Saizen REIT: AGM on 19 Oct 10.

I managed to take leave from work to attend Saizen REIT's AGM with a friend today. The AGM started on time and there were few surprises for me as I have been tracking this REIT for about a year now. Nonetheless, I picked up some interesting points which might not be apparent from the presentation slides.

The management took pains to impress upon unitholders that even if YK Shintoku were to suffer a foreclosure, the rest of Saizen REIT would not be affected. The DPU of 0.26c for the months of May and June 2010 did not have any contribution from YK Shintoku. We could expect this DPU to be sustainable. So, even if YK Shintoku's loan remains unresolved, we could expect a DPU of 0.26c x 6 = 1.56c per annum, ceteris paribus.  This is a yield of almost 10% based on a unit price of 16c.  However, I would expect this to be diluted somewhat if all the warrants are exercised. A 7% yield could be more realistic then.  When we take into consideration that Saizen REIT owns freehold properties, this becomes quite attractive.

Depending on whether YK Shintoku's CMBS is refinanced and the size of its portfolio at the point in time if refinancing happens, yield would be adjusted upwards but the magnitude of such an adjustment would remain guesswork for now, at best.

The management's energy is now focused on the re-financing of YK Shintoku's CMBS. The main difficulty in getting the loan re-financed is the cautious stance of lenders. This explains why they are gradually divesting properties in YK Shintoku to lower the absolute quantum of the loan. This is a preferred alternative to having the portfolio foreclosed by the CMBS holders.

A smaller loan quantum would also make it more palatable to potential lenders, of course. In fact, Mr. Raymond Wong mentioned that a bank in Tokyo is willing to lend them more money provided that they resolve the YK Shintoku CMBS first. A chicken and egg problem, it seems.

Mr. Wong further revealed that in the last two years or so, they met up with about 60 different banks and managed to refinance all but YK Shintoku 's CMBS. The absolute size of this CMBS remains a challenge although it has been reduced through divestment of properties over time from the original JPY 7.953 billion to the current JPY 5.9 billion. It was also said that YK Shintoku has a cash reserve of JPY 0.6 billion which would reduce the outstanding loan balance to JPY 5.3 billion.

The problem with CMBS is that it has to be fully repaid and there is no amortising feature. So, the challenge is now to find a lender willing to lend JPY 5.3 billion to refinance YK Shintoku's CMBS.

The management revealed that it collected $14.56 m from warrant proceeds as of 18 Oct. Potentially, it could receive another $30.18m if the rest of the warrants are exercised. If enough properties from YK Shintoku were divested to make the outstanding loan balance payable using warrant proceeds, we might not even need to refinance the loan. JPY 5.3 billion is (at today's rate of 1 JPY = 0.01575 SGD) equivalent to S$83.475m.  For such an option to work, it seems that Saizen REIT would have to divest another $40m worth of properties from YK Shintoku's portfolio.

Both Mr. Raymond Wong and Mr. Chang Sean Pey agreed that it is not the best time to sell properties in Japan. In fact, it is a time to buy properties in Japan (which could explain partially why GLP and MLT bought so many properties this year in the country). Unfortunately, the lack of willing lenders for YK Shintoku's refinancing bid leaves them little choice but to continue divesting properties until a time when it is no longer necessary. Like Mr. Wong said, it beats having the portfolio foreclosed.

The successful refinancing or discharging of YK Shintoku's CMBS would represent a bonus for unit holders since it would resume contribution to the REIT's distributable income. This is not, by any means, certain. Therefore, I would not buy Saizen REIT with this as the primary motivation. It is just a bonus that could very well materialise.

The management's tact to present the REIT as a safe income generating instrument was not lost on me. However, some unitholders were clearly not impressed and asked if there were plans to have greater coverage of Saizen REIT by brokerages and whether there would be further re-rating upwards by Moody's. It is a fact that Saizen REIT's units are trading at a huge discount to NAV and the yield is very high.  This was explained by Mr. Raymond Wong, quite candidly, because of the market's perception of the REIT which has remained unfavourable as well as the negative perception of the Japanese economy as a whole.

Having said this, understanding the need to have increased coverage for Saizen REIT, the management has met up with the largest retail brokerage in Singapore yesterday and will conduct a briefing for analysts today. Of course, positive coverage could give Saizen REIT's unit price a shot in the arm.  After all, it remains a strong value proposition.

Mr. Chang made a very good point that the depressed value of Japanese residential real estate is not because rental rates have plunged. Rental rates have remained relatively stable. It is because liquidity has dried up but this is slowly changing. The recent successful divestment of various properties in YK Shintoku shows that buyers are back and liquidity is returning. Things could only get better from here, in my opinion.

So, was there anything I did not like about the AGM? Resolutions 3 and 4: Allowing the manager to make or grant convertible instruments and to issue by way of placement at a discount of 10 to 20% of the unit price at the point in time. Although Mr. Raymond Wong assured unitholders that it is a formality and that they would not do any placements at such a steep discount to the current very depressed unit price, I voted against these resolutions.  I do not like share placements as they exclude small investors like me from taking part in the enlarged capital base.  I much prefer a rights issue.

In general, I enjoyed the AGM. Both Mr. Raymond Wong and Mr. Chang Sean Pey were polite and shared information freely. They answered questions candidly, acknowledging the difficult circumstances surrounding their efforts to refinance YK Shintoku's CMBS. Mr Arnold Ip, the Chairman, whom I have always imagined to be a Chinese gentleman but turned out to be Eurasian, said that they are now a lot more optimistic about the REIT and its future when, only a year ago, they were thinking of the worst case scenario.

After attending the AGM, I am more convinced than ever that Saizen REIT is a value proposition that is hard to ignore.  It is an income instrument that would continue to deliver a relatively high yield at the current price and the potential upside is more than any potential downside. I would continue to accumulate on weakness, if the opportunity presents itself.

AGM presentation slides here.

Related post:
Saizen REIT: Divestment of 3 properties.
Saizen REIT's properties: Would I buy?
Saizen REIT: Better than expected DPU.

K-Green Trust: 3Q 2010 results.

K-Green Trust announced the following today:

1. The profit after tax achieved for the period from date of listing on 29 June to 30 September 2010 was $4.6 million, 26.5% higher than forecast.

