Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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I have used some of the funds raised to increase my investment in OCBC even as Mr. Market sinks into depression, making it my largest investment in the local banking sector.
I have also increased my investment in Capitaland China Trust and Frasers Logistics Trust so that they join the list of largest investments in my portfolio.
The current list of largest investments in my portfolio looks like this:
$500,000 or more: CPF
In a bear market, especially a fierce or prolonged one, having a meaningful amount of CPF savings for those of us fortunate enough to be CPF members gives peace of mind.
The CPF is not only risk free and volatility free, it pays fairly good coupons too.
Long time readers of my blog might remember one year when I said my CPF savings outperformed the stock market.
I increased my investment in Wilmar, averaging up in the process, as it seems to fall out of favor with Mr. Market once again.
The last time I increased my investment in Wilmar was in August last year at a similar price level.
Back then, I said I was pretty happy to add to my investment at a price much lower than what Mr. Kuok paid in June in the same year.
Now, I feel the same way, especially when Wilmar has been doing share buybacks constantly even at much higher prices.
Wilmar has been undervalued for a long time and it is still deeply undervalued today.
The case for investing in Wilmar is even more compelling today especially if we believe that heightened inflation is here to stay for a longer time.
If we believe that there is going to be stagflation, then, companies like Wilmar will likely be the ones which do better as they provide essential goods and services.
If you are interested in my little ideas on Wilmar, I will provide links to my past blogs on Wilmar at the end of this blog because I am too lazy to rehash.
However, here are a couple points which I might or might not have mentioned before, off the top of my head:
1. Wilmar's subsidiary in China, Yihai Kerry Arawana Holdings (YKA) in China has a market cap that is about three times that of Wilmar's market cap in Singapore and Wilmar still holds a 90% stake in YKA.
2. Wilmar's 50% joint venture in India, Adani Wilmar Limited, has achieved similar success in its public listing as its market valuation has tripled since listing in February this year.
Wilmar is a profitable business and is reliable when it comes to paying dividends.
Wilmar paid meaningful dividends even during the COVID-19 pandemic bear market.
Wilmar can easily unlock value for shareholders by reducing its stakes in the abovementioned businesses alone.
Undervalued can remain undervalued for a long time, of course, which makes Wilmar a decent choice for investors who are pretty happy to be paid while waiting.
Investing in Wilmar today or at even lower prices, if we are lucky, is to get big chunks of good income producing businesses for free.
Whether it be stocks or socks, we like buying when they are marked down but what about having some pretty cool stuff thrown in for free with our purchase?
Centurion Corp. is now one of my smaller investments because I went on to trim my position further as its share price rose in recent days.
My investment in Centurion Corp. was no longer one that gave me peace of mind and, hence, the decision.
I am just being consistent as I said before that if I keep thinking about an investment and not in a good way which means I am worried, then, I am probably over invested.
I am feeling pretty good now with a smaller investment in Centurion Corp.
My investment thesis of so many years ago is now being brutally challenged.
In a rising interest rate environment, it makes sense to me that highly leveraged entities will find it more challenging to bring home the bacon but if they could increase their income while controlling other costs, it is not too bad.
However, if they have regulatory issues which could impact their income negatively to deal with, then, the picture becomes hazy and I feel that this might be the case with Centurion Corp.
I invested in Centurion Corp. primarily for income but with interest rate going higher and, more importantly, regulatory issues regarding PBWA capacity, it is less certain that the dividends which I expect from the investment are going to be sustainable or even forthcoming.
Already, the number of beds are reduced in certain assets and we could see the same thing happening in other assets in the not too distant future which would also require additional CAPEX when Centurion Corp. is already lacking a strong balance sheet.
As an investor for income, if I could get a dividend yield of 4.5% or so by investing in the local banks which should also enjoy a strong tailwind from rising interest rate, the case for investing in Centurion Corp. for income weakens considerably.
Investing in Centurion Corp. for income now only becomes a superior strategy if it can pull off a Saizen REIT and long time readers of my blog would know what I am talking about.
Saizen REIT was trading at a big discount to NAV too but the REIT was also consistent in distributing meaningful income while Centurion suspended dividends for two years and could do so again.
Saizen REIT was also selling their buildings at a considerable premium to their valuations which confirmed that the REIT was truly undervalued.
Centurion Corp. could unlock value by selling some of their assets just at valuation and that would unlock lots of value since its common stock is trading at such a huge discount to its NAV per share.
As interest rate rises, cap rates should expand and that is when we could see asset valuations declining.
