Healthway Medical: Turning positive.

Healthway Medical closed at 16c today on low volume.  This is the highest closing price in a month or so.  MACD has crossed above zero, marking the return of positive momentum.  The MFI has crossed 50% and is rising.  This indicates positive buying momentum.  OBV rises ever so slightly, indicating accumulation.  The trading volume has to expand to make any upward movement in price sustainable.

In the near term, any upward movement in price should meet with initial resistance at 17c, followed by 17.5c.

Genting SP: An oasis or a mirage?

Genting SP experienced a white candle day on lower volume.  The MACD is still declining and being below zero, the positive momentum is well and truly over.  MFI has dipped into oversold territory although the stochastics look like it might rise somewhat in the oversold region.  With the momentum oscillators in oversold territory, the counter might attempt a rebound but any rebound should meet with resistance at 98.5c, which is where we find the 200dMA in the daily chart. 

Over the week, we should find resistance at 93.5c, this is where we find the 50wMA on the weekly chart. 

So, on a daily basis, there is a probability that it might hit 98.5c but over the week, 93.5c would probably assert itself as a stronger resistance.  Therefore, expectation is that any upmove to 98.5c, if it happens, would be short lived and would see much selling both by stale bulls and short sellers. 

An upmove this week is most probably not a chance to load up as the downtrend is clear unless the upmove is accompanied by higher volumes which might indicate a budding reversal which remains unlikely.

High yields: Successes, failures and the in betweens.

In this post, I shall share some personal experience with high yielding trusts and provide some numbers in the process for the purpose of illustration.

High yielding trusts which have done very well for me are those which meet the selection criteria I have talked about so many times before for REITs.  Investing in such trusts is mainly about generating a steady passive income (cash flow) and to do this well, we have to look for low gearing, high yield and attractive discount to NAVs. These factors will ensure that the trusts' distributions are meaningful and sustainable.  Here are some which have done well for me:

First REIT:  I first bought some in 2007.  It had low gearing, high yield but did not have a great discount to NAV.  My initial purchase price was in the mid 70c.  The dpu was about 6c per annum.  As prices slumped during this last crisis, I bough more at 42c.  The dpu has risen to almost 8c per annum in the meantime.  First REIT didn't have to issue any rights or do any share placements as its gearing was relatively low and still is.  The unit price of the REIT now is 82c thereabouts.

LMIR:  I first bought some in 2007, not during the IPO at 80c, but after the price dropped to 70c days after.  It had low gearing, an attractive yield and trading at a discount to NAV.  During the last crisis, I bought more and the lowest price I bought more at was 18c.  The dpu is now almost 5c per annum.  It didn't have to issue any rights or do any share placements as its gearing was very low and still is.  The current unit price is about 48c or so.

Suntec REIT:  I always wanted some Suntec REIT units but looked on in amazement as the price hit $2.00 at one stage.  I bought some at $1.03 during the downtrend.  It went on in the coming months to make a new low at 50c or so, if I remember correctly.  As the price recovered, I bought more at an average price of $1.00 or so.  NAV per unit was almost $2.00. So, the discount to NAV was very attractive. The dpu is about 10c and provides a handsome 10% yield for me.  Gearing level is not very low though. 

Hyflux Water Trust:  A business trust, not a REIT.  This is an investment which many of my friends remember because I was talking about it a lot early last year.  They listened politely mostly.  I was always interested in this trust as it has regular cash flow through its exposure to the water sector in China.  In January 2009, I looked at it again in greater detail as the price was so low.  I found the yield to be almost 20% then.  Gearing was non-existent and it was trading at a very nice discount to NAV.  The unit price was 30c or so at that time.  I went on a buying spree.

I did not keep all of these investments bought at low prices. I sold most of them for very nice capital gains, cycling the funds into laggard counters like Healthway Medical to make more money.  I kept, on average, 10% of my original positions in each of these investments to collect passive income in perpetuity.  It would have been nice if I had been able to keep my investments in these trusts in full and yet have more money to invest in laggard counters but, unfortunately, my resources are limited.

As you could probably tell, I was not always rigorous in making sure that all three criteria I talked about were met in choosing a trust.  In part, such trusts did not present themselves all the time and I had to make do with the best choices available.  This last crisis, however, was an opportunity of a lifetime.

It was also because I was not rigorous that in my early years with trusts, I made many mistakes in my choices. What we must always remember is not to focus solely on yields.  Also, do not invest in anything without doing our own FA. Here were some of my mistakes:

MPSF: It just got suspended today. This must have been my worst mistake. I listened to a very young "analyst" who said it gave upwards of 10% in yield and that the yield was sustainable. I invested a five figure sum without doing any analysis of my own. I later found out that MPSF invests in other REITs in Australia and as some of these REITs are private in nature, they could gear up to 80%! MSPF froze all distributions with the credit crisis but what is worse is the complicated situation it is in with so many cans of worms. There is no passive income for unitholders and, as far as I can see, there is no clarity as to its future. Must remember not to be swayed by sweet talking analysts. Always do our own homework.

FSL Trust: A friend introduced me to shipping trusts saying that I should diversify my passive income stream. He also introduced me to Rickmers and PST but I only have a position in FSL Trust. I still get passive income from the cash flow generated by its business and I receive  >8% yield per year based on my average price. High gearing in excess of 100% and the fact that its assets depreciate whether or not the economy does well make this a mistake for me.

CitySpring: This is a business trust. I was emboldened by the fact that this has the backing of Temasek Holdings. It had very high gearing but the management (headed by Sunny Verghese) said that they did not have to issue rights and people who thought they had to didn't understand their business. A few months later, they issued rights. The yield plunged and unitholders became poorer as they subscribed to the rights. It yields an average of 6.5% per annum for me.