2. Profit after tax for the third quarter was $4.4 million.

3. EPS for the period from date of listing to 30 September 2010 was 0.73 cents.

4. Free cash flow for the third quarter was $19.2 million.

5. Net asset value per unit as at 30 September 2010 was $1.15.

The strong set of numbers is encouraging. Read announcement here.


Related post:
K-Green Trust: Possibly stabilised.
K-Green Trust: A stable source of passive income.

Golden Agriculture: Upmove sputtering.

A valiant attempt pushed price higher by just 0.5c today.  Price touched a high of 70c before closing where it started the session at 67c. That this was achieved on the back of much higher volume compared to the previous session is ominous. This suggests strong selling pressure as buyers turned sellers and locked in gains.  In fact, a case could be made to say that we are seeing the formation of a negative divergence between price and volume over the last six sessions.

However, the higher highs on the MFI and RSI suggest strong demand and buying momentum. Keep in mind that these are lagging indicators and being in overbought territories, we could see the situation corrected and the share price retreating.  In the event of a correction, the immediate support at 66c would most likely give way and a stronger support could be found at 60c. This is also where the rising 20dMA is approximating.

The 20dMA, however, has been an unreliable support in the past. More likely than not, it would give way and the 50dMA, currently at 58.5c is a stronger support.  What if this gave way? Well, the merged 100d and 200d MAs could likely hold up as it is also where the uptrend support is approximating.  This could be ideal as an entry point to go long.

Related post:
Golden Agriculture: Going higher?

Healthway Medical: Testing 16c support.

It is quite clear on the OBV that Healthway Medical has experienced three continuous days of distribution. Volume today was the highest of the last three sessions as price closed at 16c, an important support level identified earlier.

On 14 Oct, I mentioned that "16c is likely to be psychologically important as a support.  So, if it could hold up, it could provide the base for a rebound" and "if the support at 16c breaks, the uptrend is well and truly over.  We could witness a massive selling down to 14c then (the 138.2% Fibo line), followed by 13c (the 161.8% Fibo line).  So, all eyes would be on 16c."

With the lower highs on the MFI and RSI suggesting weakening demand and buying momentum, it is likely that we would see price weakening further.  The chances of a rebound look poor especially when the weakening share price is accompanied by higher volume. The negative divergence between the uptrend in price and the downtrend in the MACD has yet to play out in full.

Keep an eye on 16c and if it breaks on high volume, we could see 14c tested as support sooner than later.  Any rebound in price from the current level is likely to be met with strong resistance at 17c, formerly a strong support and it is also where the merged 20d and 50d MAs are declining to.

Related post:
Healthway Medical: Uptrend threatened.

Portfolio diversification.

An email from another reader:

Hello AK

I was thinking about the investment portfolio and its exposure to the various countries and sectors.

S-REIT is good for the high dividends payout but I feel that there will be a time that I will have a high exposure to the property sector.

While the % of sector/counters per $10,000 to be invested is up to individual, what will be a recommended spread of counters that we could look at for portfolio diversification.

Note that I am still newbie to FA (still dunno what 200dma means) and will not watch the market like a hawk for the buy-sell quick profits.

Your thoughts appreciated.

Thanks
J

My reply:

Hi J,

My strategy is quite simple.

-There is a time to buy and a time to sell. When I hit my targets, I sell.
-If I cannot find any bargains, I don't buy.  I keep cash until bargains present themselves.
-I try not to be vested in too many sectors/countries for the supposed safety that would come from diversification. In fact, I would be burdened with the need to monitor too many things.

Just my way. ;)

Best wishes,
AK
P.S. 200dMA is "200 days moving average" and is part of TA, not FA.


Related post:
Risks and rewards: TA and FA.
Conspiracy of the Rich.

Investing for income or growth?

Here is an email from another reader recently:

For pple with substantial capital, they can just buy div stocks and  hold. For those with less, it's not so simple..Cheng must be really  bullish..99% in the market, I'm only 30+% in the market..

I am surprised by LMIR, it hit a high of 53c today. Despite, the so-so management , i guess pple are still attracted by the yield.  This one is for keeps..

My reply:

I do not think that investment strategy is totally a function of how much capital we have, it is also a function of how much we want. If a person with $10,000 wants to double it within a year, of course, investing for income could disappoint.  An active trading strategy is more appropriate.  If this person is happy with 10% yield per annum, then, my current strategy is OK. Question what do we want and employ the appropriate strategy.

With LMIR, I still have a substantial position in the REIT although I did pare it down to increase my position size in AIMS. What's left in LMIR, I would just hold for its quarterly income distribution since I doubt it could go lower than 4c per annum. Fundamentally, this is a safe and stable investment.

Related post:

Roads to wealth creation in the stock market.

How to choose stocks?

I received this email from a reader recently:

Hi AK,

just want to understand better with respect to the various stocks. I  understand how say a TRUST / REITS works..and noticed that the price does not fluctuate much- but in return there is steady dividends that is tied to the NAV.

How then does one determine the NAV of say a stock that is tied to a business like manufacturing, services etc etc? and also the PE ratio?

Say for e.g memstart which focuses on membranes for water treatment.  I do think that this is one sector  besides solar/ green energy that would have a strong demand in the future given the scarcity of natural resources in the  future. How does one decide whether this is a good stock to invest in. Are there  questions that one should ask if we're investing for long term vs short term?

It's good to get a FAQ on how to choose stocks for long term and  short term, and not just purely on TA or FA.

Cheers
D

My reply:

Hi D,

A FAQ on how could we value different companies in different sectors would be a gold mine.  Unfortunately, I do not have the expertise to do this.  I think we would probably have to assemble 10 to 20 different bloggers who are experts in their own stocks of interest. ;-)

Different sectors are valued differently. So, some companies could have PEs of 30 and is considered cheap compared to other companies in a different sector with PEs of less than 10.  So, comparing against peers in the same sector is something I do often.

If you are asking questions about NAV and PE, you are doing fundamental analysis (FA) and likely to care more about values (i.e. you are a value investor). These numbers are easily obtained in a company's financial report (quarterly) or annual report. NAV is usually found towards the end of the reports.

