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This is the transcript of a YouTube video I produced recently.
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I was looking at my short history with Singapore's banks this morning.
DBS was the first Singapore bank I was invested in, and this was back in early 2016.
The lowest price I paid was around $13 a share and I am still holding to those shares today.
Why did I decide to invest in DBS back then?
Regular long-time readers of my blog might remember that 2016 was the year I decided to increase exposure to non-REITs.
The rationale was that low interest rates could not last forever.
At the time, I recognized that it would be an ongoing exercise to transform my REITs heavy investment portfolio.
Of course, that exercise has become a multi-year experience.
Since 2016, I have added to my investment in DBS at various times.
I also became a shareholder of OCBC and UOB later on.
I increased my investment in DBS in April of 2020 during the COVID-19 pandemic.
It was at under $19 a share.
I also increased my investment in OCBC during the pandemic at under $9 a share.
The pandemic saw me becoming a shareholder of UOB as I bought aggressively in late 2020 at around $19 a share.
Since those purchases, my last buy price for DBS was at around $24 a share as I did not add to my investment in the bank recently.
In recent months, I favored OCBC and UOB over DBS based on valuation considerations.
The last time I added to OCBC was in March this year at under $12 a share, and the last time I added to UOB was at around $26 a share in October last year.
So, it should be obvious to anyone that over the years, I have gradually increased my investments in DBS, OCBC and UOB.
Today, their combined market value in my portfolio exceeds $1 million.
Together, they are my largest investment.
This transformation of my investment portfolio surely did not occur by chance.
However, luck played a part in allowing me to buy when I did at more reasonable prices.
In one of my recent blogs, I said that I would like to see my combined exposure to DBS, OCBC and UOB at around 40% of my portfolio.
This is still work in progress.
How long is it going to take?
Well, lacking an earned income, with only my passive income doing all the heavy lifting, it could take a few more years.
It might even take another 10 years or more, depending on what life throws at me.
Do you think it sounds like it is taking way too long to happen?
Well, consider this.
I am not going anywhere in a hurry, and neither is the stock market.
So, when am I adding to my investments?
To be honest, the common stocks of OCBC and UOB are trading at pretty fair valuations now.
If I am not invested yet, I would buy some.
However, as I am looking to add, I decided to look at the charts for some guidance.
DBS has the weakest looking chart right now.
Down trending with negative momentum, we could see it going under $30 a share.
It would have to break immediate resistance at around $32 to go higher.
UOB has a chart that suggests a bottoming process is underway.
If this is indeed the case, we might not see the bottom of October 2022 at around $26 a share retested.
Now, it seems that its common stock could trade sideways for a bit.
I would buy some in the event it closes a gap which formed in late October last year.
This is close to $27 a share.
Amongst the three banks, OCBC seems to have the nicest chart now.
If we connect the lowest points in the chart in July and October last year, we get a trendline.
We can see that this trendline was retested in March this year.
It was also retested multiple times in May last month.
The trendline has always provided support.
So, it is likely to hold the next time it is retested.
If the market should offer me another chance to buy at closer to $12 a share, I would buy some.
Just me talking to myself, as usual.
Remember that what works for me might not work for others.
This is the transcript of a YouTube video I produced recently.
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Q2 and Q3 are usually good quarters for me in terms of passive income.
After setting aside money for personal expenses, parental support and gifts, the plan was to use some of the money to increase exposure to T-bills.
I still find 6 months T-bills to be quite attractive.
Of course, regular readers would understand why.
I have always had a soft spot for risk free and volatility free CPF which pays between 2.5% to 4% per annum.
Oops.
My apologies, it should be 2.5% to 4.01% per annum.
So, with similar characteristics, it is no surprise that I am attracted to T-bills these days like a bee is to honey.
The latest 6 months T-bill auction saw a cut-off yield of 3.84% per annum.
I said in an earlier blog that I would be happy if cut-off yield remained the same at 3.85% per annum.
3.84% per annum is enough to make me quite happy.