There are a few others but the essence of the negative experience is more or less the same. For examples, with FCOT (previously Allco REIT) and MI-REIT (now AMPS AMP Capital Industrial REIT), I overlooked their high gearing levels at the time of purchase.  This is also a reason why I tell people to be cautious with Cambridge Industrial Trust (CIT) which I am vested in as well as its gearing is still in excess of 40%.

As creating a significant stream of passive income is still a very important objective for me, trusts with high yields must still play a part in the grand scheme of things. Rather than remember the pain and avoid these trusts altogether, I choose to remember the pain and find a way to achieve mastery over them. I hope that by freely sharing what I have realised to be the right way to approach REITs (and other forms of trusts) here in my blog, other investors who might not be in the know would not have to suffer like I did.

Conspiracy of the Rich.

On my way home after Chap Gor Mei dinner (home cooked food by my mom and sis is the best!), I made a detour and visited Borders as a friend told me they are having a 20% storewide discount.  The first book I picked up was a book by Robert Kiyosaki, titled "Conspiracy of the Rich".  The title was intriguing and captured my attention.

As I flipped through the book, I was actually thinking of buying it until I reached a section which made me put it back on the shelf.

Robert says that most people are lacking in financial education or do not have the right financial education.  Having the right financial education gives people an unfair advantage.  That, I agree.

Robert went on to say that there are many ways to build passive income, which is true.  He went on to say that running businesses (and by that he meant big businesses with hundreds of employees) to generate passive income requires the greatest financial intelligence.  This is followed by investments in real estate but as most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs.  This is followed by paper investments such as stocks, mutual funds and the likes as paper investments require the least amount of financial intelligence.

Now, I will not discuss his choice of words (stylistics) here although that particular section was somewhat disturbing as I sensed snobbery in the writing.  Maybe, I am too sensitive.  So, I shall just discuss his contention that since most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs instead of actual real estate.

Personally, I think investing in real estate is a good way to build our wealth if we know how to.  I have been very open about it in my blog and I have shared my experience.  Definitely, collecting rent is another way to build passive income.  However, I also enjoy investing in REITs.  Not all REITs, mind you, but REITs which meet certain criteria: low gearing, high yields and trading at an attractive discount to NAV.

Now, let's go through these three criteria one by one:

LOW GEARING
When we invest in a piece of real estate, we put down 20% of our own money and borrow the rest.  The idea is to make sure that we borrow at a low rate of interest and let the rental income cover the monthly repayment of the loan and still have money leftover.  We are talking about a gearing level of 0.8x here in such a case.

REITs would probably have borrowings but for listed REITs and in the current environment, it is hard to find a REIT with a gearing level higher than 0.4x (well, CIT is an exception).

Robert talks about good debts and bad debts.  This is something many of us are familiar with but most would agree that less debt is rarely a bad thing.  Many, in fact, work towards reducing debt in their lives.

HIGH YIELDS
If we decide to buy a condominium, for example, what kind of yield could we expect?  Let's say it is a $1m studio apartment somewhere near town, the yield is probably something close to 3.5% per annum.  Not fantastic and even in a low interest rate environment, the returns would not be attractive.

Now, if we look at some of the REITs available in the stock market here in Singapore, there are some REITs with yields of 10% or so.  Attractive?  You bet.

DISCOUNT TO NAV
When we buy a piece of real estate, we are usually buying it at valuation or above valuation (just look at the COVs being asked for HDB flats!) and during bad times, we might just get a bargain at below valuation.

With REITs, we have an opportunity to own real estate at a discount to their NAVs in most cases.  We do have a few REITs which are trading at or above their NAVs (and I don't invest in those).  I like to ask my friends, if a nice condominium in a good location is valued at $2.9m and is now being sold to you for $1.6m, would you buy it?  The answer is always a unanimous "YES!".  It's a no brainer.

Perhaps, the book is meant for an American audience but I do not know how Robert arrived at the conclusion that people with lower financial intelligence invest in REITs instead of actual real estate.  For me, it's just a simple case of value for money.  I invest in the REITs that I do today simply because they provide extraordinary value for money.

STI: Marching in place in March?

TA is not about predicting price movements.  TA always presents two possible scenarios.  To most people, this immediately means it's as good as not saying anything.  Well, if we had a tool that could tell us if a security was definitely moving up or down, ..............; you fill in the blanks.

Then, why do we still have TA?  Well, knowing the trends, supports and resistance levels could help us make certain decisions when certain numbers are hit.  Is that it?  I am probably not doing the subject justice but for my purpose, in a nutshell, yes.

OK, on to what you are waiting for.  What do I see in STI's charts?

On the daily chart, we see that the MFI is clearly downtrending with lower highs and lower lows.  The stochastics is turning down from the boundary of the overbought region.  These are momentum oscillators and their current patterns indicate weakening buying momentum in the near term.

That the STI re-entered its uptrending channel is quite obvious and it is currently supported by the upturning 20dMA.  This is a positive.  That the rising 100dMA was taken out a few sessions ago suggests that this is not a strong resistance.  Instead, the resistance to watch would be the 50dMA which is still descending, albeit gently, and is at 2,813.  Immediate support is at 2,737.  In case of a breakdown, a stronger support is provided by the rising 200dMA at 2,615. 

If we look at the weekly chart which presents a longer term picture, we see the stochastics upturning.  This is quite different from what we get in the daily chart.  What does this mean?  To me, it means that the probability of a large downward movement in the index is low over the longer term.  The STI has weakened but is showing resilience and is more likely to move sideways for a while than to decline dramatically. 

