Technical analysis of ComfortDelgro.

It has been a long time since I shared a technical analysis (TA) here in ASSI.

I used to do a lot more TA when I was trading more actively but I have not been trading as much for quite a while now.

Alamak. You don't believe me?

Why? AK is lazy? OK, you win.

I too lazy to defend myself. ;p






Anyway, since I haven't done this for a while, I am probably rusty.

(RIGHT CLICK AND CHOOSE 
"OPEN IMAGE IN NEW TAB".)

Looking at the chart, it should be obvious that the trend is down.

However, what is more noteworthy is that the downtrend is a strong one.

There is no sign of any positive divergence as the MACD has formed a lower low and so has the CMF.

Money is still flowing out of the stock and chances of a trend reversal at this point are slim.






Today is a white candle day but it is a short white candle with an upper wick of equal length which suggests that Mr. Market wasn't a very enthusiastic buyer.

Although with all the selling pressure, some people say ComfortDelgro is oversold, the MFI shows that the stock is yet to be oversold.

Yes, the bleak picture could get worse.

Are you vested at much higher prices and don't have balls of steel? OK, stop reading now.






Still reading?

OK, you have been warned.

Short sellers are probably having a field day here and any half-hearted recovery in share price would probably be seen as an opportunity to short sell.

The strong downtrend could see the support provided by the 138.2% Fibo ($1.97) broken. It was merely punctured but recovered last week. 

We could see the 150% Fibo at $1.90 tested then. If that goes, the 161.8% Fibo at $1.83 is next.

These are golden ratios and are theoretically stronger support levels.

If these supports were to break, more blood will flow on the streets.






OK. What if this does not happen?

Alamak, remember that TA is about probability, not certainty.

If it does not happen, then, treat this as a horror story lor. ;p

Related post:
Incomplete analysis of ComfortDelgro

An incomplete analysis of ComfortDelgro (Updated).

Video added in July 2018:


Why is AK sharing this video when he is a self professed IT dinosaur leh?

Guess lah! ;p

Still clueless?

Must support my businesses lah! :p




----------------------------------
UPDATED (5 Oct 17).
-----------------
Retail investors have limited resources at their disposal and very rarely are able to do a thorough analysis of any business.

Time is one of those limited resources.

OK, I admit. I am lazy and I want to spend more time watching anime, K-drama and playing MMORPGs.

Bad AK! Bad AK!






Anyway, like what I have done in so many other instances in the past, I just zoom in on what I feel is the crux of the matter and try to make a decision based on what gives me peace of mind.

The biggest problem facing ComfortDelgro now is its taxi business.

Taxi business accounts for a third or so of its revenue. 

The revenue might be lower compared to its public transport arm but because it is a higher margin business than its public transport business, a loss in revenue will dis-proportionally lead to a higher loss in earnings. 

When we remember that it will also impact another segment of its business and that is the sale of diesel to its taxi fleet, the picture becomes gloomier.






However, all investments are good investments at the right price and to find the right price, we need to look at valuation.

During the Global Financial Crisis, in October 2008, ComfortDelgro traded at $1.19 a share and with full year EPS at 9.59c then, the PE ratio was 12.4x.

ComfortDelgro's 1H 2017 EPS was 7.5c. 

Annualising this gives us 15c.




So, if we should assume that things don't get worse from here, paying for a stake in ComfortDelgro at a PE ratio of 12.4x would give us a target buy price of $1.86 a share.

Of course, we are not in another Global Financial Crisis, so, paying a PE ratio of 13x could be considered a peace time bargain. 

This would give us a share price of $1.95 per share.






This line of thought makes sense to me but the assumption is that things don't get worse for ComfortDelgro from here.

For sure, I do not know if things would get worse from here but, just from my observation, I have an inkling that things probably would get worse before they get better. 

Grab is very aggressive and ComfortDelgro's taxi fleet size could shrink further.




How much worse would it get?

If we think that its taxi business could shrink another 20% from here (which is pretty grim) and since it is likely that ComfortDelgro would roll out some remedial measures to retain taxi drivers, we should expect profit to decline somewhat.

Given these assumptions, since its taxi business accounts for about a third of its profit we could see ComfortDelgro's EPS declining by another cent or so.