I believe that the idea of long term investment is actually flawed and made into a legend by stories of how Warren Buffet kept adding to his investment in Coca Cola, for example.  If Coca Cola's fundamentals should take a turn for the worse one day, I am sure Warren Buffet might sell out. Stay nimble because circumstances are very fluid.  They could and often change from time to time.

If you really like the idea of long term investment, you would need the kind of foresight that Warren Buffet has.  Take note that even he makes mistakes. You want to look for companies with big "moats" (strong competitive advantages which are hard to replicate). To this end, there are many books available about how Warren Buffet picks winning stocks for the long term. :)

Best wishes,
AK

Related post:
Looking for value.

Tea with AK71: My new car's fuel consumption.

My Mazda 2 is more than a month old now and I am still trying to get 15.5km per litre out of it.  This is the official number from Mazda.  Initially, I got only 12km and now, I am able to get almost 14km but it seems that I have hit resistance, so to speak.

With my old Mazda 6 which had a 2.0 litre engine, I was able to do 11km+ per litre which from the reactions I got from friends must have been pretty amazing.  In fact, the salesperson at Mazda was amazed as well.  Then, why am I not able to get 15.5km per litre out of the Mazda 2 which has a 1.5 litre engine?

This was one of the things I thought about over the weekend and I compared what I did to the Mazda 6 that I might have to do to the Mazda 2.  Precious little since I am not the type to spend money on bodykits, sound systems and HID lights. I did spend money to run my Mazda 6 on synthetic engine oil and I did spend money on some good tires which were supposed to reduce CO2 emission.  There, I have my answers.

Running my car on synthetic oil reduced internal friction and I didn't have to wait for the engine to warm up before I drove.  Since, my Mazda 2 is new and has a free service by the agent at 5,000 km, I would just have to live with mineral oil till the car hits 10,000km.  That's when I would make the switch to synthetic oil.  This should improve the performance of the car.

New cars are usually bundled with OEM tires.  Apart from keeping tires properly inflated, swtiching to better tires could reduce resistance when driving. There could be less friction and we could cover more distance without stepping on the accelerator as much. Hence, the claim that good tires could reduce CO2 emission. Since tires usually last for 2 years or so, I would not be changing them in a hurry.  Will make a mental note.

I am rather light footed and do not rev the engine.  So, in terms of driving behaviour, I think I'm safe.  I am not sure if there could be other ways of improving my car's fuel consumption. If you have an idea, please feel free to share it. :)

Related post:
Tea with AK71: Bought a new car!

AIMS AMP Capital Industrial REIT: Excess rights.

A friend who applied for 2,500 excess rights was given 100% of his application.

Another friend who applied for 365,000 excess rights was given 39,000 rights or 10.7% of his application.

A reader, SnOOpy88, commented this morning:
"Results are out in CDP A/C.
I got only 17% of excess over my rights. Good start for me.
Wonder what will be the pricing direction now, given that some of us had got shares at $0.155 ?
Huat ah..."

SnOOpy88 did not mention how many excess rights did he apply for.

From my friends' experience, it seems that the less excess rights we applied for, the larger the percentage of our application would be successful. I wonder how many excess rights I would be alloted.  I would know this evening when I open the mailbox, I guess. ;)

Congratulations to fellow unitholders who are successful in getting some excess rights.  Each lot of excess rights secured is equivalent to an immediate gain of S$65.00 based on the current market price of 22c per unit. That's a 42% gain! In the money! :-)

Related post:
AIMS AMP Capital Industrial REIT: Results of rights issue.

Healthway Medical: Uptrend threatened.

On 11 Aug, I blogged about how Healthway Medical's support at 18.5c had been compromised and that price could go lower. I said that "It is likely that 17c could be tested as a support sooner than later".  Then, for a few days in late August and early September, price actually sank below 17c before recovering.

Today, the support at 17c crumbled on high volume.  That 17c was taken out when it is where the rising 200dMA is approximating is very bearish since the 200dMA is supposed to be a rather strong support. The last time this happened was in the second half of May this year but price rapidly recovered.  How high are the chances of such a recovery this time round?

Take note that the volume today was very much higher than back in May as the counter was sold down.  Back in May, the MACD was also poised to do a bullish crossover with the signal line while, this time round, it is dipping into negative territory. Lower highs spotted on the MFI and RSI, suggesting a weakening demand and slowing buying momentum.

Drawing a trendline support connecting the lows of 30 Dec 09 and 25 May 10, we see this support approximating 16c which happens to be a many times tested support from March to April this year.  16c is likely to be psychologically important as a support.  So, if it could hold up, it could provide the base for a rebound.

If the support at 16c breaks, the uptrend is well and truly over.  We could witness a massive selling down to 14c then (the 138.2% Fibo line), followed by 13c (the 161.8% Fibo line).  So, all eyes would be on 16c.

I have a very small position in Healthway Medical left which consists of rights shares and scrip dividends, average cost should be in the region of 12c, having divested >95% of my investment in the company earlier this year.  Good luck to all shareholders.

Singapore to allow stronger currency; economy shrinks: Update
Thursday, 14 October 2010

© 2010 - The Edge Singapore

Related posts:
Replies from AK71: Entry price for Healthway Medical.

Saizen REIT: Divestment of 3 properties.

Saizen REIT divested 3 more properties in its YK Shintoku portfolio:

Higashi Hakushima Y Building was sold for JPY 145,000,000 (S$2.3 million).  This property is located in Hiroshima, was built in March 2003 and comprises 19 residential units and 4 car park lots. It has an annual property income of approximately JPY 15.1 million or a gross yield of 10.41%. This was sold at a discount of approximately 7.1% to valuation.

Otemachi Y Building was sold for JPY 170,170,000 (S$2.7 million). This property is located in Hiroshima, was built in March 2001 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 17.0 million or a gross yield of 9.99%. This was sold at a discount of approximately 5.5% to valuation.

Kinyacho Y Building was sold for JPY 180,542,826 (S$2.9 million).  This property is located in Hiroshima, was built in February 2002 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 18.3 million or a gross yield of 10.14%. This was sold at a discount of approximately 4.0% to valuation.