The bearish divergence observed between index value and volume up to two months ago was corrected as the index retreated for three consecutive weeks accompanied by increased volume.  Subsequent black candle weeks were on lower volumes.  This supports the view that the STI is less likely to decline dramatically.

Remember, technical analysis provides probabilities and not certainties.  Good luck to us all in the month of March.

Passive income: A higher purpose.

Today is the 15th day of the Chinese New Year or Yuan Xiao Jie.  

It marks the end of the celebrations and, traditionally, the Chinese people would spend the evening together with family to have dinner together on this night before starting work in a brand new year.  

During dinner, glutinous rice balls as a dessert is a must.  

Of course, this tradition is more or less diluted or even forgotten in modern day society and most of us would have resumed work before today and some might not even be having dinner with their family tonight.






As if to support my observations, a friend called me out for lunch as I was blogging this.  

Over lunch, I asked if he would be having dinner with his family tonight and he went, "Huh?".  

Well, maybe not this exact word but you get the idea.  

Over lunch, we also talked about time as a form of capital and how when we spend time doing something, it is actually an investment and we must make sure we invest our time wisely because, unlike money, this is a form of capital that we cannot make more of.  






We have less and less remaining time on Earth as we grow older.

Suddenly, I feel philosophical.  

Life is so very short.  

We have only a few decades on Earth.  

Well, there are people who live to a hundred but I don't know if that is a blessing or a curse.  






Do we really mean it when we wish our elders "Chang Ming Bai Shui" (Long life and hundred years old) or is it just plain courtesy?  

I mean if we live to a hundred and have the good health of someone, say, half the age, good, but what is the probability?

Frankly, I don't want to live to be a hundred years old.  I don't want to be full of ailments and be a burden to others.  

When my time comes, I will go.  





So, what am I trying to say?  

We should cherish our loved ones because the time we have on Earth is limited.

I remember this from my primary school days (I went to a mission school):

"We often love things and use people when we should be using things and loving people."  





Overly idealistic?  

Maybe but you get the gist of it.

Humans have short memories and need constant reminders.  

This is especially true for people living in this modern world with all its distractions.  

These distract us from what is really important in life.





When asking myself why am I trying to secure a significant passive income stream in my investments, the answer is quite clear. 

This is so I do not have to spend so much time at work or any time at work at all and, instead, I would be able to spend more quality time with my family. 

In our pursuit of financial well-being, we should not lose sight of the most important people in life, our loved ones.  

I am looking forward to dinner tonight.

Happy Chap Gor Mei! (Hokkien for "Happy 15th evening!")




----
Added on 6 August 2017:

I have been spending every single Sunday with my family and the day started with breakfast with my dad.

Seven steps to creating passive income from the stock market.

I have made it known to my family and many friends that I aim to create a minimum of $50k in annual passive income from investments in the stock market alone.  Recently, while chatting in the cbox at Bully the Bear, I mentioned this and at least one person was incredulous.  How to achieve this?

Well, to me, it's quite simple, if I invest $500k in a basket of stocks that yields 10% per annum, I would have that $50k passive income.  Then, I gave it some thought later  on and decided that perhaps I should share more in detail how this could be achieved.

Taking a leaf from successful authors using the number "seven", this is AK71's "Seven steps to creating passive income from the stock market":

1.  Get full time employment - Sounds dreadfully straightforward, doesn't it?  Well, sometimes we need to point out the obvious.  We cannot grow money in pots of soil or fabricate it at home; well, not legally anyway.  Get a well paying job that pays you as much as you are worth (or more than you are worth if you are lucky enough).  Don't shortchange yourself.

2.  Be frugal - Again, this sounds straightforward enough but it is something that many people find hard to do.  Instant gratification is so common in our modern world, isn't it?  I want something and I want it NOW!  It is quite well known that George Soros takes the subway to work and that the founder of IKEA is still driving the same Volvo he bought more than 20 years ago!  I blogged about this recently.
Money management: Needs and wants.

3.  Save as much as you can.  OK, I'm cheating here.  This is really a combination of points 1 and 2.  Make as much as you can in your full time job and spend as little as you can.  The difference: savings.  This is your initial capital to realise your dream of passive income from the stock market.  Also, remember, money in your CPF-OA is savings and a percentage could be used to invest in the stock market too.  Start a SRS account and use the money to invest in the stock market at the right time.
Things Singaporean: SRS, CPF-OA and CPF-SA.

4.  Fundamental Analysis (FA): go learn FA if you have not done so already.  This is very important in the identification of good companies in your quest to build a passive income stream from the stock market.  This cannot be emphasised enough.  Look for companies with high yields but ensure that they have a strong balance sheet and good cash flow.  Do not look at the income statement only.  Otherwise, it might come back to haunt you.
Fundamental analysis: The income statement.
Fundamental analysis: Balance sheet.
Fundamental analysis: The cash flow statement.

5.  Technical Analysis (TA): go learn TA if you have not done so already.  If FA tells you a company has a fair value of $1 and the price is now 80c, is this good enough to buy?  Well, if the company's share price is going through a downtrend, no.  Cheap might get cheaper.  That's what TA can do for you: it shows you the trend, resistance and support levels.  FA cannot do that.  Market sentiments do not care two hoots what is the fundamental value of a company and you will do well to remember this.
Thoughts on methodology.