Anyway, like I said, I had planned to use some incoming passive income to increase exposure to T-bills.
That plan has to be put on hold now.
I would have to be contented with simply recycling money from maturing T-bills into new ones.
This is because of two rights issues which are coming up.
AIMS APAC REIT and IREIT Global are two of my largest investments.
So, together, I would have to put aside a relatively large amount of money for the rights issues.
For AIMS APAC REIT, we are likely to see a slight near-term reduction in DPU.
This is because part of the plan is to use the funds for asset enhancements and possible redevelopment of existing assets.
Nothing immediately income generative.
With more units in issue, including those issued for the private placement, existing shareholders could see roughly a 6% decrease in DPU if we subscribed only to our rights entitlement.
We can apply for excess rights which would increase the income we receive from the REIT if we are successful, of course.
However, as my resources are pretty limited, I am alright with receiving a bit less income from AIMS APAC REIT post rights issue for a while.
For me, this is not a terrible outcome as I have said many times before that my investment in AIMS APAC REIT has been free of cost for some time.
All income distributions from the REIT are really free money for me.
So, I will subscribe to my rights entitlement and just enough excess rights so that I do not end up with odd lots.
As for IREIT Global, they do not have any private placement in their fund-raising exercise.
So, there is no risk of DPU dilution if we do not apply for excess rights.
They are raising funds using a combination of debt and rights issue.
I also like that the funds they are raising will be used to purchase income generating assets right away.
This is why I said that IREIT Global is really inviting existing shareholders to invest in more properties.
The sponsors will be doing this alongside shareholders as they hold about 50% of the units in issue.
Therefore, I find their rights issue to be more interesting than the one by AIMS APAC REIT.
I also like that at 45 cents a unit, we would be getting a distribution yield of around 8% which is pretty attractive.
Of course, this is not without risk and volatility, unlike T-bills.
However, for me to forgo increasing exposure to T-bills for this rights issue is not a tragedy.
Remember, I am just talking to myself here.
It should be quite obvious to anyone that this is a plan that seems fine for me but it might not be suitable for others.
This is the transcript of a YouTube video I produced recently.
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During "Evening with AK and friends 2023", someone came up to me and asked what I thought of US Hospitality REITs listed in Singapore.
He asked that question since I kept reminding myself to stay away from US commercial real estate REITs, and in particular the US office REITs.
Of course, now we know what just happened to Digital Core real estate investment trust, a data center Trust listed in Singapore.
They lost their second largest customer which contributed 23% to their total rental income.
That customer was also Mapletree Industrial Trust's third largest customer.
So, Mapletree Industrial Trust would be taking a hit too although not as badly as in the case of Digital Core real estate investment trust.
Mapletree Industrial Trust announced that their 3rd largest tenant by gross rental income has initiated bankruptcy proceedings in the US Court.
The data center tenant is a global co-location provider and accounted for 3.2% of Mapletree Industrial Trust's gross rental income.
Quick to follow, we saw Manulife US REIT's fifth-largest tenant by gross rental income exercised an early termination of its lease.
This was for 500 Plaza Drive, also known as Plaza, in New Jersey USA.
Wait, there is more.
This is in the news today.
Park Hotels and Resorts, a real estate investment trust in the USA, has made the "difficult, but necessary" decision to stop payments on its $725 million commercial mortgage-backed security loan secured by two of its San Francisco hotels.
They are Hilton San Francisco Union Square and the Parc 55 San Francisco.
They are giving up on these hotels and would see them removed forcibly from their portfolio of hotels.
The problem has partly to do with overly optimistic valuations during the years of ultra-low interest rates.
The two downtown San Francisco hotels were valued at a combined $1.56 billion in an appraisal at the time of the loan underwriting in 2016!
This means the current Loan to Value, if the valuation is still valid, is around 46%.
Think of it as a gearing level of 46% for a REIT.
That does not sound excessive, but it seems like it is. ;p
It is very likely that the valuations of those two hotels could have seen a decline, which would bump up the Loan to Value number, of course.