Assuming EPS declines to 14c, a crisis valuation would dictate that we are buyers only at $1.74 a share. 

If we are more sanguine about the macro environment, then, a 13x PE ratio would give us a target buy price of $1.82 a share.


When would things get better? 

Surely, I don't know.






I do know that ComfortDelgro pays out more than 50% of its earnings as dividends to shareholders. So, if EPS falls to 14c a share, a DPS of 7c is not excessive.

At $1.82 a share, that is a dividend yield of 3.85%.

At $1.74 a share, that is a dividend yield of 4.02%.

Nibbling earlier today at $1.96 a share could have been premature but it gave me an incentive to take a more detailed look at the numbers.
--------------------------




UPDATE (5 Oct 17):

Read another incomplete analysis: HERE.

Decline in Soilbuild REIT's DPU likely.

In its 1H FY2017 report, Soilbuild REIT's management said that the biggest challenge they were facing was to lease the entire space at 72 Loyang Way because of the weak oil and gas sector.







Now, they are going to have to deal with 2 hot potatoes instead of 1.

NK Ingredients, one of the REIT's top 10 tenants by revenue, has defaulted and the fact that they accounted for almost 6% of Soilbuild REIT's revenue is going to hurt.

The loss might not be as traumatizing this round but to be hit by another loss before being able to recover from an earlier one is very unfortunate.

The trauma is cumulative.

The rental guarantee from NK Ingredients' insurance will provide another 4 months of rental income.

So, Soilbuild REIT has 4 months to secure another tenant if it is to reduce the negative impact the default has on its revenue.







NK Ingredients signed a 15 years lease which was supposed to provide some earnings visibility till the year 2028 for Soilbuild REIT. 

Such a long lease agreement is necessary because being in the chemicals industry, I believe that the asset was probably purpose built.

It probably means that it would be rather difficult to find another tenant to move in within a short period of time.

So, we should logically expect another reduction in the REIT's DPU with this development.





We could also see the REIT's NAV come under pressure if the asset remains vacant for a prolonged period.

See related post #1 below.

In the worst case scenario, going by the above statement, if the asset remains vacant, with a hypothetical half year DPU of 2.64c, if we demand at least an 8% distribution yield, we would only be buyers at 66c a unit.

Related posts:
1. An opinion of Soilbuild REIT.
2. 2016 income from S-REITs.

In 2H 2016, I added to my investment in Soilbuild REIT due to a rights issue. This was at 63c per rights unit. I took up my entitlement and also applied for excess rights. From that exercise, I increased my investment in the REIT by more than 10%.

See slides presentation: HERE.

Cromwell European REIT cuts IPO size.

UPDATED (15 NOV 17):
After cancelling its IPO after cutting its IPO size, Cromwell European REIT is making another IPO attempt with a much smaller offer of a billion units instead.

"Cromwell European REIT's prospectus Wednesday showed that the company is offering 428.54 million units to institutional and retail investors, and another 581.8 million units to investors who have agreed to take them up ahead of the IPO (at 55 European cents each).

"Cromwell had, in September, offered 1.91 billion units at up to 57 European cents each. The company has also reduced the number of assets that will be in the REIT--down from September's 81 assets."

Source: WSJ




-----------
Earlier this month, when I blogged about Cromwell European REIT, I mentioned that the sponsor, post IPO, would be holding a rather smallish stake in the REIT. 

To me, it seems as if the REIT is a place for the sponsor to dump their rojak portfolio.

"It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it." (See related post at the end of this blog.)






Well, things have changed. 

I don't know why but it seems that they have decided to shrink the size of the IPO and the sponsor will now have a stake of 25.9% to 26.8% in the REIT. 

These are much better numbers.

There will be a better alignment of interests with other investors in the REIT, for sure.

Simply put, if Cromwell European REIT should do badly, the sponsor will hurt much more now compared to when they were going to have just a 12.7% stake. 

So, unless they enjoy pain, with a much larger stake in the REIT, they have a stronger incentive to do better.






Although this is a positive development for retail investors in the REIT, I still cannot help but feel somewhat uneasy with the rojak nature of the portfolio from the get go. 

I understand that they bought these properties from various funds looking for exits but it seems rather hasty to me.