A total of JPY 495,712,826 (S$7.9 million) was fully paid up by the buyers on 13 October 2010. The proceeds will be used for partial repayment of the YK Shintoku CMBS.

Read announcement here.

Related post:
Saizen REIT's properties: Would I buy?

SPH: Negative divergence.

SPH's volume exploded as it declared a dividend of 20c to be paid in December. However, the explosion in volume only managed to produce a doji yesterday.  Not good.  Higher volume but price remained stagnant which means that the bears were too strong for the bulls.  Today, price plunged below the 20dMA ($4.20) to close at $4.18 on comparatively high volume.

I guess the market does not like the announcement that SPH "will restore the remaining portion of the pay cuts introduced in April 2009. In addition, SPH will give a special one-off sum to staff to thank them for the sacrifice and contributions they have made. These payments will take effect by January 2011 and will effectively restore the pay cuts in full. They will be paid together with the usual increments, and profit and performance related bonuses." Read announcement here.

Looking at the MACD, we see lower highs formed as price formed higher highs.  This negative divergence is a warning that recent price appreciation in the blue chip could be unsustainable.  $4.20 could be support turned resistance.  This needs confirmation.  

Next support is at $4.13 which is underpinned by the rising 50dMA on top of being a natural candlestick support level.  The uptrendline approximates the 50dMA and the lower Bollinger band at $4.10.  A break below this trendline would signal the end of the existing uptrend.  We could see a new and gentler uptrend forming if the 100dMA (now at $4.00) or the 200dMA (now at $3.91) hold up as the next support levels.

I remember someone asking me if it was too late to buy into SPH yesterday, if it was too expensive.  I guess the answer could either be found in the fundamentals or the technicals.  Technically, $4.10 to $4.13 seem to be pretty ok entry prices but if these go, there could be as much as a 5% downside which could be covered by the 20c dividend in December anyway.  Just my thoughts.  Not an inducement to buy. Vested. ;-)

Related post:
SPH: Final dividend.

>1000 unique visitors in a day!

Not too long ago, I was impressed when a local investment blog proclaimed it was visited by 1000 unique visitors on that day. That was really something! After all, local investment blogs are usually not known for generating high traffic. We are in a very small niche and, to make it tougher, it is a very small niche in a very small country. ;)

Anyway, yesterday, on 13 October 2010, Wednesday, A Singaporean Stockmarket Investor (ASSI) was visited by 1069  unique visitors.  This is another milestone for my blog and I sincerely thank one and all who helped to make this a reality! I hope you enjoy reading my blog as much as I enjoy blogging. :)

14 Oct 2010 (Thursday)

 

Raffles Education: Golden cross.

On 4 Oct, I mentioned that "it looks to me like a positive divergence is forming between the downtrend in price and the MACD.  As price formed lower highs, the MACD has been forming higher lows". This picture has not changed.  The positive divergence is still quite obvious.

Price has been moving in a tight range between 28c and 29.5c of late.  The declining 100dMA is adding pressure to resistance at 29.5c.  To move higher, the resistance provided by the 100dMA would have to be taken out decisively.  Could this happen soon?

The rising 20dMA which recently completed a golden cross with the 50dMA tells us that the shorter term price movement has an upward bias.  The 20dMA is still rising and seems on track to form a golden cross with the declining 100dMA next. 

Today, volume expanded as a doji was formed, a hint that a reversal could be on hand.  This happened as a higher low was formed on the MFI, suggesting strengthening demand, and the RSI shows a similar pattern, suggesting stronger buying momentum.

The Bollinger bands are squeezing and the channel seems to be pointing upwards.  If price does break through the 100dMA to move higher, it would meet with initial resistance at 31c.  This is followed by the eventual target of 34c.

Related post:
Raffles Education: A trading opportunity.

Golden Agriculture: Going higher?

On a day that saw the STI broke the 3,200 mark, Golden Agriculture's share price shot through resistance to touch a high of 66.5c, closing at 65.5c as CPO made a new high at RM 2,930 (up RM30 or 1.03%). 65.5c was the high reached on 11 Jan 2010.

The question on many punters' minds is whether it would go up higher.  The upmove is accompanied by explosive volume (>60% higher than the volume two sessions ago).  Volume is the fuel that drives rallies. The MFI, a momentum oscillator based on volume and price, although has moved higher has yet to reach overbought levels.  Demand could push price higher but it is definitely riskier to go long at this stage.

The longer term uptrend is intact but I would be wary of a correction which could bring the price to test the 200dMA as support in time. To those who are still vested, stay nimble and good luck.

Palm oil companies rise on firm prices
Wednesday, 13 October 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: CPO at a new high.

SPH: Final dividend.

SPH is declaring a final dividend of 20c per share, comprising a Normal Dividend of 9c per share and a Special Dividend of 11c per share in respect of the financial year ended 31 August 2010. These dividends are on tax-exempt (one-tier) basis and will be paid on 23 December 2010. Together with the Interim Dividend paid during the year, total Dividend payout for FY 2010 will be 27c.

SPH remains my largest investment in a blue chip company. I continue to favour SPH amongst blue chip companies because of its generous dividend payouts.  At $4.22, the full year payout of 27c represents a 6.4% yield.

Highlights:

1. Net investment income of S$39.3m was a turnaround from a loss of S$6.2m for FY 2009.

2. Equity holdings consist mainly of M1and Starhub.

3. Paragon was revalued at S$2.28b as of Jul 2010.

4. Rental income increased by S$11.3m (9.2%) mainly from Paragon.

5. Final profit of S$154.2m was recognised for Sky@eleven, which obtained its Temporary Occupation Permit in May 2010.

6. Print advertisement revenue surged S$84.8m (13.1%) to S$733.1m.

7. Circulation revenue decreased by S$5.1m (2.4%).

See presentation slides here.

Related post:
SPH: Closing above $4.20.

AIMS AMP Capital Industrial REIT: Results of rights issue.

Valid acceptances:
506,083,252 units (98.6 % of Rights Issue).

Excess applications:
163,926,201 units (31.9 % of Rights Issue).

"The balance of 7,226,529 Rights Units which were not validly accepted, will be allotted to satisfy excess applications. In such allotment, preference will be given to the rounding of odd lots (if any) while directors of the Manager (the “Directors”) and Substantial Unitholders1 will rank last in priority.