We would not be wrong to question if the valuations of assets held by ARA US Hospitality Trust are still realistic today, compared to what they were pre-pandemic.
Of course, this is but one question to ask.
ARA US Hospitality Trust has seen its gearing ratio increased and is relatively high at about 41%.
This is even as its proportion of debt which have fixed interest rates declined significantly from 82% to 73%.
With weighted average debt maturity at only 1.3 years, the Trust is going to face the challenge of refinancing in an environment of not only higher interest rates, but also tighter credit conditions.
Why is this important to note?
Well, the question sometimes is not how much the loan would cost, but whether we could even get a loan?
Shoes are dropping.
More shoes are going to drop.
And it feels like it is raining shoes in the US commercial real estate sector.
Now, apparently, the next shoe to drop could be US Hospitality REITs.
To be sure, I am not talking about excessive financial engineering or possible fraud here, which seemed to be the case for Eagle Hospitality Trust, another US hospitality Trust which was listed in Singapore.
I am talking about something which affects the entire commercial real estate sector in the USA.
Credit is tightening in the USA and more so for commercial real estate.
In a recent interview with CNBC, a commercial real estate developer in the USA said he sent out 48 enquiries recently, and he received quotes from only two banks.
He said that was highly unusual, and he followed by saying it seemed that the commercial real estate sector in the USA was being strangled.
That interview gave an idea of how bad the credit situation for commercial real estate is in the USA now, and it could get worse for the whole sector.
During "Evening with AK and friends 2023", I reminded myself that I was painting the entire US commercial real estate sector with a broad brush.
I don't know enough to be able to invest comfortably in those REITs.
Those who have enough knowledge and savvy to invest well in the sector should follow their own plan.
This is the transcript of a YouTube video I produced recently.
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About three months ago, I wrote a piece on Digital Core Real Estate Investment Trust.
I said that I was not attracted by its seemingly high distribution yield because one of its largest customers could go bankrupt.
Today, I read that the Trust's second largest customer which accounted for almost 23% of its rental revenue has filed for bankruptcy protection on 4 June 2023.
During "Evening with AK and friends 2023", I warned that in an environment of heightened inflation and rapidly rising interest rates, many businesses which thrived on cheap money would find it hard to cope.
Unfortunately, many startups and tech companies fall into this category.
When money was cheap or even free, there were many investors who were willing to tolerate negative earnings while watching these businesses grew their market share.
With money having a real cost and a comparatively much higher cost at that, investors want to see positive earnings now.
Hence, the pressure for SEA Limited, Shopee's parent, to cut costs aggressively so as to turn profitable.
With interest rates having risen so much and so quickly, the chaos at the regional banks in the USA already led to 3 relatively large banks failing.
Apparently, deposits are still flowing out of regional banks into larger banks like JP Morgan.
Billions of dollars continue to flow into money market funds.
In a research paper with the following title.
"Monetary Tightening and U.S. Bank Fragility in 2023. Mark-to-Market Losses and Uninsured Depositor Runs?"
It was revealed that if a mere 50% of those uninsured depositors decided to withdraw their funds, 186 regional banks in the USA could be at risk of failure.
So, Warren Buffett and Charlie Munger could be right.
This isn't over yet.
While waiting to see if more regional banks could go under in the USA, businesses which are highly leveraged could fail one by one.
This could pick up pace as the USA sails into a highly anticipated recession.
Investors are less willing to pump in more money into "growth" businesses only to watch their money being burnt now.
If you want an example, we have one right here in Singapore.
Its name is "GRAB".
Why not borrow money from the banks instead?
Well, the chatter is that banks are becoming more cautious when they lend money now too.
So, even if businesses could get a loan, the cost is much higher.
Now, as investors for income, we are mostly concerned about any development's impact on our passive income.
So, what does this latest development at Digital Core Real Estate Investment Trust mean for those of us who invested in it?
When a customer goes bankrupt, it is worse than a customer downsizing or right sizing their rental requirements.
The rental income disappears overnight.