Still, with such a big discount to NAV and if the valuations are credible, value could be unlocked for shareholders through a partial sale of assets even at a slight discount to valuations.
If this were to happen, then, I would have made a mistake by significantly reducing my exposure to Centurion Corp.
This is why I retain a smaller investment in Centurion Corp. so that I would suffer a weaker form of seller's remorse in such an instance.
Well, I am only human and can only do what I feel is right for me.
I got into Chinese tech in the middle of April this year.
I had no interest in Chinese tech for the longest time because I thought they were trading at crazy high prices.
There is also the fact that I am an ignoramus when it comes to tech stocks.
Sigh, the truth hurts.
Anyway, I forced myself to finally take an interest in the middle of April as the rapid and drastic multi months decline in Chinese tech stock prices made them looked like stuff which value investors might be interested in.
I was also fortunate because I could easily get exposure to Chinese tech stocks through an ETF listed in Singapore.
Fortunate because if I had to buy in the Hong Kong or U.S. stock exchanges, I probably wouldn't have bothered.
Sabana REIT was trading at a huge discount to NAV when I increased my investment significantly at the end of 2020 and the start of 2021.
Today, it is still trading at a 13.5% discount to NAV.
If we think a 3.1 cent DPU is sustainable, then, at 45c a unit, we are looking at a distribution yield of 6.89% which isn't too bad.
It isn't too bad because we could see DPU increasing in the not too distant future as Sabana REIT's portfolio is under rented.
Of course, there is a possibility that the portfolio could remain under rented.
However, I have a feeling that things are more likely to improve.
I like to see what insiders are doing and I find it very interesting that Donald Han, Sabana REIT's CEO, bought 100,000 units at 45c a unit in late April.
Being under rented means that Sabana REIT does not have to depend too heavily on acquisitions to grow its income.
From their presentation dated 21 May 2022, this could give income a boost:
AEIs and maxing out plot ratios will be very helpful too:
Sabana REIT's financials are relatively strong and this is important as peace of mind is priceless.
It is very fortunate that Sabana REIT did not fall prey to the low ball offer by ESR REIT.
A gem in the rough that is still in the process of being polished, I hope that Sabana REIT will shine brighter in my portfolio.
Of course, whether Mr. Market agrees or not is something else.
If Mr. Market agrees, then, we should see Sabana REIT trading closer to its NAV of 52 cents per unit in time to come.
My bowling ball that thinks it is a crystal ball says a unit price of 48 cents or even 49 cents would not be unreasonable.
The information shared in this blog is taken from Sabana REIT's latest presentation dated 21 May 2022.
I don't usually like paying a premium to NAV when it comes to REITs.
However, when I first invested in Frasers Logistics Trust in 2017, I paid a premium of around 6% to its NAV then, if I remember correctly.
At that time, I decided that it was a price I was willing to pay for geographical diversification and also to have greater exposure to freehold assets.
So, increasing exposure last week to Frasers Logistics Trust when it was trading very close to or at its NAV was more palatable.
I will keep a lookout for a chance to add to my investment in Frasers Logistics Trust at under $1.20 a unit.
That means roughly a 10% decline in unit price from here.
Technically, it is a definite possibility as the momentum oscillators are not encouraging.
Fundamentally, if risk free rate continues to go up, we could see unit prices of REITs like Frasers Logistics Trust declining as investors might demand from them a high distribution yield.
Although buying at a discount to NAV would make me quite happy, I remind myself that NAV could decline as we could see cap rate expansion taking place if risk free rate continues to go up.
Don't throw in everything including the kitchen sink because peace of mind is priceless.
I have been adding to Capitaland China Trust at around $1.10 a unit.
I don't think that the lockdowns in China can go on forever.
So, the pessimism will lift at some point.
The initial plan was to have the investment similar in size to my investment in Frasers Logistics Trust which is one of my larger smaller investments.
However, I am now thinking of making my investment in Capitaland China Trust similar in size to my investment in Sabana REIT which is one of my largest investments albeit the smallest in the club.
Maybe, I am feeling a little sorry for Sabana REIT being all alone in the lowest bracket in my list of largest investments.
Capitaland China Trust is trading at a big discount to NAV.
Its NAV is about $1.50 a unit.
Capitaland China Trust also offers a relatively high distribution yield.
If a DPU of 9c continues to be paid, at $1.10 a unit, that is a distribution yield of almost 8.2% which sufficiently compensates for any negative vibes Mr. Market might have.
Yes, I think that we will look back at this episode in history as just negative vibes.
It is like how Mr. Market was feeling very negative about Sabana REIT when ESR REIT made the low ball takeover offer.