"Successful subscribers with The Central Depository (Pte) Limited (“CDP”, and the securities accounts with the CDP, the “Securities Accounts”), will be sent, on or about 15 October 2010, a notification letter from CDP stating the number of Rights Units that have been credited to their respective Securities Accounts."  

Read announcement here.

It seems that people who applied for massive numbers of excess rights would be disappointed, myself included.

Related post:
AIMS AMP Capital Industrial REIT: Rights issue.

AIMS AMP Capital Industrial REIT: Buying more?

A reader sent me an email saying that he bought more of this REIT at 23c recently and he is dismayed that price has retreated. He asked if I am buying more of this REIT.  Well, firstly, 23c is the upper end of the trading range for this REIT and buying at 23c is buying at resistance.  Never a good move, technically speaking.

On 8 Oct, I said "Looking at the trade summary, of the 58 trades done, more than half (36) were buy ups at 23c but the volume was only 260 lots out of a total of 2,339 lots which changed hands.  This suggests to me that the buy ups at 23c lacked conviction.  23c is still a significant resistance to watch, it would seem."

Fundamentally, however, I don't see a problem with buying at 23c. With a DPU of 2.08c per annum, it still gives a handsome yield of 9.04%.  However, I have been corrupted by TA and I use the charts to help me plan entry points.

Looking at the chart, one can roughly make out that the old trading range has been "revived", XR.  It is quite obvious that the range is still 20c to 23c with the midpoint of 21.5c being an important, many times tested support. 21.5c is also where the rising 50dMA would be approximating soon.  This should lend strength to the support. So? I would buy more at 21.5c if I feel inclined to add to my position in this REIT.

Both the MFI and RSI seem to have formed lower highs which suggest a weaker demand and a weaker buying momentum.  Volume is thinner compared to the first half of September.  This suggests that the recent upmove in price was to due to a lack of sellers and not an abundance of buyers.  Current holders are unwilling to sell and people who want a piece of the pie have to pay a higher price. However, most potential buyers are probably waiting to see what the units would trade at once the rights units start trading on the 15th.

Technically, the uptrend is intact but the momentum oscillators suggest that we could see continuing weakness in price.  Fundamentally, the yield is probably the highest amongst industrial S-REITs.  Its gearing level is acceptable and it is still trading at a big 20% discount to NAV, XR. Buying more at 21.5c? I might.

Related post:
AIMS AMP Capital Industrial REIT: Nick's FA.
AIMS AMP Capital Industrial REIT: Resistance.

Hock Lian Seng: 30c support.

I mentioned on 5 Oct that I sold off some shares of Hock Lian Seng at the 32c target.  On 8 Oct, I said "notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels." Today, I bought some at 30c as price retreated.

Although the uptrend is still intact, could prices weaken further? Why not? The MFI is still in overbought territory while the MACD has just completed a bearish crossover with the signal line.  We could see price weakening to test the 50dMA at 29.5c or even the 200dMA at 29c. The latter being a long term MA should provide a rather strong support and I would probably buy more at 29c, if ever tested.

Fundamentally, this company is sound and investors are accumulating shares in the company which is quite obvious when we look at the OBV.  The recent price weakness as the counter retreated from a high of 32.5c on relatively low volume is an opportunity to accumulate.  What we are witnessing is a low volume pull back which shakes out the weaker holders.

Related post:
Hock Lian Seng: Retreating.

K-REIT: Swap agreement.

"Keppel Land, the Singapore- based developer controlled by Keppel Corp., agreed to sell its stake in the first phase of Marina Bay Financial Center (MBFC) to K- REIT Asia for $1.43 billion, as part of a swap agreement...


"Keppel Land will buy two properties, Keppel Towers and GE Tower (KTGE), from K-REIT for $573 million for redevelopment into about 620 premium residences."

Keppel Land sells Marina Bay property stake to K-REIT: Update
Monday, 11 October 2010

© 2010 - The Edge Singapore

What does this mean for K-REIT?

On 24 Sep, in "FCOT, CCT and K-REIT", I mentioned that "K-REIT closed at $1.31 today. NAV as of Jun 10 at $1.47. K-REIT is trading at an 11% discount to NAV. Gearing ratio is at 15.2%.  This is very attractive to me as it gives the REIT plenty of room to leverage up for potential yield accretive purchases. 1Q 2010 DPU at 1.33c.  Annualised DPU should be 5.32c which means a yield of only 4% based on the current price of $1.31.  K-REIT has, arguably, the strongest balance sheet amongst the three office property REITs discussed here.  The low yield might put off investors but its low gearing paves the way for future acquisitions which could bump up its DPU." Well, it has happened.

Some effects of the swap agreement:

1. The aggregate leverage of K-REIT after completion of the MBFC Acquisition and the KTGE Divestment is approximately 39.1%.

2. K-REIT’s weighted average debt maturity profile will be extended to approximately 4 years. In addition, the portfolio’s average borrowing cost will also be reduced from 3.54% to approximately 3.05%.

3. Weighted Average Lease to Expiry (WALE) from 5.7 years as at 30 June 2010 to 7.8 years.

Read announcement here.

The actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion.

Jade Technologies: Rights issue.

A friend asked me what do I think of Jade Technologies Holdings Ltd.  Apparently, it is issuing rights and my friend would like to have my take on this.  Frankly, apart from a faint impression that this company was involved in some scandal in the past, I do not know what it does.  So, I dug around for details.

It seems that the company is now investing in the production of titanium dioxide in China.  It has a substantial stake in Daqing XinLong Chemical Company Ltd, a titanium dioxide producer in China. The decision to move in this new direction has transformed Jade from a loss making company to a profitable one as it reported a profit of S$1.6m in its 3QFY2010 (ending June 2010) after experiencing losses in the first two quarters (and indeed for the last 9 years).  It would be interesting to see if it continues to be profitable by end of FY2010 (September 2010).  By all indications, it seems that it would be so.  See slides here.


As a result of its return to profitability, Jade’s Earnings Per Share (EPS) is now 0.02 cents for 3QFY2010, reversing from a loss of 0.10 cents in 3QFY2009. The Group’s Net Asset Value (NAV) per share also improved from 0.31 cents to 0.67 cents over the same corresponding period. Read announcement here.