In this case, Digital Core Real Estate Investment Trust will lose 23% of its rental income.
In terms of dollars and cents, the manager has estimated a reduction of around 2 cents in distribution per unit.
At a unit price of 40 cents, this means distribution yield would plunge from around 10% to less than 5%.
That is a massive 50% reduction.
OK, don't panic.
The good news is that the many facilities which this customer currently rents are partially occupied by other companies.
So, if the Trust's manager is able to retain these other companies, the resulting loss of income could be lessened.
Still, we don't want a good lesson to go to waste.
We want to remember the following.
With interest rates likely to stay higher for longer, remember not to stay too optimistic about any business that has too much debt.
I do believe that interest rates will come down again one day.
However, we want our businesses to be able to keep their heads well above water until that day comes.
I have just produced a YouTube video based on this blog a few moments ago. So, if you prefer listening to reading, that option is available now.
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Recently, I read a report in The EDGE.
I read that the analysts at RHB Research slashed their target price for a Singapore bank by almost 8%.
Which Singapore bank?
Like to make a guess with this hint?
Target price slashed from $34.90 a share to $32.30 a share.
If you guessed UOB, you are right.
Some readers might remember that in a video I produced on DBS, I said that we should not be too concerned by target prices set by analysts.
Crystal ball gazing might be an interesting distraction but that is what it is.
A distraction.
What is more interesting to me is the reason behind the lowering of the target price.
The analyst said that the target price has been lowered due to "heightened economic uncertainty."
To me, that sounds like they expect the economic conditions in the markets UOB is in to weaken.
They went on to say that UOB sees two key headwinds.
Revenue and asset quality risks.
Revenue is likely to take a hit because net interest margin is probably going down further.
This is not something new to anyone who has been following the news, of course.
In several blogs and videos which I produced, I said that Net Interest Margins for all three banks, DBS, OCBC and UOB likely peaked in Q1 2023.
Funding cost has finally caught up which will squeeze the said margin.
For UOB, net interest margin apparently has already reduced 8 basis point, quarter on quarter.
Loan growth is also moderating.
In fact, in Q1 2023, loans contracted 1.2% quarter on quarter.
UOB also has exposure to Commercial Real Estate and financing for these assets is 30% of total loans.
UOB has said that it has not seen any stress.
They also enforce a loan to value of 50% on their Commercial Real Estate loans.
In earlier videos on UOB, I said that the bank is likely to be the fastest growing Singapore bank this year, thanks to their acquisition of Citibank's consumer banking business in four South East Asian countries.
Acquisitions in Malaysia and Thailand completed in November 2022 while the acquisition in Vietnam completed in March.
We will see full year contributions from these markets this year.
Acquisition in Indonesia is likely to be completed by end of this year and will contribute to earnings in 2024.
Also, non-interest income should pick up some slack at UOB.
In fact, UOB saw a 457% year on year growth in non-interest income in Q1 2023 compared to a 35% growth at DBS.
So, what do I think of the target price for the common stock of UOB being slashed by 8%?
To be totally honest.
It is really just someone else's number to me.
Some readers might remember that I said that Singapore banks saw their stocks trading at 2 times book value when Market was very exuberant.
If that should happen again, what is my target price for UOB?
$50 a share!
Now, that makes me giddy!
As an investor for income, I am more interested in the dividend which UOB is able to pay me.
$1.35 a share seems undemanding.
If we are a little more optimistic, $1.60 a share isn't impossible either.
Based on technical analysis, a major support is probably at around $26 a share.
Buying more at that price could mean a dividend yield of between 5.2% to 6.1%.
With dividend yields of 5% to 6% at a payout ratio of around 50%, Singapore banks provide investors with peace of mind.
Why would I invest in a healthcare REIT that has a distribution yield of less than 4%, especially when I remind myself that it has to distribute all or almost all of its operating income to achieve that?
I don't know if we would see the stock at $26 a share but if it should happen, all else being equal, I hope I would have the resources to buy more.