Having said this, all investments are good investments at the right price. 

Trading starts on 28 Sep (Thu).

Related post:
Cromwell European REIT IPO.
Reference:
Cromwell REIT cuts IPO size, ST, 18 Sep 17.

https://www.theedgesingapore.com/negative-view-cromwell-european-reit-down-under

"Is this ILP good for my mother?"

Reader:
My mum's insurance agent sent this. Would you consider this ILP? It's also being marketed at an event at the sports hub...

AK:
Generally, I would say to anyone not touch ILPs even with a 5 feet pole. 

However, ILPs are especially unsuitable for older people as the cost of life insurance jumps after age 55 and from age 60, it becomes very costly. 

This is because mortality risk increases as we age.

In an ILP, the cost of insurance is deducted from the policy value by selling units. 

As we age, the cost of insurance goes up and in our golden years, it goes up more rapidly.

So, imagine units in the ILP being sold down more rapidly to pay for the cost of life insurance as we age.

Unless the unit price of the ILP goes up more rapidly and significantly than the increase in deduction, when the value of the ILP becomes zero, the insurance coverage is terminated.






In my opinion, this particular insurance agent who is trying to sell the reader's mother an ILP does not have her interest at heart.

It is no secret that ILPs are probably the most lucrative products available to insurance agents.

So, I am not surprised that less scrupulous agents would try to sell them to any Tom, Dick or Harry or, in this case, Mary.

Related posts:
1. 20 years and $29K.
2. Reader regrets ILP.

Bribed to buy a diesel car and regretting now.

Earlier in March this year, I blogged about how I could sell my car for a higher price when the Vehicular Emissions Scheme (VES) is introduced. 

This new scheme replaces the Carbon Based Vehicle Scheme (CEVS).

The VES will come into effect in the new year and we will see some vehicles which used to enjoy green rebates from $5,000 to $20,000 being slapped with surcharges of up to $20,000 instead. 

My car, for example, will go from receiving a $15,000 green rebate to being slapped with a $20,000 surcharge. That is a $35,000 difference!





Many car models which do not meet the EURO 6 standards will also disappear from the showrooms. 

A couple of popular examples are the Toyota Vios and the Toyota Camry. Apparently, all the models from Chevrolet being sold in Singapore do not meet the new environmental standards.

Of course, I am just a little guy in his little car and I am very much concerned about how everything affects the money in my pocket.

For those who don't know, I have a diesel car. Diesel technology has gone from dirty to green and, now, back to dirty. 

So, apart from the higher price that a diesel car would attract from 2018, there is also a usage based diesel tax. 

Diesel, for many months now, costs an extra 10c a litre.





So, the more diesel I use, the more I pay.

Fortunately, diesel engines are pretty economical compared to petrol engines. This coupled with the fact that I do not drive as much as I used to, I buy only about 40 litres of diesel a month. 

This means that I pay $4 more for automotive fuel each month. 

OK, that is hardly a disaster.

Actually, with the usage based tax, it seems that I will end up paying less because the government is reducing the lump sum tax (road tax) that diesel cars will have to pay by $100 a year.

I read an article titled "First bribed to buy diesel cars and now they want to tax us" and had a good laugh.







The article is about the predicament of diesel car owners in the U.K. and although I had a good laugh, it is no laughing matter for them.


"When I bought my diesel-powered Citroen C5 estate six years ago, the last thing on my mind was that I would end up being treated as an environmental vandal by a government minister.

"It is quite a shock, then, to hear Transport Secretary Patrick McLoughlin warning motorists like me that we face a hike in taxes designed to punish us for doing what we thought was the right thing and buying a diesel car."

Read the full article: HERE.









Although I am somewhat disappointed that my diesel car is not as environmentally friendly as I once thought it was, when I do drive, I still enjoy the car very much and I am glad that new measures taken by the Singapore government are more reasonable than punitive.

In fact, it might even help to lessen the monetary loss of selling my car if I decide to do so in the new year.

Bribed to buy a diesel car and regretting now? 

If I were in the U.K. maybe but not when I am in Singapore. Heng ah!

Related post:
1. Make $35,000 from selling my car.
2. How much to spend on a car?
3. 3 good reasons to buy a car.

When to get a private annuity?