Jade is currently trading at 1.5c. With a NAV of 0.67c, it is trading at more than twice its NAV. Assuming that its 4Q could turn in similar results as its 3Q (i.e. a net profit of S$1.6 million), it would mean a full year profit of >$2m.  Assuming that in FY2011, the company is able to replicate $1.6 million in profit every quarter, it would have a full year net profit of S$6.4m.  Based on approximately 2.461 billion shares in issue, it has a market capitalisation of S$36.9 million (at a share price of 1.5c) and we would have a forecast PE ratio of 5.77x.

What about the rights issue? The company is proposing 3 rights for every 4 shares owned.  For every 3 rights accepted and paid for, 1 warrant would be given free.  Price of rights at 1c each.  Warrants must be exercised within 2 years at a price of 0.3c each.  This effectively means that the number of shares in issue will double in the near future.  This means a halving of EPS and a doubling of the PE ratio, ceteris paribus.

Rationale of this exercise: The Company is currently exploring certain business expansion opportunities but none of these plans has progressed to a stage where they may be announced. The Company proposes to undertake the Rights Shares and Warrants Issue to raise funds and to strengthen the capital base of the Company for its expansion aspirations.  Read announcement here.

Anyone who is investing in this company and subscribing to the rights must be a firm believer that it could double (in order to keep its PE at the forecast FY2011 level), triple or quadruple its earnings (post rights and warrants) in the near future.

What's my take on MIT and GLP?

A reader sent an email asking me what is my take on the IPOs of Mapletree Industrial Trust (MIT) and Global Logistic Properties (GLP).  My reply was:

"I don't have enough data on hand to make an informed commentary on these.  That's why I have kept quiet about these although I have friends who would like me to blog about them.

"However, IPOs are not usually available at a bargain, especially in these bullish times. So, generally, I would avoid IPOs.

"With MIT, the expected yield of 7.6% seems ok. I do not know what is the NAV per share. I know it is using some of the proceeds to pay down debts to bring its gearing level to 30% to 35%.  Exact figures, I do not have.

"With GLP, it is being offered at a 10% premium to NAV. It does not even have any income distribution guidance. So, we don't know what is the yield.  What would be its proforma gearing level?  Too many unknowns. I would avoid."

Mapletree Industrial IPO priced at top of range. Mapletree Industrial will sell units at $0.93 each, which translates to an annualised dividend yield of about 7.6%.
Monday, 11 October 2010

© 2010 - The Edge Singapore

Singapore’s GLP confirms IPO price of $1.96 a share
Monday, 11 October 2010

© 2010 - The Edge Singapore

Saizen REIT's properties: Would I buy?

Saizen REIT reported on 8 Oct that they have managed to sell another property in its YK Shintoku's portfolio.  Villa Kaigancho was sold for JPY 250,710,000 (S$3.9 million) which was at a 3.9% discount to valuation. 

The proceeds would go to repaying partially YK Shintoku's CMBS. After this repayment, the remaining balance of the YK Shintoku CMBS is estimated to be approximately JPY 6.3 billon (S$99.1 million). See announcement here.

Saizen REIT has been announcing a slew of sales in recent weeks and I mentioned that this is a good sign as it signals the return of buying interest.  

Saizen REIT owns freehold residential real estate in Japan.  

I have also mentioned before that although the real estate values in Japan have been declining, rental rates have declined at a much slower pace. Buying residential real estate in Japan now and being a landlord is a very lucrative proposition.  

So, would I buy Saizen REIT's residential real estate in Japan, assuming that I have the spare cash and if I were allowed to do so under Japanese laws?  Without a doubt, I would.

Take for instance Villa Kaigancho located in Hakodate, comprising 50 residential units, 1 commercial unit and 24 car park lots. The buyer paid JPY 250,710,000 (S$3.9 million) for an annual revenue of JPY 41.4 million (98% occupied).  That is a gross yield of 16.5% per annum!  Remember, the property is freehold! 

In Singapore, if we invested S$3.9 million in a condominium, we would be lucky to get a 6% gross yield per annum!  Sadly, I do not have that kind of money.

Related posts:
Saizen REIT: Divestment of properties.

Golden Agriculture: CPO at a new high.

I am certain that price of CPO would go higher in time given all the economics which I have blogged about before.  Today, CPO price went to a new high of RM2,919, up RM159 or 5.76%.  I have been bullish on Golden Agriculture for the longest time given its inexpensive valuation and highly leveraged position to the price of CPO. I have made a few rounds of profits trading the shares of Golden Agriculture for more than a year now.

On 30 Sep, I mentioned that "56c is only one bid shy of 55.5c which is where we find the rising 200dMA which coincides with the uptrend support line.  This is, therefore, likely to be a rather strong support.  So, buying at 56c for anyone who would like to have a stake in Golden Agriculture seems fairly safe.  Personally, I am waiting for the dust to settle."  For those who went long at 56c, congratulations as Golden Agriculture broke out on extremely high volume today to touch a high of 61.5c before closing at 60.5c.

Unfortunately, Golden Agriculture's problems with the Roundtable on Sustainable Palm Oil (RSPO) and how it lost customers such as Burger King Holdings, Nestle and Unilever, who have said they will stop buying from Sinar Mas (which controls Golden Agriculture) because of environmental concerns, have cast a pall on an otherwise clearly undervalued proposition.

There is just too much uncertainty for my liking.  I rather err on the side of caution. By not having a substantial long position in Golden Agriculture anymore, I might not gain from any positive price movement but at least I would not lose money either.

Related posts:
Golden Agriculture: 56c support.
Golden Agriculture: Unable to break out.

Courage Marine: Steady as she goes.

On 30 Sep, I said "A friend asked me what I think of Courage Marine and I told him I like its numbers and I like how the BDI seems to have stabilised at $2,500 thereabouts.  I feel that Courage Marine shouldn't have bad news with regards to earnings. The main reason why I have not really talked about Courage Marine very much recently is the lack of anything newsworthy." Things have hardly changed since.

The BDI is currently at US$2,696 which is quite comfortable and at an investor meeting on Thursday, Chairman Hsu Chih-Chien said he was very bullish on the ability of China in particular to continue driving the market for bulk cargo going forward.