Is this where I say if AK can talk to himself, so can you?
Maybe.
But when I think of $50 a share as a possibility, I feel giddy.
As for the Singapore Savings Bond offered this month, the 10 year average yield is 2.82% p.a.
This is just a very little bit higher than the 2.81% p.a. offered last month.
Fortunately for me, where Singapore Savings Bond is concerned, my mission for the year is complete.
So, is this something I am looking at just for fun?
Well, partly for fun.
I am also interested in monitoring this for a practical reason.
If the 10 year average yield should go above 3% p.a. again, I could bring forward the plan to inject funds into my CPF account in 2025.
After all, the funds I have used to purchase Singapore Savings Bonds this year were earmarked for CPF voluntary contributions in 2024.
Unless interest rates for CPF OA and SA increase meaningfully, it still makes more sense for me buy Singapore Savings Bonds as long as their 10 year average yield is higher than 3% p.a.
Oh, I produced a YouTube video recently.
Please watch only if you want some comic relief and have a good sense of humor.
You have been warned.
Just talking (and giggling) to myself, of course.
T-bills are still offering more attractive yields than the CPF ordinary account.
This is because the front end of the yield curve is still elevated.
An inverted yield curve has historically been a pretty reliable indicator of a coming economic recession.
This is another reason for having a meaningful exposure to fixed income.
If a recession should hit, the equity market would likely see drawdowns.
Then, I could dismantle my T-bill ladder to increase my exposure to equities.
For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, I produced 2 videos recently and these are the transcripts. ------------
This was a comment from a reader yesterday.
1. For Capitaland China Trust, do you think sentiments towards China are overly pessimistic?
Hence, could the Trust be trading at a fair price
now?
2. I am sure you saw the right issue on AIMS APAC Real Estate Investment Trust.
Any comment on that?
AK had this to say about China.
For CapitaLand China Trust, I am just holding on to what I have now.
After seeing how China handled the COVID-19 pandemic and also what they did to their biggest tech companies, I don't really know how to read investments in China now.
Another reader said this about Capitaland China Trust.
Hard to wait for the banks when REITs like Capitaland China Trust kept enticing me with lower and lower prices. How like that?
AK said to the reader.
I have been holding on to my position in Capitaland China Trust and not done any buying or selling.
I am not sure as I am more wary of policy risks in China than anything else right now.
Jamie Dimon, CEO of JP Morgan, said this in a recent interview.
China is a far more complex situation now.
He was mostly referring to policy risks, but he was also concerned about geopolitical risks.
Too much uncertainty caused by the Chinese government.
We can also see that Chinese economic recovery has been weak and, to be honest, I agree that much of it has been self-inflicted.
It is not hard to understand that I would rather put more money into investments I have less to worry about.
AK is becoming timid with age.
I had this to say about AIMS APAC real estate investment trust.
The proposed rights issue is relatively small, but it is necessary so that the REIT does not take on more debt to grow organically.
The sponsor has also thrown its weight behind the exercise.
The sponsor, which holds about 75 million units, or about 10% of the total units in the real estate investment trust, has provided an irrevocable undertaking to the manager and the joint bookrunners and underwriters, which include DBS Bank.
The sponsor will accept, subscribe and pay in full for its total provisional allotment of the new units under the preferential offering.
They will also make applications for the number of excess new units under the preferential offering which are not taken up by other unitholders.
Hence, demonstrating their confidence in the real estate investment trust.
The exercise will raise around $100 million through the private placement and preferential offering.
Private placement is to place about 56 million to 58 million units at an issue price of about $1.21 to $1.25 per unit to raise proceeds of $70 million.
The non-renounceable preferential offering or rights issue will raise another $30 million.
This is through the issuance of about 25 million new units to existing eligible unitholders at about $1.19 to $1.23 per new unit.
Existing unitholders will be eligible to an advanced distribution of between 1.7 cents to 1.9 cents per unit.
This would be for the months of April and May.
The record date to be entitled to the advanced distribution and the eligibility to participate in the preferential offering is at 5pm on June 9.