Reader:
Been reading your blog for a while now and wanted to ask you what do you think of XXXXXXXXXXX as a retirement plan.

My financial consultant suggested this (product) to me recently but I wanted to get a second opinion on this.

Could you talk to yourself about this please?

AK:
As a retirement plan, there is nothing out there that can beat the returns offered by CPF Life.

Unless I have maxed out my CPF account, I would not consider putting money in a private plan.

http://singaporeanstocksinvestor.blogspot.sg/2015/02/an-annuity-would-you-rather-have-it-or.html




I have done a case study of a private plan before and how it could not beat CPF Life. 

You might want to use this as reference when looking at the product offered to you:

http://singaporeanstocksinvestor.blogspot.sg/2014/07/an-annuity-proposal-case-study.html




In summary, max out your CPF account first (i.e. top up your CPF-SA to hit prevailing FRS) or if you are above 55, think about maxing out your CPF-RA.

Only then, think of possibly getting a private plan to supplement CPF Life.

Related posts:
1. 4 ways to beef up CPF savings.
2. CPF savings 10 years from now.

Cannot do this in Singapore because...

Most of us are amateurs when it comes to anything that has nothing to do with our full time job. It stands to reason.

However, even if we spend hours each day doing something, we might not be very professional about it. So, we could remain amateurs. This stands to reason too.

AK is an amateur this and an amateur that in retirement. 

I do the things I enjoy but I am not necessarily good at them. 

It is about having fun and not making a living. 

So, I am not going to set professional targets or high standards. Just thinking about doing this is stressful. 

Naturally, this is how I treat gardening as a past time too. For an amateur gardener, I think I have done OK.

To be honest, it is probably because I have mostly chosen plants which are easier to grow. 

Yes, AK is a lazy fellow and always likes options which have lesser resistance.




A friend told me that it is too difficult to grow Lavender in Singapore because the weather is too warm.

Then, a friend told me that it is impossible for Lavender to flower in Singapore because it is too warm.

I would need to have a cool environment like in the Flower Dome in Gardens by the Bay for Lavender to bloom.


I told him I didn't know that and, by the way, I think my Lavender plant might just be flowering:

(Photos taken on 1 Sep 17.)

Some people tell me that they can never achieve financial freedom in Singapore. It is impossible because it is just too warm hard.

(Photos taken on 12 Sep 17.)

This final photo was taken moments ago this morning:

OK, maybe, AK is just lucky.

Related posts:
1. Gardening and investing.
2. Financial freedom for Singaporeans.

Reduce home loan with CPF OA or do OA to SA transfer?

Reader:
I have an existing HDB loan of 270k over 30 years with my spouse and we are deciding whether we should try to reduce the loan amount with our CPF OA or transfer some to CPF SA.

Objective is to pay the housing loan - debt free and to have a good retirement amount at 65 (hopefully to hit at least 500k in CPF).

We are 35 this year and we have around 80k in our CPF OA each with around 30k in CPF SA.

Hope to get your kind advice on this!

AK:
When we use our CPF-OA savings to pay for our home, we stop earning interest from the government. Instead, we have to pay ourselves interest if we should sell our home.

Once we realise this, it becomes pretty obvious that in an environment of prolonged low interest rates, it would probably be a better idea to pay for our home using cash if we can afford to do so. Don't use our CPF-OA savings.

Central to the idea is to receive more interest income for our CPF savings with an eye on achieving a higher level of risk free and volatility free retirement funding.





Before doing any OA to SA transfer, I would keep enough in the CPF-OA to service at least 24 months of mortgage payments. Bad things do happen unexpectedly.



Savings in our CPF-SA receive a base interest rate of 4% per annum.

If you use your OA savings to pay your HDB loan, you are saving 2.6% in interest payment but you will be losing 2.5% in interest income. So, you have a net saving of 0.1%...






Reader:
Thank you so much for the prompt reply and words of wisdom.

I will keep in mind your kind advice and work out a long term plan.

It has been very kind of you to share your knowledge and wisdom especially for many of us who are caught at a junction, not sure what is the best way to move forward and yet we would want to maximise the returns for our efforts/assets/decision. Sometimes, there is really no right/wrong way to make a decision.

Once again, thank you so much for sharing your knowledge selflessly!