It was because of that episode that I was able to accumulate aggressively at around 35 cents a share which brought my investment in Sabana REIT back into my list of largest investments at the end of 2020.
The distribution yield for that investment based on my cost is almost 9%.
Pulling another rabbit out of the hat with Capitaland China Trust, perhaps?
This is not something you would expect to read here in ASSI.
AK is known for investing for income.
AK doesn't invest in innovation and tech.
AK is boring.
Hey, AK put some money in Chinese tech and even Bitcoin recently.
OK, ok, it is true that my exposure to Chinese tech and Bitcoin is tiny relative to the size of my portfolio.
Oh, the shame!
Sadness.
Anyway, I have been looking at Nio recently after reading news of its pending secondary listing in Singapore earlier this month.
I know a little bit about EVs and their production now.
I also know that Nio has a horrible balance sheet.
Nio is still burning cash.
It looks like a terrible business to invest in.
However, that's what Tesla was doing in its infancy, burning cash.
Tesla was burning cash and on the verge of bankruptcy when trying to get the Model 3 right.
From what I now know, Tesla struggled for years before turning profitable.
Although I have done some research, I am sure I have only scratched the surface.
This is very similar to how much or, more accurately, how little I know about Chinese tech and Bitcoin.
Not knowing a lot but enough knowledge to get me to put some money to work.
What about Nio?
There are so many things which I have found out.
However, two points stick out for me:
1. Nio is still burning cash but we have Tesla's experience to quite possibly show Nio the way to the future.
2. The Chinese government also seems to have put its weight behind their EV companies which is very OP (which means "overpowered" in gaming lingo) and Tesla did not have this.
Although putting money in Nio now is probably more speculation than investment, these two points gave me a nudge.
Do not underestimate the will and ability of the Chinese government.
This is something I have heard often enough.
Going by the global narrative, EVs will most likely continue to replace ICE vehicles too.
Don't fight the trend.
It is obvious for some time now that EVs are going to be a big part of our future but AK is myopic and could not see it until recently.
Very cham like that.
Still, even myopic AK can see why some call Nio the Tesla of China because they make very beautiful cars.
Nio isn't a copy of Tesla.
Nio strikes me as being very innovative.
A problem with EVs is that some countries like Singapore do not have enough charging stations and Nio solves this problem with battery swapping stations.
Battery swapping also takes less than 5 mins while getting an EV fully charged could take an hour or more.
It is such a simple idea but also absolutely mind blowing.
My bowling ball put on its crystal ball costume and told me that Nio would most likely succeed.
Nio has been ramping up production and deliveries.
It might still be early days but it is probably a matter of time before Nio turns profitable.
In the meantime, they just have to continue to ramp up production and deliveries while narrowing their losses.
Indeed, they have been narrowing their losses.
Anyway, now that I have become a Nio shareholder, am I less boring of an investor?
Chinese tech, Bitcoin and now Nio.
I don't recognize me anymore.
Alamak.
You blur?
I also blur.
Technically, Nio's share price has been down trending.
However, I see a positive divergence with the MACD.
This could indicate that selling pressure is weakening.
If the share price has not bottomed, a bottoming process has possibly started.
Nio could be put in the same boat as my foray into Chinese tech.
We could be seeing a bottoming process but it could be some time before we can call a bottom.
So, I remind myself to eat crusty bread with ink slowly.
Just like my investment in Chinese tech, I am limiting my exposure to Nio to 1% of my portfolio for a start.
An eventual cap at 2% or 3% of my portfolio which is what I have in mind for Bitcoin as well might be a good idea as, to be honest, Nio is still pretty speculative as an investment.
Even though Nio's share price has declined significantly from its peak which was a ridiculous price of US$67, at a price of US$17 or now US$16 a share, we are still assuming that Nio will eventually grow its profits relatively quickly when it does become profitable.
It is only prudent not to throw in everything including the kitchen sink.
With my initial investment in Nio at only about 0.3% of my portfolio, I have just gotten a foot in the door.
Throwing money at Nio is very likely more proof that AK is mental and that his condition is getting worse.
Don't play play and anyhow follow.
------------------------
Just when I was about to publish this blog, I found out that Nio will be included in the Hang Seng Tech Index on 13 June.
So, Nio will be rubbing shoulders with BYD, Xpeng and Li Auto, the other big Chinese EV companies in the index.
This means that I will have exposure to Nio through my position in Lion-OCBC Securities Hang Seng Tech ETF too.
This simplifies things for me.