The funds raised will help unlock greater value organically through active enhancement and re-development strategy.
It will also help to secure growth opportunities through targeted acquisitions.
I rather like rights issues which raise money in order to generate more income for the investors.
This is a relatively small rights issue and, therefore, not too demanding.
If AK can talk to himself, so can you!
(Continue scrolling down to read about IREIT Global and its rights issue.)
I have said before that I rather like rights issues if the money raised is used to generate more income for investors.
In the latest fund raising exercise by IREIT Global, this seems to be the case.
They are proposing to acquire 17 retail parks in France.
A strong reason to invest in these assets is that this retail format will continue to outperform in the context of global inflation partly caused by the COVID-19 pandemic.
"The popularity of hard discounters, discounters and outlet stores in France has risen exponentially in recent years.
"Retail Parks, an Out-of-Town asset class, have been resilient through the COVID-19 pandemic due to their accessibility, open-air format, wide range of available spaces, parking facilities, manageable operational cost, value-for-money brands and for some retailers, omni-channel experiences."
These 17 retail parks are leased to B and M Group, a European discount retailer listed on the London Stock Exchange with a market cap of about 4.7 billion Sterling Pounds.
They have been occupying these assets since 2005 on average.
There is a Weighted Average Lease Expiry of 6.8 years but there is an option for lease break 4.6 years from now.
A combination of competitive rents due to out-of-town locations and a resilient retail model which is discount retailing suggests to me that this is a good investment.
Of course, all investments are good investments at the right price.
The asking price is approximately $112 million.
This gives approximately 1.7% discount to the average of the two independent valuations of approximately $114.1 million.
The price is very close to valuation.
Although this might suggest that we are not getting a fantastic deal, it also suggests that this kind of properties is probably in high demand.
The seller isn't desperate to sell.
However, similar to the purchase of Woolworth's HQ in Australia by AIMS APAC real estate investment trust, I like that these 17 properties in France have excess plot ratios which could be developed for more rental income in future.
I would take this potential into consideration since we should always have a long term perspective when investing in good income producing properties.
So, apart from rental escalation being pegged to inflation, this could be another way to extract more income from the assets.
When we take into consideration that new developments of such assets are being restricted in future due to new French regulations, these assets will become even more valuable in future.
This reminds me of Saizen REIT when its properties were valued at under replacement cost.
No one in his right mind would construct a new building when buying an old one would be much cheaper, and would give similar or higher rental yields.
So, the assets Saizen REIT was holding were undervalued.
In the case of out-of-town assets in France, new ones are apparently not allowed by law.
With the future in mind, we could make the case that these assets could be undervalued.
Of course, having these properties in the portfolio would reduce concentration risk which has been a major pain point for many investors forever.
I don't really care for the other advantages put forth by the management.
The next thing I want to know is how the acquisition is going to be funded and whether it is going to be yield accretive.
Apparently, it is going to be yield accretive.
Pro forma adjusted FY2022 accretion of 2.0% was computed based on audited FY2022.
This is with the assumption that Darmstadt Campus is 100% vacant for FY2022 from 1 January 2022 with nil revenue but with operating expenses.
OK, how much do investors have to pay?
Cost of properties = $112 million.
Expenses related to purchase = $20 million.
Now, I know how people paying ABSD in Singapore feel.
The deal will be funded by the following.
1. A non-renounceable underwritten preferential offering of new Units to existing Unitholders on a pro rata basis or a rights issue.
2. External bank borrowings.
3. Borrowings from Tikehau Capital.
Both Tikehau Capital and City Developments Limited, the joint sponsors, and the manager, will subscribe in full their allotment in the rights issue.
They will also subscribe to excess units which other investors do not take up, such that their aggregate subscriptions would amount to a maximum of $40 million.
IREIT Global has a market capitalization of around $550 million.
As the sponsors jointly hold about 50% of the total units issued, without further information, I can only hazard a guess that we would see around 10% increase in the number of units issued.
