Healthway Medical: 3Q 2010 results.

Healthway Medical's results came in rather weak, as expected:

1.  Revenue declined 6.2% in Q3 compared to the same period last year.  For the first 9 months, revenue declined 8.3% compared to the same period last year.

2. Staff cost increased 19.2% in Q3 compared to the same period last year.

3. Profit before income tax decreased 87.3% to $568k in Q3 compared to the same period last year.

4. Cash flow from operations is negative for the quarter at -$1.278m.

5. EPS for the quarter is 0.01c, remaining the same as the last quarter but down from 0.29c in the same quarter last year.

See results here.

We are still in the tunnel but do we see a tiny glow at the end of the tunnel?

A. Although revenue declined 6.2% compared to the same period last year, this is a smaller decline compared to Q2's decline of 12.3%. 

B. Staff cost increase of 19.2% is also smaller than Q2's 22.9%. 

C. Profit before income tax in Q2 was only $165k. So, Q3's $568k is an improvement. 

D. Cash flow from operations in Q2 was a negative $2.3m compared to a smaller negative $1.278m in Q3. 

Perhaps, points C and D are the most important indicators that things could be stabilising. However, it is still too early to say for sure.

Having said this, the proposed diversification could throw a spanner in the works. One could only hope that Healthway Medical is not biting off more than it could chew.

On 25 Oct, I suggested that Healthway Medical's share price could have found a floor at 15c. I also mentioned that any rebound would be a good chance for stale bulls to reduce exposure. 17c was never hit as the rebound in price went as high as 16.5c before declining again.

The last session saw Healthway Medical closing at 15.5c. With the MACD, MFI and RSI all in their respective downtrends, a retest of the support at 15c is rather likely. Consolation? Volume has been declining in the last few sessions. So, we could have a soft landing.

Related posts:
Healthway Medical: Second quarter results.
Healthway Medical: Business diversification.
Healthway Medical: A floor at 15c?

Rickmers Maritime: DPU in Q3 down 5%.

Mainboard-listed Rickmers Maritime said the dip is because of lower charter revenue from containership Kaethe C. Rickmers, as well as an increase in interest costs.

Read article here. 


Rickmers Maritime Trust says it will distribute 0.57 US cents (0.74 cents) per unit to unitholders for the third quarter and nine months ended 30 September 2010 (3Q2010), the same DPU as in 2Q2010.

The declared distribution, representing a payout of 13% of income available for distribution, will be paid to unitholders on 15 December 2010.

Rickmers Maritime Trust to distribute 3Q DPU of 0.57 US cents
Friday, 12 November 2010

© 2010 - The Edge Singapore

CapitaMalls Asia: Uptrend broken.

Connecting the lows of 7 May and 25 Aug gives us the uptrend support line of CapitaMalls Asia.  This support was retested on 8 Nov.  Price bounced off and went higher for a couple of days only to decline again. In the last session, the counter traded the whole day below this support line. The uptrend is broken.

The 20dMA, after completing a dead cross with the 50dMA, seems set to form another dead cross with the flat 100dMA.  The longer term 200dMA is still descending.

The MACD has formed a lower high in negative territory as it turned down away from the signal line.  Momentum is negative. MFI and RSI have both formed lower highs, suggesting a lack of demand and buying momentum. The OBV suggests continual distribution. All technicals confirm that the downward trajectory in price has some strength.

In the event of a continuing downward movement in price, stronger supports are at $2.04 and $2.00 thereabouts. Immediate resistance at $2.12.

Saizen REIT, First REIT, Golden Agriculture and Genting SP.

Markets in Asia seemed to have taken the lead from the dismal performance of Wall Street and the STI was no exception as it retreated 1.3%.

STI drops 1.3% to 3,252 at closing
Friday, 12 November 2010

© 2010 - The Edge Singapore

So, is this the beginning of the end? I actually find it re-assuring that such a question was making its rounds amongst local investors. It shows that the memory of the last crash is still fresh in the minds of many. Many are actually holding cash and waiting for the next big crash before moving in to cherry pick beaten down stocks.

The market could be perverse and the more we expect something to happen, the more unlikely it becomes. So, people waiting by the sides with chestfuls of cash could be disappointed.

Indeed, there is massive amount of liquidity in the market if the amazing over-subscriptions of GLP and MIT were anything to go by. Money is going where it is treated best. It is not going to be treated best in US Treasuries, for sure. The investments to be in are Asian assets. Asian countries with strong economies and currencies are the ideal investment destinations.

So, unless we have evidence to the contrary, I would say: Do not fear the selldown!  What are we to do then?  Invest in Asian equities (and inflation is here to stay)!

Personally, my portfolio which is primarily investing for income hardly budged in today's selldown. No roller coaster ride for my weak heart. Just dividend collection on a regular basis for me.