Now, I can abandon my plan to add to my position in Nio as I much prefer adding to my position in the ETF instead.
Won't have to deal with concentration risk when Nio is still loss making.
I have, therefore, added to my investment in the ETF again which brings it closer to 1% of my portfolio and partly because things are looking less negative chart wise to me.
So, has this Nio blog been a total waste of time then?
Oh, well, at least it got me to do more research on EV companies.
Still, I could have spent the time gaming instead.
Tragic.
On the subject of gaming, updates to Genshin Impact have been slow due to the COVID-19 situation in China and Neverwinter has been slow to roll out their new module too.
This explains why I have been blogging more frequently but this is about to be fixed.
Genshin Impact is getting up to speed with new versions announced for end of May and also the middle of July.
Neverwinter is launching their new module, Dragonslayer, middle of June.
So, don't be surprised if I disappear from real life for a while.
I have decided to publish my reply in response to a reader's comment that AA REIT's gearing level is at 51% as a blog.
This is because I have received similar comments in recent months.
Having my response published as a blog will make it easier for me to point readers who leave me similar comments in the future to a ready response.
My reply:
Hi patrol,
I don't know which piece of research that is but AA REIT's latest published gearing level dated 27 April was 37.5%.
If you are referring to the perpetuals which AA REIT has on the balance sheet, there was a discussion in the comments section here in ASSI a few months ago in February.
You might be interested to read those comments in this blog:
Having said this, with interest rate rising, if AA REIT were to raise funds to strengthen its balance sheet, it isn't a bad idea.
Unlike IREIT Global which retains 10% of its distributable income, AA REIT distributes 100% of its distributable income to investors.
This is a reason why IREIT Global's balance sheet is so strong.
In another conversation in the comments section, I said that if AA REIT were to take a leaf from IREIT Global's book and retained 10% of its distributable income, it might not be a bad idea too.
I said a lot more in those comments like why I was reducing my investment in Centurion Corp. but didn't see a reason to do so for AA REIT yet.
You might want to read those comments which you will find in this blog:
If we believe that China is going the way of the Dodo, then, maybe, we should avoid investing in OCBC for now.
If we believe that the negativity towards China and, to a smaller degree, OCBC is overdone, then, we want to stay invested.
Having said this, objectively, I will continue to look out for opportunities to increase my investments in all three local banks as I believe they will continue to shine.
In fact, with interest rate rising, unless we see a deep and long lasting recession, all three local lenders should shine even brighter.
Towards the end of April, I revealed that I added SBS Transit to my portfolio and I also added to my investment in ComfortDelgro.
I said I would talk a bit more about these in my next quarterly report.
I was just being a lazy fellow, as usual.
Well, I decided that I should talk about it sooner than later because I am a nice person too. ;)
I should not leave a story half told (for too long.)
So, why did I do what I did?
SBS Transit is, of course, mostly owned by ComfortDelgro and in the business of public transportation minus the taxis (and airplanes.)
As I expect ComfortDelgro to do better post pandemic, all else being equal, a major contributor to this improvement should come from SBS Transit as ridership numbers on buses and trains improve.
So, becoming a shareholder of SBS Transit while its stock price languishes at close to pandemic level seems like a fairly good idea.
Fundamentally, SBS Transit is a profitable business with a relatively strong balance sheet too.
Then, if we look at EV/EBITDA, like ComfortDelgro's, SBS Transit's valuation is relatively cheap.
Having said this, I am not going to build a large position in SBS Transit as I already have a relatively large investment in ComfortDelgro.
I am more interested in increasing my investment in ComfortDelgro and I did so again earlier this month when the price of its common stock dipped below $1.40 a share.
I thought Mr. Market was offering me a bargain given ComfortDelgro's improving prospects.
Although the pandemic revealed a major weakness in the business of public transportation and not being overly optimistic about the improving situation is probably a good idea, neither should we be overly pessimistic.
This is especially the case as we learn to live with COVID-19.
ComfortDelgro, unlike SIA or GRAB, has a relatively strong balance sheet.
ComfortDelgro is also profitable and not burning cash like SIA or GRAB.
What about dividends?
Ahem.
If we compare the free cash flow generating abilities of ComfortDelgro, SIA and GRAB, it is very clear which one is the winner.
Dividends from my investment in SBS Transit should be enough to pay for my mobile phone's subscription every year and still leave enough money to buy a few dozen bars of dark chocolate.
ComfortDelgro should better reward shareholders as earnings improve and with my larger investment, I would be a happy beneficiary in this case.
Of course, remember, this is just mental AK talking to himself again.
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