We could assume that approximately 168 million new Preferential Offering Units might be issued at an illustrative issue price of 45 cents per Preferential Offering Unit.
This could raise gross proceeds of approximately $75 million.
So, if we like this proposed investment in French retail parks, we have to be ready to increase our investment in the real estate investment trust by about 10% through the rights issue.
For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced. ------------
I invested in SATS donkey years ago in 2014 at under $3 a share.
Back then, I said the following.
SATS' PE ratio was under 19 times.
Although SATS paid more dividend per share or DPS than its earnings per share or EPS, a more normalized payout ratio was 70% of earnings.
So, I believed that an annual DPS of 11 cents was realistic.
Based on $3 a share, that would have translated to a dividend yield of 3.67%.
Compared to the risk-free rate we can get today with T-bills, it would not be that attractive today.
However, in an environment of very low interest rates, that would have been a pretty decent dividend yield from a solid and predictable business model.
Especially when there was an element of growth, no matter how small, thrown in.
Of course, the COVID-19 pandemic changed things.
To be fair, it changed things for many businesses and not just SATS.
SATS suspended dividends.
Just when things were looking up post pandemic, they decided to buy WFS for more than $1 billion.
I likened the deal to a snake swallowing an elephant.
When an unlikely opportunity presented itself in February this year, I sold my investment in SATS, netting a gain in the process.
In the blog I published in February, I said this.
"I really didn't want to have to bother with the proposed rights issue especially when I used my SRS money to invest in SATS.
"That was many years ago, but long-time regular readers might remember my blogs on SRS money, and how I would use them to generate higher returns.
"I was careful to invest my SRS money only in endowment policies and businesses which I thought would never have to do equity fund raising by issuing rights.
"This matter of acquisition and fund raising has been going on for so long and I am glad to be rid of it."
The money I got from the sale probably went to increasing my investment in OCBC when its share price dipped below $12 later on.
Anyway, when a reader asked if she should take part in the rights issue as she was holding on to the investment, I talked to myself as usual.
I really could not see SATS paying a dividend again for a while, and I could not tell how well the integration would go.
I would be wary of throwing good money after the bad.
It was not as if SATS was paying a meaningful dividend to reward shareholders for their patience and further monetary support.
I know many analysts are waving "BUY" flags with target prices of above $3 a share for SATS.
Target price of $3.25 a share is the average.
If they are right, long-time investors in SATS like me could see good results too without taking part in the rights issue.
Just have to wait and see.
In the latest report, SATS reported a net loss of more than $26 million.
This compared to the net profit of more than $20 million last year.
At $2.75 a share, it seems that the forward PE ratio for SATS is 25 times.
Of course, we should remember that forward PE is different from trailing 12 months PE since it is forward looking and an estimate by analysts.
I remind myself that SATS is still not paying a dividend.
I also remind myself that when I invested in SATS in 2014, it was paying a dividend.
At the time in 2014, its PE ratio was under 19 times.
So, would you like to make a guess as to when I might invest in SATS again?
Everything else being equal, right now, it has to be around $2.10 a share.
This is even lower than what existing shareholders had to pay during the rather recent rights issue.
On hindsight, that would have been another reason not to be overly optimistic about the acquisition of WFS.
Of course, for me to invest in SATS, it should be paying a meaningful dividend too especially when I do not think it is undervalued today.
For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced. ------------
I first invested in Old Chang Kee in 2011.
At the time, I said that Old Chang Kee's food kiosks were ubiquitous and always seemed to be doing good business.
I also thought that the business was relatively recession proof.
It was very much like property developers selling shoe box apartments.
The smaller monetary quantum makes them more affordable.
I did not think that, in a recession, we would see people cutting back on their favourite curry puffs, sotong sticks or yam cakes in a big way.
Old Chang Kee could increase their prices by 10 cents per item and it would not feel like much to the consumers.
However, it would improve their top line and bottom line immensely in percentage terms.
Think of a 10 cents increase on something that costs $1.