6.  Invest in the good companies you have identified and monitor them constantly.  There are quarterly and annual reports to analyse.  Use FA to ensure that they are still doing well and likely to continue doing well in future.  Use TA to check on the longer term trends. 
Identifying trends and value: FA and TA.
Risks and rewards: TA and FA.
Monitoring our stocks.

7.  Reap the rewards of your investments and collect the dividends.  Yes, finally, we get to the fun part!  You can decide if you want to use the dividends to reward yourself or if you want to add to your pool of savings to be re-invested.  Of course, if you want to achieve a higher passive income within a shorter period of time, re-investing is the answer.  Just employ FA and TA again to do this.

In the meantime, if you did not get retrenched (knock on wood), ensuring that you continue to save as much of your earnings as you can from your full time job will continue to grow your pool of savings even as dividends received from your investments pour in.  Year after year, your annual income increases through greater contributions from the passive income received through your well thought out investments (everything else being equal).  Sounds really good, doesn't it?

Before long, you would have a significant stream of passive income supplementing your earned income from employment.  After some time, your passive income might equal your earned income and that's when you work because you want to and not because you have to.  Now, if this does not convince you, I don't know what will.

It is definitely possible to create a significant passive income stream from investing in the stock market.  Like so many things in life, there is just no short cut though.  So, if this is your dream just like it is mine, get cracking.  Good luck.  Yes, you will need some of this too.

Finally, remember, if you find some good companies out there which the analysts haven't discovered yet, come back here and share with us.  This is most important.
Stock market analysts.

P.S. For the sake of brevity, "companies" in this post refer to REITs and business trusts as well since these are primarily dividend instruments and must be considered in our quest for passive income from the stock market.

Related post:
Recommended books for FA and TA.

The case for crude palm oil.

Some of us might be aware of the criticisms made against oil palm plantations in Malaysia and Indonesia.  The following paragraph from an article in the New Straits Times summed it up nicely:

"Environmental non-governmental organisations and parliamentarians in the EU and US allege that the new demand for palm oil in their newly developed biofuel industry will lead to deforestation in Malaysia and Indonesia to accommodate the expanding cultivation of oil palm. The alleged conversion of forests is then linked to habitat loss, biodiversity and now global warming. " By Yusof Basiron, 24 Feb 2007, New Straits Times.

The Malaysians have launched very convincing counter arguments to the contrary.  Here, I would like to share a short video clip found on YouTube:



There is some truth to the claims that Western developed economies seem to be practising double standards in their criticisms of oil palm plantations.  Some figures shown in this next video clip are quite telling:



The developing world has the right to economic growth, growth which the Western developed economies enjoyed at the expense of the developing world in the past.  If they want the developing world to cut down on what they call environmentally detrimental practices, they should make appropriate contributions.  To me, this seems to be the decent thing to do.

Golden Agriculture, AusGroup and Genting SP.

Golden Agriculture failed to move higher today and closed at 54c.  It formed a bearish black candle and with stochastics closer to the overbought region, it doesn't look promising.  On the brighter side, although it has closed lower, it is still above the rising 50dMA.  The 20dMA is turning up.  MFI has formed a higher low and the next session will see if it could continue to do so.  I continue to see resistance at 59c and strong support at 50c. 

AusGroup too formed a black candle as it closed at 58c, supported by the 20dMA.  This is on the back of significantly lower volume.  With the MFI forming a higher high, there might be some momentum left in the upmove.  For stale bulls who missed out on reducing their exposure here in the last couple of sessions, there might still be a chance to do so yet.  Strong resistance is at 63c.

Genting SP continues to weaken as expected.  The highest it got to this week was 98c to give stale bulls a chance to reduce exposure.  Closing at 91c today hugs the lower limits of the Bollinger bands.  The downtrend seems ready to continue as the MFI continues to decline indicating reducing buying momentum.  In the unlikely even that the price moves up in the next session, resistance is at 98c.

Looking at the weekly chart, we see a precarious situation.  Price is hugging the lower limits of the Bollinger bands and the MFI continues to decline just like in the daily chart.  However, what is important is that it has closed below the rising 50wMA which is at 92.5c.  If price is unable to recapture this support level to close at or above 92.5c in the next session, which is the last trading day of the week, the chart would look very ugly.  The ultimate downside target would be 74c, a support level provided by the rising 100wMA.  Although there would be intial support at 80c, such a potentially huge fall in price would be too tempting for short sellers to ignore.

Golden Agriculture: Full year results.

Golden Agriculture released its full year results today.  Compared to the previous financial year, gross profit is down 42% and EBITDA is down 33%.  However, quarter on quarter, its gross profit improved 78% and EBITDA improved 236%.  This is a strong sign that the business is improving strongly.

Its balance sheet is very strong with low gearing.  Nett debt to equity ratio at the end of 2009 was 0.06x and nett debt to total assets ratio for the same period was 0.04x.  Total equity attributable to equity holders was up 18% to US$5,438m.

A dividend of 0.495c per share has been declared.

Golden Agriculture remains the least expensive of all CPO counters listed in Singapore.  It is also the most levered to the price of CPO and with expectations for the price of CPO to continue appreciating over the next two years, Golden Agriculture is likely to do better as well.

The following is taken from the presentation:

Optimistic Outlook for 2010



• Resilient growth in edible oil demand, especially for palm oil
Growing popularity as edible oil in developed and emerging markets
Increasing demand for substitute and alternative uses such as oleochemicals and biodiesel


• The Company is benefiting from the solid industry outlook
Sustained and best-in-class leadership in plantation growth
Actively exploring acquisition opportunities in upstream and downstream
Solid financial position with low gearing and strong cash flows

For the full presentation, please visit:
Golden Agriculture: Year ended 31 Dec 2009

AusGroup impresses.