Interested in making good use of the CPF to help achieve retirement adequacy? See related post #2.

Related posts:
1. Average HDB household and $1M.
2. 4 ways to boost our CPF savings.

Small savings might not add up to big money but...

It has been a while since I blogged about my money habits.

Readers who have been following my blog for a long time might remember the blogs on packing lunch to work and not buying drinks when eating out (and definitely not from Starbucks), for examples.





For sure, the blogs did not sit well with everybody and I was even labelled a person with a peasant mentality (or a person with a "poverty mindset") in wealth building because of them.

Well, I hope people who don't like my money habits don't read this blog.

Wait a while.

Filtered.

Still reading?

OK, you have been warned.

Since I changed my diet more than a year ago, I have been consuming more eggs and this is how I have been buying them.

In a tray of 30.

I transfer the eggs into smaller trays for ease of storage.

Tray of 30 @ $3.30.

Tray of 10 @ $1.65.

I save $1.65 each time.

What? $1.65 only? 

It is a 33.3% savings! 

Hey! It is like getting 10 eggs for free!

As you can tell from the scribbles on the label, I have been doing this for quite some time.

I know many people think that it is not worth saving small amounts of money. 

Maybe, saving small amounts of money gives them a "poverty mindset" and they don't like it.

Small savings are for poor people and they want to feel rich.

AK, you not poor wor. Why you so giamsiap? So cham like that.





Well, saving small amounts of money might not make us rich but it definitely won't make us poorer. Now, doing the opposite would definitely make us poorer.

Almost bankrupt, AK's family was once quite poor. AK doesn't want to go back there.

Related posts:
1. Money habits and $100K savings.
2. Earn $32,000 with a mug?
3. My family almost went bankrupt.

Cromwell European REIT IPO.

Cromwell European REIT is a mega IPO that will raise S$ 2 billion.

I looked at the distribution yield first. 

7.5% (@ 57 euro cent per unit) to 7.7% (@ 55 euro cents per unit).

Then, I looked at the gearing level. 

34.3% to 36.6%. 

It would have been better if it were below 30% but it is not excessive.

Then, I do what I do pretty often which is to compare with other REITs in the same sector.

Alamak.

This is where the problem lies.







This REIT has a rojak portfolio of 81 retail, office and light industrial properties in 6 European countries (Denmark, France, Germany, Italy, Poland and The Netherlands).

How to do comparative analysis like that?

OK, with IREIT Global taking a pan-European strategy, it could be a good candidate for comparison in future. As of now, IREIT Global still has properties in Germany only.

IREIT Global offers a similar distribution yield (7.6% at 76 cents per unit) but its gearing level is higher at 41.3%.

Of course, we should say that IREIT Global's portfolio consists only freehold properties while the proposed Cromwell European REIT's portfolio has less than 70% of assets on freehold land.

Yield should be higher for shorter leases to make investment sense.







In a rojak portfolio, it is very easy to hide bad assets and let the good assets pull the weight and we have seen this with some S-REITs before.

As this could well be the most rojak of portfolios when it comes to S-REITs, I find hard to analyse.

We might be able to get a clue as to what the sponsor thinks of the REIT by looking at the stake they will be retaining after the IPO.

8.7% (if popular) to 12.7% (if unpopular).

Pretty low numbers.

Cromwell European REIT's distribution yield might look decent and the gearing might look comfortable but I don't feel comfortable with the rojak nature of its portfolio.







It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it.

For me, it would have been better if the IPO offered one asset class in one country or even a few asset classes in one country.

Then, if the REIT would like to expand its portfolio to include assets in other countries, justify why and take it from there.

Or it could offer a single asset class cutting across a few countries and then expand to include other asset classes later on.

It would be more orderly.







It could be the OCD in me but, now, it does not feel as if there is any clear strategy other than the REIT is holding European assets and, hence, the name of the REIT. It feels messy to me.

I have avoided IPOs for years and this will be no exception.

If Mr. Market should go into a depression and offer me a much lower price to compensate for the rojak nature of the portfolio, I could be tempted.

Read article: HERE.
IREIT Global: HERE.
Related post:
Would AK invest in IREIT today?

"Retrenched with almost zero compensation in my late 40s but..."