With regards to Saizen REIT, a reader sent me an email asking: "Was it your article in your blog that attracts sudden interest in this stock?  The volume is more than ordinary. I wonder." I doubt that my blog has such influence.  Anyway, there were some sessions in the past in which volume was much higher but the interesting thing about today was the number of trades with large buy ups at 16c. There was a total of 14 transactions with a total of 5,419 lots changing hands, of which 12 transactions were at 16c and 5,204 lots were bought up at 16c. 2 transactions were for 1,000 lots each and 1 transaction was for 2,000 lots. Has Saizen REIT caught the attention of some heavy weight investors? Your guess is as good as mine.
See my last blog post on Saizen REIT here.

I have been waiting the whole day for someone to sell me some First REIT units at 95c but to no avail. Some people are puzzled why am I so interested in getting some at 95c when I am already vested at 40+c and 70+c. Well, with the proposed acquisitions and rights issue, buying more even at 96c could be quite rewarding. With an average price of 70c, post rights, if we were able to buy at 95c now, a yield of 9.1% is not impossible with an estimated full year DPU of 6.4c in 2011. As the XR date is 1 Dec which is almost 3 weeks away, I will continue to wait patiently at 95c. Wish me luck.
Read announcement from First REIT here.
Read my last blog post on First REIT here.

Golden Agriculture suffered a downgrade by OCBC and broke its immediate support at 75c, closing at 73c. Just yesterday, I mentioned that "Although Golden Agriculture reported commendable results today with a 41% year on year increase in net profit to US$99 million (S$127 million) for the third quarter ending 30 Sep (3Q2010), the attempt by price to go higher was half hearted as it touched a high of 78.5c before closing at 76c. The very long upper wick on this short bodied white candle hints of strong selling pressure. Volume is relatively low and the negative divergence between price and volume is still all too visible." We could see 70c support tested sooner than later.
Read my last blog post on Golden Agriculture here.

Golden Agri cut to Hold by OCBC; Limited upside
Friday, 12 November 2010

© 2010 - The Edge Singapore

The counter on my watchlist that suffered the greatest decline in percentage terms is Genting SP, declining 15c or 6.6% to close at $2.13 after touching a low of $2.07. The question on the minds of anxious investors is whether it would go lower?

The price gapped down to start the day at $2.10 but formed a white spinning top after testing the 50dMA at $2.07 which was the low of the day. A spinning top suggests indecision which is a good thing for bulls on a day with massive selling pressure. If the price starts at $2.18 or higher in the next session and manages to break resistance at $2.21 which is the 50% Fibo line as well as the 20dMA, we could have a recovery. Having said this, the MACD has been moving lower as price moved higher, presenting an obvious picture of negative divergence. I would treat any rebound as a chance to reduce exposure.

Genting Singapore slumps as earnings ‘disappoint’.

Genting yesterday posted third-quarter net income of $187.8 million, compared with $396.5 million in the previous three months and a net loss of $93.3 million a year earlier.

Friday, 12 November 2010

© 2010 - The Edge Singapore

Sabana REIT: Shariah compliant.

We have another IPO coming up and it is a Shariah compliant REIT: Sabana REIT.

The REIT will sell about 605.8 million units at $1.00-$1.10 each with a distribution yield of 8.45% for 2011 and 8.48% for 2012 based on the minimum offer price.

Singapore’s Sabana REIT to raise at least $605.8m in IPO. Sabana controls 15 industrial properties in Singapore with an aggregate floor area of about 3.3 million square feet.
Tuesday, 09 November 2010

© 2010 - The Edge Singapore

What does it mean to be Shariah compliant?

Shariah prohibits the payment or acceptance of interest fees for loans of money, for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principle. Source: Wikipedia.

So, we can imagine that businesses which deal in alcohol and pork would not be allowed as tenants, for examples. It would be interesting to see how this REIT performs in time. Something different to enrich the REIT landscape in Singapore.

Golden Agriculture: Negative divergence.

On 8 Nov, I mentioned that "Even though a very long white candle formed today to close at the day's high of 78c, it is worth noting that volume was not as high as 13 Oct. The picture of negative divergence between volume and price is still present. Price moved higher today due to a lack of sellers and not an abundance of buyers. It would take a very brave person to load up to go long at this stage."

Although Golden Agriculture reported commendable results today with a 41% year on year increase in net profit to US$99 million (S$127 million) for the third quarter ending 30 Sep (3Q2010), the attempt by price to go higher was half hearted as it touched a high of 78.5c before closing at 76c. The very long upper wick on this short bodied white candle hints of strong selling pressure. Volume is relatively low and the negative divergence between price and volume is still all too visible.

Immediate support is at 75c and if this breaks, we could see 70c tested. This could well happen as both MFI and RSI are bordering on overbought and could retreat to retest their respective trendline supports. Buying on pullbacks is still the prudent thing to do.

Golden Agri-Resources sees 41% rise in 3Q net profit to $127m. Golden Agri-Resources says demand for palm oil, which is predominantly used for food purposes, is expected to be well-supported into the medium to long term by the growing consumption of edible oils and fats particularly by the growing middle class in highly-populated developing countries such as China, India and Pakistan.
Thursday, 11 November 2010

© 2010 - The Edge Singapore

Kim Eng cautions against palm-oil over-exuberance. “Ultimately, supply shortfalls mean that there is less inventory of CPO for these companies to sell. CPO price increases would simply be offsetting this, and likely revenue-neutral.”
Thursday, 11 November 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: Breaking resistance.