On Monday, 22 Feb, I said that "AusGroup closed at 57c today on low volume. This is the second black candle day in a row experienced by AusGroup on low volume while the two preceding white candle days happened with relatively higher volume. This is a positive. The MFI has formed a higher low while the MACD continues to pull higher away from the signal line after forming a bullish crossover three sessions ago. Any continuing attempt to move higher will have to overcome resistance provided by a declining 20dMA which is at 59c today."

AusGroup broke that resistance provided by the declining 20dMA which is at 58c today on the back of heavy volume.  MFI has crossed above 50% sharply but is far from overbought.  Resistance is at 63c in the event of a continuation in the upmove.  This resistance is likely to be strong as it is was a candlestick support level in addition to being where the 200dMA is currently flattening out at.  Although the MACD has formed a bullish crossover, it is still below zero and this upmove is probably a great chance for stale bulls to reduce exposure.  Given the nice white candle formed today, there is a good probability that price might continue to move higher tomorrow.  Whether it will close higher or not is harder to say.

Healthway Medical: An updated valuation.

I have blogged extensively about Healthway Medical since I started this blog in December last year.  I like the business and I like their strategy.  The management is growing a defensive business.  Sounds good, doesn't it?  Their announcement to expand in China is a shot in the arm for the company.  That Singapore's domestic market is small and could only provide so many growth opportunities is quite obvious.  As Healthway Medical already has a business platform in Shanghai, continuing expansion in China is only natural and, if successfully executed, in time, it should be a more important contributor to Healthway Medical's overall performance.
Healthway Medical: Growing a defensive business.
Healthway Medical's growing in china.
Healthway Medical: A seven months journey.

In order to expand in China, Healthway Medical issued rights (1 for 5) at 7.5c to existing shareholders.  This, I like. It allowed all shareholders to participate in the enlarged capital base of the company.  Coverage by DMG with a target price of 28c sent the share price soaring soon after.  Although I believed that Healthway Medical's valuation was inexpensive at 13c then when compared to peers such as Raffles Medical Group (RMG) and Parkway (and if we compared it to Q&M Dental, it was dirt cheap), seeing the price moving rapidly from 13c to hit 19.5c in a very short period was just unbelievable. 

Fundamentally, at the CR price of 19.5c, it had similar valuations as RMG at that point in time.  Technically, 19.5c was an eventual target provided by the chart pattern then.  I divested as its price hit various levels of resistance on the way up and was 80% divested by the time it retreated a cent from 19.5c.
Healthway Medical - Rising too quickly?
Healthway Medical: A beautiful symmetry.
Rationale for partial divestment.

The CR target price of 19.5c translates to a XR target price of 17.5c.  A CR target price beyond 19.5c was 24c and the XR target price beyond 17.5c is 21.5c.  DMG later lowered their target price from 28c to 21c to take into consideration the dilution resulting from the rights issue as well as a share placement that would be taking place.  The proposed share placement is good and bad and I have blogged about it before.
Healthway Medical: XR.
Healthway Medical: Share placement.

Today, I received a circular from Healthway Medical for an EGM on 9 March 2010.  The following resolutions are being put up for a vote by shareholders:

1.  The Proposed China Expansion Plans.
2.  The Proposed IFC Placement.
3.  The Proposed Placement.

Healthway Medical's management is being very forthright with all the risks which it might face in its proposed plans to expand in China.  In total, there are 11 risks listed.  Not great bedtime reading, for sure.  This is why I have mentioned before that the plan is good and all we have to worry about is its execution.  We can only hope that the management is up to the tasks at hand and that they have a measure of good luck on their side as well since, realistically, we cannot expect the entire process to be without hiccups.  However, the management's strong track record in Singapore is re-assuring and we hope for the best.

That a member of the World Bank Group, International Finance Corporation (IFC), is going to take up 108,000,000 placement shares at 13c per share is a positive.  IFC is going to be a long term partner and its track record of more than 50 years in creating opportunities and improving lives in emerging markets will raise the corporate profile of Healthway Medical.   IFC will also extend a term loan of US$15m for a period of 10 years as a substantial shareholder of Healthway Medical.

A share placement at 13c per share is also being offered to two controlling shareholders and three substantial shareholders of Healthway Medical.  This is to ensure that their aggregate interest in the company remains substantially unchanged at 44.6% and it also demonstrates the five shareholders' confidence in the growth prospects and plans of the company.

Healthway Medical's star is shining bright but the risks which are inherent in their ambitious plans to expand aggressively in China cannot be ignored.  The journey will be a long one and fraught with obstacles.  Shareholders will have to believe in the management and their vision.  Having said this, shareholders will also have to keep an eye on the progress that is being made and adjust their expectations accordingly. 

Investing in a company with confidence and holding with conviction is not the same as blind faith.  Periodic reviews are still necessary.  This brings me to the most important part of this post:

Number of shares:
As at 30 Sep 2009:                                              1,384,752,983
Upon completion of Rights Issue:                      1,647,665,980
Upon completion of Proposed IFC Placement: 1,755,665,980
Upon completion of the Proposed Placement:   1,841,539,384

The much enlarged share capital of Healthway Medical is something shareholders and would be investors should bear in mind.  Buying Healthway Medical's shares today at 13c is different from buying it at 13c in December last year which was the last time I bought some before it issued rights.  Buying it at 13c now is closer to buying at 14.5c in December.  So?  It means that Healthway Medical's shares are not as cheap as before.

