there who have done so.

However, no matter what our aspirations, embarking on any journey without a contingency plan (or several contingency plans) is a terrible mistake. It would be like going on a sea journey on a ship without lifeboats. Would you do that?

I remember a fellow blogger telling me that if we are making a living from the stock market, we would need to have regular income from the market as frequently as possible. Otherwise, there would be no food on the table. To me, that sounds like having no contingency plan.

So, I replied that "If a person is making a living trading the stock market full time, I expect that he should have a sizeable capital. If he has very little capital and he depends on his gains from trading to put food on the table, a prudent thing to do is to find a salaried job."

If a person has a sizeable capital, he could put it to work investing in stocks which offer decent yields of 5 to 6% or S-REITs which could yield 10% per annum even at current prices. The dividends and income distributions would be a nice supplement to his earned income. Earned income? Yes, don't give up our jobs unless our passive income from the stock market is enough to replace our earned income.

Investing in the stock market need not be a high risk activity. It is only a high risk activity because individuals allow it to be so.

Individuals sometimes put their lives at risk with dreamy ideas of what the stock market is and what they could achieve. Dreams could then become nightmares.

Take it from me. I have been there before.

Related posts:
1. Seven steps to creating passive income from the stock market.
2. Create more passive income with limited capital.
3. How did AK71 overcome his losses and grow his portfolio?

OCBC Research: Industrial REITs.

I came across an interesting piece of research by OCBC on industrial REITs in Singapore and would like to share the salient points here (some of which I have mentioned before in my blog):

Industrial REITs reported healthy 4Q11 results.

Industrial REITs appeared to outperform market expectations.

Expecting stable performance.

Operating metrics still healthy.

Earnings likely to stay resilient.

Percentage of leases due for renewal at comfortable level.

Aggregate leverage may inch upwards after funding potential investments.

Industrial REITs in better financial position now

Maintain OVERWEIGHT view.

I am pleased to see that AIMS AMP Capital Industrial REIT, Sabana REIT, CIT and Cache Logistics Trust have all performed above consensus expectations as I am vested in all four. Bigger names such as Ascendas and Mapletree have only performed within expectations; not vested. (Refer to exhibit 3 in the report.)

See the full report: here.

Related post:
Office S-REITs VS. Industrial S-REITs (3).

Hock Lian Seng: 2c dividend per share.

On 17 October 2011, I looked at Hock Lian Seng's numbers after observing how insiders were buying up its shares at 23.5c a piece. I decided that its numbers were decent enough and that it would probably be able to pay a dividend of 1.5c a share.





I bought more shares at 24c a piece while waiting to see if price would fall closer to its NAV per share. Prices did go lower and touched a low of 21c in one later session but my buy order was not filled.

Today, it announced a dividend of 2.0c a share on the back of rather encouraging numbers. Mr. Market has reacted in the usual fashion and Hock Lian Seng's share price touched a high of 27c before closing at 26.5c today, up 1.5c from the preceding session.

I really like how its gross profit margin improved to 24.9% and its nett profit margin improved to 19.0%. Construction firms having thin margins is common knowledge amongst seasoned investors and being able to improve on their profit margins says something about the strength of Hock Lian Seng in the sector.





Of course, as investors, we own shares and we want to see if we are now in better shape on a per share basis. Well, EPS improved 15.1% to 6.1c. No doubt, this is one reason why a much higher dividend has been announced. 2c per share represents a payout ratio of 32.8%.

Hock Lian Seng will gun for more infrastructure projects in Singapore amidst greater spending by the government in this area. If they are successful in their endeavours, the company would be able to ride out the mild slowdown in the economy which is being forecast for the coming years.





See press release: here.

Related post:
Hock Lian Seng: Insider buying.