“Our Capesize vessel mainly transports coal, bauxite and iron ore while our four Panamax ships focus on thermal coal mainly for the energy needs of China. We feel there is huge potential for growth in the Chinese coal market,” he added.

“This country still relies on coal for the vast bulk of its energy needs. So if you want to know if I expect any slowdown in China’s coal demand, I would say – Not in my lifetime,” Mr. Hsu said.

My opinion that Courage Marine is a good investment at current prices has not changed and from what was revealed on Thursday, it seems that Courage Marine could continue to deliver a good set of numbers in time.  I remain vested.

Read complete article in Next Insight here.

Related post:
Courage Marine: Lengthy consolidation.

CitySpring Infrastructure Trust: Thoughts on divestment.

On 5 Oct, OCBC reported that they were suspending coverage on CitySpring Infrastructure Trust as they see limited positive price catalysts in the near term. Furthermore, Hydro Tasmania which is owned by the Australian government is proceeding with dispute resolution and is demanding for A$6.9m in commercial risk sharing mechanism (CRSM).

For a long time now, I have regarded my investment in CitySpring Infrastructure Trust as a mistake. I blogged about it in "High Yields: Successes, failures and the in betweens."

With a quarterly DPU of 1.05c, the yield is 6.94% at the current unit price of 60.5c.  As of 30 June 2010, it had S$1,450,941,000 in borrowings against S$2,014,838,000 of total assets. This gives a gearing level of 72%. This is being optimistic as intangibles account for S$432,026,000 of total assets. Yield is not fantastic and gearing level is extremely high.

Comparing CitySpring Infrastructure Trust with K-Green Trust, we see that the latter has a similar yield but with zero gearing, it is almost immediately apparent that K-Green Trust presents a more compelling proposition.

At CitySpring Infrastructure Trust's current unit price, removing it from my frozen portfolio would result in a small loss but with the many quarters of income distribution collected, I would probably end up with a small gain.  Time to close a chapter, I think.

View slides here.

Related post:
K-Green Trust: Possibly stabilised.

Genting SP: Bollinger bands narrowing.

The Bollinger bands are narrowing on Genting SP's chart.  This usually precedes a large magnitude price movement. Would it be up or down? Your guess is as good as mine.

Yesterday, I mentioned that "the 20dMA was breached as recently as last week (and) does not inspire confidence that it would be a strong support". Today, price broke under the 20dMA and it seems that $2.02 is now resistance but this needs confirmation. Price could retreat to the recent low at $1.85 which could act as immediate support. If that breaks, we could see the rising 50dMA as the next support.

The MACD continues to decline beneath the signal line in positive territory while the MFI has formed a lower high. The correction is in earnest but overall momentum is still positive.

Related post:
Genting SP: Fatigue.

Hock Lian Seng: Retreating.

On 5 Oct, I mentioned that there was "strong demand and accumulation but buying momentum (was) muted by strong selling pressure at resistance (32c)" and that "I sold some of my shares at the 32c target .... Although I still see strong support at 30c where we find the rising 20dMA, 30.5c could very well be resistance turned support."

Today, Hock Lian Seng retreated and closed at 30.5c, the support provided by the 20dMA. However, the retreating price is on the back of much reduced volume and does not worry me. Could the support at 30.5c hold? With the MACD on the verge of forming a bearish crossover with the signal line, we could see share price tested further on the downside.  This is especially true when we realise that the MFI has been entrenched in overbought territory for a few sessions now. This could be corrected in future sessions.  The RSI has formed a higher high which suggests to me that the buying momentum is intact.

What would I do? Notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels.  For anyone who is not vested but would like to be, buying some at the 20dMA (30.5c) could be a nice hedge.

Related post:
Hock Lian Seng: Target hit.

AIMS AMP Capital Industrial REIT: Resistance.

This REIT's price action is testing 23c resistance, the upper end of the old trading range (20c to 23c).  Looking at the trade summary, of the 58 trades done, more than half (36) were buy ups at 23c but the volume was only 260 lots out of a total of 2,339 lots which changed hands.  This suggests to me that the buy ups at 23c lacked conviction.  23c is still a significant resistance to watch, it would seem.

Could 23c be taken out? The MACD has completed a bullish crossover with the signal line in positive territory. The MACD histogram buy signal has been confirmed.  OBV is up, suggesting accumulation.  MFI has formed a higher low, suggesting that the longer term demand is intact.  There is a chance that 23c could be taken out.  Then, the next resistance would be the recent high of 23.5c.

With all the daily MAs rising gently, this REIT could be on a sustainable uptrend and I would accumulate on weakness.

Related post:
AIMS AMP Capital Industrial REIT: Good value.

Japanese Yen at 15 year high.

I have been following news reporting on the strength of the Japanese Yen as well as the actions taken by Prime Minister Naoto Kan's team.  I am, naturally, very interested in economic and financial news from the Land of the Rising Sun as I am vested in Saizen REIT.

I applaud Bank of Japan's (BOJ) decision to cut its interest rate to zero recently.  This would, in theory, make credit cheaper and more readily available in the country. This would encourage borrowing and could possibly give the economy a shot in the arm. However, taking note that the interest rate was near zero to begin with (at 0.1%), cutting its rate to zero could have limited positive effects.

For investors in Saizen REIT, a strong Yen is good because we receive income distributions in S$. However, a strong Yen is not good for Japan as, being an exporting economy, a strong Yen reduces Japanese companies' competitiveness. As Japanese MNCs repatriate earnings back to Japan, a stronger Yen reduces the value of repatriated earnings. A stronger Yen could also propagate the deflationary spiral which Japan is suffering from.

While, as investors in Saizen REIT, we want to have a strong Japanese Yen, we want it strong enough to give us good returns (i.e. an attractive yield on our investment) but we do not want it so strong as to jeopardise the well being of the Japanese economy as that would, in time, have negative ramifications for Japanese residential real estate.

Latest update:
The dollar was trading at 82.36 yen in Tokyo midday.
08 October 2010 1231 hrs, CNA.

Related post:
Japan's debt issue and Saizen REIT.

AIMS AMP Capital Industrial REIT: Good value.