EPS would be about 20% lower and PE is less attractive.  Fundamentally, at 16c, its PE would be 20x once all the proposed share placements are approved and effected.  This valuation is similar to RMG and I would, therefore, consider 16c per share as a fair value for Healthway Medical from a fundamental perspective.  Buying at any higher price would be a bet on the future earnings of Healthway Medical which cannot be determined with any great amount of certainty at this point in time.

I still have 20% of my original investment in Healthway Medical which were purchased at prices ranging from 10c to 13c.  I still have shares which were given to me as scrip dividends which are about 11c per share in cost.  I have also left a small position of those I bought at 16.5c XR as a hedge which is now losing money (which is what hedging does sometimes), having divested most of it at 16c and incurring a small loss when support became resistance.  Finally, I have some entitled rights and excess rights which I got at 7.5c recently.

Fundamentally, I do not see a compelling reason rooted in the present to increase my investment in Healthway Medical.  Technically, the counter might provide trading opportunities and I have identified 17.5c and 21.5 as the resistance levels to watch.  13c should be a strong support level.  Good luck to all fellow shareholders.

Outlook for REITs in 2010.

I came across some video clips on YouTube where professionals talked about the outlook for REITs in 2010.  Some make good sense and I would like to share a couple of clips here with you:


 
I like their advice on how we should focus on the balance sheets of REITs as well as their acknowledgement that a low gearing level is safer in case real estate values are revised downwards again.  Can't usually go wrong being conservative when it comes to gearing.  For those of us who are in the know, treat this as a reminder.



Re-capitalisation exercises hit REITs big time in Singapore in 2009.  Off the top of my head, I remember forking out more money for MI-REIT and FCOTs' rights.  Re-capitalisation exercises have strengthened REITs and with the improving credit market, with funds more readily available at lower cost, I rather think that REITs will continue to do well in 2010 and 2011. 

What do I look out for in a REIT?  Low gearing, high yield and preferably trading at a discount to NAV.

Saizen REIT: Obvious uptrend.

Saizen REIT is in an obvious uptrend channel.  The closing in of the 100dMA and 200dMA indicates the formation of a stronger support level at 15c thereabouts.  It also suggests a lack of volatility in the longer term.  Thin trading volume as price goes sideways usually means more downward bias. 

However, given the trend of the longer term MAs, the downside is very limited from current levels.  Any upward push in price will meet with initial resistance at 17c and if this is overcome, the recent high of 18c might be tested.  I would accumulate on dips.

Please remember that I am investing in Saizen REIT due to its very cheap valuation and potentially high yield.  This is not a trade for me and I could hold this for a very long time.

AusGroup, Healthway Medical and Golden Agriculture.

AusGroup closed at 57c today on low volume.  This is the second black candle day in a row experienced by AusGroup on low volume while the two preceding white candle days happened with relatively higher volume.  This is a positive.  The MFI has formed a higher low while the MACD continues to pull higher away from the signal line after forming a bullish crossover three sessions ago.  Any continuing attempt to move higher will have to overcome resistance provided by a declining 20dMA which is at 59c today.

Golden Agriculture closed at 55c on the back of lower volume, forming a doji in the process.  It was unable to break a down trending resistance line.  MACD is above zero and MFI formed a higher low, indicating positive momentum and a stronger buying momentum.  However, these are lagging indicators and in a situation where the trend is weak or short lived, they must be treated with care.  The target remains at 59c in the event that immediate resistance is taken out.  The rising 100dMA is still rising and if the price should retreat closer to this level once more, I will buy more.

Healthway Medical's trading volume expanded slightly as it formed a gravestone doji, closing half a cent higher at 15.5c.  MACD seems poised to cross the signal line and zero at the same time, more or less.  This is a very bullish sign.  MFI has moved decisively out of the oversold territory and has more room to move up.  If volume expands meaningfully with a continuing push upwards in price, we could probably see price pushing 17.5c and even retest the previous high of 18.5c. 

Portfolio strategy: Undervalued high yield counters.

As the stock market seems set on moving sideways with thinning volume, a downward bias is definitely stronger.  Over time, even the most optimistic bulls will turn cautious and every rally attempt will see stale bulls reducing their exposure.  

This is likely to continue until only the really longer term holders remain or when institutional buying interest returns in a meaningful way (read upward price movement with higher trading volume) or both.

As the high beta stocks turn quiet, the more boring high yielding counters might start to look more interesting.  After all, achieving 10% yield per annum is not too shabby.  

I am now looking to increase my investments in AIMS AMP Capital REIT (AA REIT) and Lippo Mapletree Indonesian Retail Trust (LMIR).  It is no secret that I like these REITs.  Their fundamentals are sound and they have attractive yields.

Using TA to look for entry points, it is obvious that the upward momentum in LMIR is over for now.  The 20dMA seems poised to form a dead cross with the 100dMA soon.  MFI has formed a higher low but with volume thinning, it is unlikely that LMIR is about to form a new high in price.  Chances are higher that the price will continue declining and the rising 200dMA (at 44c today) should provide a stronger support.  I would accumulate if price falls to 46c and lower.

For AA REIT, MFI has been going in and out of oversold territory since late January.  Like LMIR, it lacks upward momentum.  However, its low was formed at 19.5c in early December. 

Psychologically, this is very fresh in the minds of investors.  20.5c is a many times tested support and resistance level and I expect this to be a strong support in the absence of selling pressure.  If this support breaks, 20c is likely to be a much stronger support and would be a great price to accumulate more units of AA REIT at.