Serejouir said...
Hi AK,

I am a long time reader of your blog and felt compel to write in and share my own experience after reading about the reader who was jobless for almost a year.

I could not agree with you more on living prudently, avoiding unnecessary debt and investing in income generating tool. To add to that, we should also make an effort to to build up transferable skills.






I'm in my late 40s and single, earning $8-9k a month. I was retrenched in Nov last year, a week before my 25th year anniversary with the company, with almost zero compensation.

Thankfully, I have minimal debt - only a property loan that I co-share with my sis, which we managed to 1) re-mortgage a few months before my retrenchment; & 2) rented out albeit lower than our monthly loan payment at the moment.

Thankfully too, I am not into any of those designer stuff nor eating in those fancy restaurant. While I do enjoy an overseas holiday, 5-star hotel and shopping are not my cup of tea; it is also not a must have that I am willing to get into debt for, like many of my friends.

A quick calculation on the back of the envelop, gave me the assurance that my savings + investment returns can last me for 1-2 years, without having to liquidate any of my investment immediately. 

I would still be able to maintain the current lifestyle while still giving my parents their monthly living allowance.






Nevertheless, I also started to examine whether there are any other "frills"/"good to haves" that I can cut back on, so as to make my savings last even longer as well as in anticipation of a drastic pay cut in a new job.

This thought of financial security also gave me the safety net of having a bit of time on my side to evaluate what I want out of life and to get a job that I would enjoy doing, and not one that I have to work for a pay check.

While investing wisely for a secure financial future, I believe one must also look into investing in ourselves, so as to ensure that we have transferable skills that we can bring with us everywhere we turn to.






I also like what you said about keeping an open mind when it comes to job search.

I spent the last 20+ years in technology/manufacturing sector before I was retrenched.

In March this year, 3 months after I was retrenched, I got a new job in the healthcare sector, a totally new and alien industry to me. 

It was a very steep learning curve for me - job responsibilities were very different but I was able to tap on the analytical and management skills as well as various soft skills that I have picked up all these years. 

I find my current job very fulfilling and I really enjoyed what I am doing. To top it off, I not only did not suffer a pay cut but actually was offered a higher salary!






AK says:

Big "thank you" to Serejouir for sharing his experience and advice.

Being retrenched is tough, no matter how we slice it. However, if we are prepared, we will be less badly affected.

So, remember, if Serejouir can do it, so can you!

Gambatte!

Watch the video. He was retrenched after working as a manager for thirty years.







Related post:
Jobless for almost a year and losing my mind.

Total and Permanent Disability (TPD) Insurance.

Reader:
Won't you be also concern for yourself? The TPD part.
Medical is already covered for everyone aka Medishield.
I believe most people say not afraid to die, but afraid cannot die.

AK:
Why should I be concerned?






Reader:
Sick and disability. I imagine this 2 are for everyone to think about. Sorry I don't mean to pry. But sought your thoughts on what's necessary to insure for own self. If not necessary one then don't have to pay for it.

AK:
If we have dependents, we need life insurance. Buy term. We also need the following:

For hospitalization, H&S.
For critical illness, CI insurance.

If you are still reliant on your earned income, then, TPD coverage is relevant to you.

It is relatively costly but it will give you peace of mind while you are building your portfolio or until you are able to tap your CPF savings.

Reader:
The insurance agent out there won't really think for customers. We have to be our own agent. But sometimes can't get the "logics" yet. Thank you again.

Best insurance is still: THIS. 






Of course, not everyone is able or willing to be an investor. 

For many people, building up their CPF savings is probably the best way to bolster retirement funding adequacy.

For them, if a meaningful lump sum is available for withdrawal from their CPF account at age 55, having TPD coverage till age 55 could be sufficient.

Otherwise, some amount of TPD coverage till age 65 is probably a better idea as the earliest CPF Life would start paying a monthly income for life is at 65 years old.






Whether we need TPD coverage and to what age we need it will depend on when we will be able to work when we want to and not because we need to.

Yes, if you are a regular reader of my blog, this should sound very familiar.

Related posts:
1. Term Life.
2. H&S (Medishield).
3. Critical Illness.
4. Eldershield.
5. CPF Life.
5. Start with a plan...
6. Work because we want to...