On 28 Sep, I mentioned that I bought more units at 21.5c believing that the REIT still offered good value at this price with a yield of 9.67%.  I also said that "21.5c is psychologically important as it is the midpoint of the old trading range of 20c to 23c".

Today, we see some quiet buying up in this REIT. Of the 2,085 lots which changed hands, 1,672 lots were bought up at 22.5c. Technically, this has created a buy signal in the MACD histogram. The MFI has just dipped into oversold territory while the RSI is bordering on oversold.

There are some who believe that the price would suffer on the 15th when the rights units commence trading with pessimistic forecasts of as low as 20c. If people are willing to sell at 20c, well, I am willing to buy as that would give me a yield of 10.4% per annum.

Related post:
AIMS AMP Capital Industrial REIT: Cheaper please.

Genting SP: Fatigue.

Price gapped down today and formed a doji, closing at $2.03. It is quite obvious now that a lower high was formed yesterday and price is being supported by the 20dMA today. That the 20dMA was breached as recently as last week does not inspire confidence that it would be a strong support.

The MACD histogram has turned red, a sell signal, while the MACD continues its decline beneath the signal line in positive territory. The correction has resumed. MFI and RSI both formed lower highs which suggest reduced demand and slowing buying momentum. OBV suggests ongoing distribution.

Unless there is a sudden spike in volume in buying up, the odds are that prices could move lower and the next support, if $2 should break, is at $1.85.  Of course, just as prices do not move up in a straight line, prices would not move down in a straight line either. There is always a river of hope.

K-REIT: Immediate target.

I suggested that K-REIT's price action could be falling into trading bands.  If we look at the chart, it seems quite obvious.  Today, price traded at and above $1.34, the resistance identified on 14 Sep when I said "K-REIT seems to be trading in a 6c trading range recently: $1.16 to $1.22 and $1.22 to $1.28".  I also said "in the event that $1.28 resistance is taken out, one could therefore expect $1.34 to be the next resistance level."

With $1.34 now possibly resistance turned support, the next resistance level should be at $1.40.  This is likely to be a stronger resistance level as it is also a round number.  Fundamentally, at $1.40, K-REIT would be trading at a mere 4.8% discount to NAV and its yield would be pretty low at 3.8%. I would probably do a partial divestment if price does test $1.40.

Related posts:
K-REIT: Moving into the next band?
FCOT, CCT and K-REIT.

Buying gold? Wait for a correction.

Jim Rogers predicts "more turmoil" in the currency markets, more problems in the stock market, weakness in bonds and, ultimately, inflation.

 
Posted Oct 06, 2010 07:30am EDT by Aaron Task

"Gold could correct for a few months [but] the bull market in gold is not over - far from it," he says. "I'm much more bullish on agriculture than I am even on gold. I own both."

In the meantime, he owns the Swiss franc, euro and yen but is not actively short any currencies, including the greenback.

In case of a correction, I see immediate support at US$1,250 an ounce, followed by US$1,200 an ounce.

Related post:
Gold can double from here over the next 5 years.

FSL Trust: Approaching target.

On 9 August, I said that "I also have some units which I bought in the recent crash. Why? I explained that the purchases were made based on TA and are for a trade. Looking at the charts, FSL Trust's price has not just found a floor, it has most probably bottomed.  So, would I sell at the bottom?  No." and that "From a FA perspective, it is true that FSL Trust has very high risks and its propects seem bleak in the longer term but would it go belly up in the next few months? Rather unlikely as the world economy is still on the mend and the fortunes of the shipping industry are looking up."

On 4 October, I said "46c is still the resistance to watch although it was briefly taken out today on higher volume. Eventual target remains defined by the descending 200dMA, currently at 50.5c."

Today, a white candle was formed as price closed at 47.5c.  46c could possibly be resistance turned support and we are a step closer to the eventual target. MACD has been rising in positive territory. MFI has formed higher lows and higher highs. Things are looking benign. However, volume is lacking suggesting that a lack of sellers rather than an abundance of buyers is the reason behind the price appreciation. This puts into question the sustainability of the recent buoyant price action.

Related posts:
FSL Trust: Where to from here?
FSL Trust: Challenging resistance.

Gold and silver: New highs.

"Gold, up 2pc this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. On Tuesday, bullion for immediate delivery added as much as $13, trading at $1,326.97 an ounce in early London trading....

"Also on Tuesday, silver advanced to a 30-year high, increasing 1.3pc to $22.2319 an ounce – the highest level since September 1980. "

Read complete article here.

Related post:
Gold can double from here over the next 5 years.
Buy more silver on weakness.

ASTI: Testing support at 11c.

ASTI's share price tried unsuccessfully in earlier sessions to stay above the 12c resistance. Today, share price closed at 11c amid weakening technicals.  The MACD just completed a bearish crossover in positive territory.  RSI is testing support at 50% which suggests weakened buying momentum.

11c is where we find the rising 50dMA.  A stronger support would be at 10.5c which is where we find the rising 100dMA which coincides with the uptrend support line. I believe that the fortunes of the semi-con industry would continue to improve and would, therefore, accumulate if ASTI's share price should retest support at 10.5c.

Related posts:
ASTI: A doubling of share price in time.
ASTI: Breakout, almost.

Hock Lian Seng:Target hit.

On 27 Sep, I mentioned that "A support seems to have formed at 30c for this construction stock.  Further upside would give a target of 32c." Today, Hock Lian Seng's share price touched a high of 32.5c before closing at 31.5c as volume exploded.

The MACD completed a bullish crossover in positive territory as the MFI spiked into overbought territory while the OBV turned up sharply. The RSI, however, is somewhat lukewarm and has yet to break out from a series of lower highs.  This coupled with a white candle formed today with a long upper wick puts into question the sustainability of today's upmove in price. Interpretation: Strong demand and accumulation but buying momentum is muted by strong selling pressure at resistance (32c).

I sold some of my shares at the 32c target today. Although I still see strong support at 30c where we find the rising 20dMA, 30.5c could very well be resistance turned support. I would buy again if it gets to those levels. Immediate resistance remains at 32c and if that breaks convincingly, the next target is at 34c.

Related post:
Hock Lian Seng: 32c target.