Saizen REIT tried to rally today as it reached a high of 17c, only to fall back to close at 16c, forming a gravestone doji in the process.  The fact that this attempt to move higher took place on the back of higher volume and failed is not positive.  Nonetheless, with the longer term moving averages still moving up and being in close proximity to each other, together with the absence of selling pressure, the downside is likely to be limited.  As I have a sizeable investment in Saizen REIT already, I would only accumulate further on dips.

Related posts:
Aims Amp Capital Industrial Reit.
Lippo Mapletree Indonesia Retail Trust.
Saizen REIT: Long-term buy.

Japan's debt issue and Saizen REIT.

On 15 Feb, a reader, Robin Lim commented, "I read yr comments about saizen and they are good. But i hv always been concerned about japan's debt/gdp. An article in Forbes Feb issue p62 "Blowup" explained it well. Be careful about Japanese property, because it can be a Greece."

When I returned to Singapore on 17 Feb, I responded, "Japan does have a debt problem but we have to remember that Japan is not only a borrower, it is also a lender. Japan is the second largest lender to the USA. China is of course the largest.


"I have not read the article in Forbes but did they look at debt as a percentage of GDP only? Another way of looking at this is debt per capita. In this respect, Greece is number one in the world at US$ 27,746. USA is 11th at US$ 11,094. Japan does not even come close."

Apparently, Japan is now the largest holder of US Treasury debt as China cut back its exposure in December 2009.  This was revealed last Tuesday by the US Treasury Dept.



This is one factor which sets Japan apart from Greece.  Japan is also a lender, not just a borrower.  When we look at debt, it is important not to just look at gross debt (ie. the total amount borrowed), we should look at net debt which takes into consideration the borrower's status as a lender.  Japan is one of the largest creditor nations in the world.

Also, as Japan is home to many renowned MNCs, a more accurate picture of Japanese debt situation should compare its net debt to GNP, instead of GDP.  Japanese MNCs repatriate earnings from their global operations back to Japan and GNP is a much bigger figure than GDP.

Interestingly, much of Japan's debt is in local hands.  Less than 10% of Japanese debt is funded by foreign bodies.  This is largely due to the fact that the Japanese people have been such big savers.  In contrast, American national debt is, to a large extent, in foreign hands.

Having said all these, I am not glossing over Japan's debt issue which still has to be dealt with.  Borrowings have to be repaid.  An ageing population puts into question the sustainability of Japan's national debt as well. 

There are some difficult decisions which the government must make and as Japan is still the largest economy in Asia, we should all be very concerned whether any progress is made over time.

I am not a politician or some big shot in a global organisation like the Asian Development Bank or the World Bank.  There is nothing I could do about this, obviously.  The question which might be on your mind now is, "How will this affect Saizen REIT?"

I do not see the debt situation in Japan becoming unmanageable in the next few years.  As the Japanese population ages over the next decade, they will start cashing out of government bonds.  The Japanese government might have to sell US Treasury debt gradually then unless it is able to trim expenditure in a meaningful way or get its economy to grow more robustly in time.  As you can imagine, all these will most likely not happen in, say, one or two years.  It's going to take far longer. 

Saizen REIT is still a most compelling buy in the near term and is still most attractive as a high yielding passive income generator over the next few years.

Saizen REIT: Long-term BUY

A nice and cool Sunday morning.  Woke up early, did the laundry, had a drink and surfed the net for news as usual.  When I visited Next Insight, I got a nice surprise.  Saizen REIT, which has not attracted any analyst coverage in a long time, received coverage from NRA Capital. 

Regular visitors to my blog would know that I am still actively accumulating units in Saizen REIT.  I have written extensively about the REIT and I have also received readers' comments in affirmation as well as cautionary advice.

Even though I believe that my FA of the REIT is thorough and my continuing accumulation of units in the REIT is sensible, it is, dare I say, bracing to hear from more professional quarters.

I remember saying that even if the YK Shintoku portfolio suffers foreclosure, Saizen REIT is still a buy as it would still be severely undervalued.  That is why when a friend told me that his father does not like the management's seemingly cavalier attitude towards this matter, I told him that it is not a big issue and that the management has good reasons to be less worried about it.

"Assuming a conservative stance and based on the assumption that the JPY7.25b CMBS loan encumbered with JPY9.10b worth of assets will be foreclosed eventually, using DDM, we value Saizen at 24.5 Scts (previously 24.3 Scts) and arrive at a target price of 17.0 S cts as previously, maintaining our discount to valuation of 30%." 

"News flow of new credit access is expected to lift valuations to 32.3Scts and a target price of 22.5Scts (based on the same 30% discount rate), providing catalyst for further upward re-rating of Saizen."

Written by Angeline Phua (NRA Capital) .
SAIZEN REIT: Fair value 17 c, long-term buy , please read it here.

Just like my earlier investments in Healthway Medical and some other companies before I started this blog, I believe that accumulating shares in good companies before everyone else is interested in them is one of the best ways to greater capital gains. Well, in the case of Saizen REIT, we are accumulating units.  Good luck to fellow unitholders and have a good Sunday.


Related posts:
Buy Japanese real-estate.
Passive income with high yields: Saizen REIT.
Saizen REIT's quarterly report.

Money management: Needs and wants.

I first learned about needs and wants more than twenty years ago in an Economics class when I was a Junior College student.  During the class, a female classmate told an irritating guy that he needed medication and asked if he wanted some.  That made the distinction between needs and wants very clear to us all and we had a good laugh.

There will always be things out there to buy in the modern world.  The question to ask is always whether we need these or we want these.  The question seems innocent enough at first glance.  However, one person's needs might be another person's wants. Do I hear some readers going, "Huh?"