That's a 10% increase and definitely not something to sneeze at.
I also liked that Old Chang Kee paid regular dividends and would look at it from time to time.
Some readers like to ask me if I think Old Chang Kee would be worth investing in these days.
Of course, I would side step such questions.
I would tell them that when Old Chang Kee was trading at 38 cents per share in 2011, I found it too expensive.
I only bought some at 26 cents a share.
Based on a 2 cents dividend per share, that is a dividend yield of almost 7.7% on cost.
Since I sold half of my investment at 52 cents a share, my current investment is also free of cost.
I am getting free money every year or, as I like to say, free curry puffs.
Back in 2011 when I invested in Old Chang Kee at 26 cents a share, it was trading at a PE ratio of slightly more than 12 times.
Its gross profit improved 11.6% while net profit improved 25.9%.
In the latest report, Old Chang Kee reported that H2 profit increased 52.6% on higher sales.
Looks like my free curry puffs are secure this year.
So, should we invest in Old Chang Kee today?
If I am not mistaken, PE ratio for Old Chang Kee is closer to 16 times today.
That seems pretty expensive to me.
Also, Old Chang Kee's shares are thinly traded and it is rather risky to put in overnight buy orders.
If I should be interested in buying, it would be a good idea to look daily to see if anyone might be selling at a price and volume which make buying worthwhile to me.
For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced. ------------
This is my third video on spotting red flags in real estate investment trusts.
In my first video, I used the example of EC World REIT while in my second video, I used the example of Eagle Hospitality Trust.
In this video, I will explain why I avoided investing in Dasin Retail Trust so many years ago.
Dasin Retail Trust had its initial public offer on 18 January 2017.
The portfolio had a handful of properties which were all located in Zhong Shan City in Guang Dong China.
The main reason for avoiding Dasin Retail Trust was the hefty financial engineering it employed.
It was done in order to make the initial public offer much more attractive than it would have been.
The sponsor of the trust waived a large portion of its distribution entitlement which resulted in a distribution yield of 8.5% in 2017 and 9% in 2018.
Without the waiver of distribution by the sponsor, the distribution yield would have been much lower at 3.8% in 2017 and 4.7% in 2018.
That would have been some dramatic reduction.
Anyone considering investing in the Trust should be realistic enough to make the following assumption.
That the waiver of distribution would have to end at some point.
It would have been a reasonable assumption which was also necessary.
That was the first and biggest red flag.
The second red flag was the quality of the assets injected into the trust.
The sponsor seemed rather desperate to monetize its assets as it injected assets which have yet to mature as well.
Of course, the sponsor could tout the potential of such assets but there was no guarantee that such assets would live up to expectations, and investors would have to bet on them doing better in the future.
Without a good track record, these assets could turn out to be mediocre.
So, although the trust was offered to investors at a discount to its book value, savvy investors would question the reliability of its valuation.
The third red flag was concentration risk as all assets were located in Zhong Shan City China.
To be honest, it wasn't the biggest concern to me, and the first two red flags were already enough to drive me away.
Still, if anything untoward were to happen to Zhong Shan City, then, the entire ship would sink.
The fourth red flag is worth a mention as it was a concern to me back in the day, but it isn't as important these days.
That was the issue of land leases.
Dasin Retail Trust had assets with land leases which would expire between 2041 to 2046.
So, its shortest land lease was 24 years.
It was a big concern to me back in the day because I had been invested in Croesus Retail Trust which had freehold malls in Japan.
So, putting the two side by side, the difference was really stark.
Of course, Croesus Retail Trust won hands down.
Sadly, I was forced to let go of Croesus Retail Trust as it was privatized.
I would have been quite happy to hold on to Croesus Retail Trust to continue receiving passive income.
Anyway, back to Dasin Retail Trust.
I have learnt in recent years that it is relatively easy and less expensive to renew leases in China and Hong Kong as long as they do not have any other use for the land.
So, having shorter land leases isn't as big a concern when compared to Singapore. However, it doesn't mean that it is not a concern.
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