Human beings have various needs for survival.  In my mind, at the most basic, we need air, water, food, shelter and clothing.  Some might say that the last item is debatable and it might be a want that has become a need due to the evolution of human society which invented the notion of modesty.  Here we start to see a blurring in the line separating needs and wants.  However, we should have an idea of what are needs and what are wants for us to do a good job of managing our money.

Recently, I was asked how much of my income do I save.  Off the top of my head, I said I probably save about 80% of my annual income and that received some incredulous expletives.  Is it possible?  Yes, it is.  How could we achieve this?  It is through a combination of increasing our income and reducing our expenses.  This post is about the latter.

In business, we very often hear how efforts are being put into increasing revenue.  Rarely do we hear how efforts are being put into decreasing costs.  Somehow, increasing revenue is more glamorous than decreasing costs.  It is when times are bad that businesses start decreasing costs in the hope of preserving their bottomline.  

I believe that cost control must always be an important consideration in business. Costs should always be kept low, in good times and bad.  This is especially true when we are looking at fixed costs or costs which cannot be adjusted downwards in the short run, at least not without incurring some kind of penalty or monetary loss.

Similarly, in our personal finances, if we keep our living expenses low, we do not have to worry during bad times if our income level takes a dip or, indeed, disappears over a period of time.  We would have ample reserves to see us through.  In the world of business, these are called retained earnings.

Making money is an important skill in modern society but managing money is an equally important skill and, very often, neglected.  We can make a lot of money but we can easily squander it all through mismanagement or, indeed, no management.

Do you believe me if I tell you I know of someone who made $10k a month but spent it all, habitually? Seemingly flying high, he had a really rough landing with a few broken bones thrown in when the wind was taken away from under his wings.

So, what we have to do is to have quite clearly in our minds what are needs to us and what are wants.  We should cut back on our expenditure on wants.  Sounds simple enough, doesn't it?  Maybe not.

As mentioned earlier in this post, the definitions of needs and wants can be quite subjective.  We need transportation but do we need to have a car?  For a businessman, he probably needs a car.  Or, indeed, do we need to take a bus if the destination is only a few stops away?  For an old granny, it's probably a need.  Defining our needs and wants, this is the tough bit and I leave it to you.

Assuming we manage to sort out our needs and wants, what's next?  Once we have amassed some "retained earnings", look at how to put them to good use.  It's time to increase our income.  A company that is sitting on a lot of cash and not doing anything with it is doing its shareholders a grave injustice.  Similarly, just keeping all our wealth as cash in a bank account is doing ourselves a great disservice.  That's another subject and if you are interested enough, you might want to read a couple of my earlier posts below.  Have a good weekend and I will talk to you again soon.

Related posts:
Grow your wealth and beat inflation.
Bungee jumping, anyone?
To queue for $1 parking fee redemption.

STI shows relative strength

The STI exhibited relative strength today, declining 0.44%, even as the HSE crashed 2.59%.  Closing at 2,757.14 keeps the STI within its uptrend channel.

Genting SP held its ground amid a high volume sell off which pushed its price to touch an intra day low of 90c.  Closing at 94c, it's only 1c lower than yesterday's close.  The decline's rapid pace has been thwarted for now.  Almost a black hammer, there is a chance of a rebound next week for this counter.  Resistance is at $1.01, provided by the 38.2% Fibo line.  I see a stronger resistance at $1.04, a candlestick support turned resistance.  It is also the 50% Fibo line.  Any such rebound is an opportunity to reduce exposure.

AusGroup has a black candle day.  The good news is that it happened with much reduced volume.  MACD has formed a bullish crossover but being still below zero, positive momentum has not returned.  MFI has turned down which shows a slowing of buying momentum.

On the weekly chart, we have an inverted white hammer which suggests a probability of price closing higher next week.  The bugbear?  Volume is very low and this does not make any upmove in price sustainable.  A continuing rebound would allow stale bulls to reduce exposure and is likely to meet with resistance for this reason.  The weekly chart confirms that the target of 64c I have identified for AusGroup in the event of a continuing rebound is plausible.  Any long position in AusGroup taken this week is a punt at best.

With the continuing decline today, Golden Agriculture's price action has formed a lower high at 57c.  However, the pullback is on relatively lower volume which leads to a reasonable suggestion that any decline will not be severe.  Having said this, the lack of buying momentum could see the counter drifting lower.  Critical support remains at 50c thereabouts.  It will most likely hold as the rising 100dMA reaches 49c today.  I continue to like the company's fundamentals and will accumulate at supports.

Genting SP: How low could it go?

I was going through my blog's statistics and found a jump in readership for a post on Genting SP I did in early January.  Of course, that post is outdated by now since it was a TA on the counter.  I looked at Genting SP and discovered the reason for the renewed interest.  The counter is crashing through all supports, including the longer term 200dMA at 97.5c! Intrigued, I decided to take a look at how low this counter might go.

From the plunging OBV, it is quite obvious that distribution is taking place big time.  The counter closed at 95c today, down 7c, on much higher volume.  The MACD showed a sell signal yesterday and this signal was confirmed today.  The MFI is still hovering at the 40% level and is far from being oversold.  All these suggest that there is more downside for this counter and shortists are having a field day here.

38.2% Fibo line at 91c might provide some near term support.  If this breaks, the 23.6% Fibo line is at 81c and the rising 100wMA is at 73.5c.  I rather doubt that price action would descend to the 100wMA in a hurry but one never knows.

I have mentioned before that I do not like the fundamentals of Genting SP and consequently, I was never vested.  However, technically, it is now looking interesting.  I would keep an eye on the MFI and if it enters the oversold territory, it might provide an opportunity to go long.