Saizen REIT: 1Q FY2011 results.

Saizen REIT's 1Q FY2011 results did not disappoint. Here are the important points:

1. Gross revenue improved quarter on quarter from S$15,536,000 to S$16,274,000 or a gain of 4.75%.  This is largely due to a strengthening JPY against the S$.

2. Net property income (NPI) improved quarter on quarter from S$10,205,000 to S$11,389,000 or a gain of 11.6%! This is due largely to a reduction in property operating expenses.

3. Taking away fees and expenses shows net income from operations improved quarter on quarter from S$4,998,000 to S$6,012,000 or a gain of 20.29%!

What I find most bracing about the report is on page 6 which details the distributable income from operations for 1Q FY2011.  Distributable income for the period is JPY 204,943,000.  This amount could have been 50% higher if not for the amortising nature of Saizen REIT's loans. JPY113,397,000 was used for loan amortisation.

Loan amortisation will reduce funds used in interest payment for the REIT, going forward. This would translate to more funds available for distribution to unitholders in future, everything else remaining constant. There was also a one-off expense of JPY14,976,000 which was incurred due to the refinancing of GK Choan's loan. This is non-recurring. We could, therefore, expect the distributable income for 2Q FY2011 and subsequent quarters to be higher.

Everything else remaining constant, I estimate the distributable income for 2Q FY2011 to be JPY 220,000,000 or 7.4% higher than 1Q FY2011. Total distributable income for 1H FY2011 is, therefore, estimated to be JPY 424,943,000. Number of units in issue now at 1,111,003,000.  DPU estimated at JPY 0.38. Based on the rate of S$1 = JPY63.3, it means a DPU of 0.6c in March 2011.

Update on YK Shintoku loan

To-date, YK Shintoku has divested a total of 16 properties (5 properties in FY2010, 5 properties in 1Q FY2011 and 6 properties in October and November 2010) as part a deleveraging plan implemented to reduce the absolute amount of the loan of YK Shintoku and the leverage of the corresponding property portfolio, so as to facilitate refinancing efforts.

The loan of YK Shintoku has been reduced from JPY 7.1 billion (S$111.6 million1) as at 30 June 2010 to about JPY 5.6 billion (S$88.1 million) as at the date hereof. Taking into account applicable cash reserves of JPY 0.6 billion (S$9.4 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.0 billion (S$78.6 million). Several divestments of YK Shintoku’s properties are expected in the coming months to reduce the loan amount further.


The amount of S$14.9 million, or approximately JPY 0.9 billion, of warrant proceeds received as at 9 November 2010, have yet to be deployed. Saizen REIT has 328,082,705 warrants which are outstanding and could potentially result in S$29.5 million, or approximately JPY 1.9 billion, of further warrant proceeds being raised1. These warrant proceeds may be applied towards the refinancing of the loan of YK Shintoku (if such refinancing is possible). Saizen REIT also has an aggregate of approximately JPY 12.0 billion (S$188.7 million) of unencumbered properties which can be used as collateral for new loans.

Update on next distribution

Property operations are expected to remain stable, generating steady cash flow to enable Saizen REIT to continue paying out semi-annual distributions. The next distribution payment is expected to take place in March 2011 in respect of distributable cash accumulated in the six months financial period ending 31 December 2010.

Results announcement here.

Related post:
Saizen REIT: AGM on 19 Oct 10.

First REIT: Rights issue.

For a while now, there has been expectation of First REIT doing some acquisitions and in the process would have the need to raise funds. First REIT's management announced on 9 Nov 10 a 5 for 4 rights issue at 50c per unit.

The Mochtar Riady Comprehensive Cancer Centre (“MRCCC”) is being acquired from Wincatch Limited, an unrelated third party, for S$170.5 million, and Siloam Hospitals Lippo Cikarang (“SHLC”) is being acquired from the sponsor of First REIT, PT Lippo Karawaci Tbk, for S$35.0 million.Read announcement here.

Including fees and expenses, MRCCC would cost S$174.6m while SHLC would cost S$35.9m.  Total acquisition cost: S$210.5m. The rights issue would raise gross proceeds of $178.2m. First REIT would take a 4 year term loan facility of S$50m from OCBC to make up the balance.

The rights issue would more than double the number of units in issue to 624,104,000 units. So, although the NAV increases to S$474,200,000, post rights, NAV per unit would decline from 98c to 76c. Gearing level is largely unchanged and remains low as much of the funds required for the acquisitions is obtained through equity and not debt.

Of greater interest to unitholders is the distributable income which would increase 84% post acquisitions from S$20,964,000 to S$38,542,000. The annualised DPU would, however, reduce from 7.62c to 6.18c due to the larger number of units in issue. So, is this rights issue a good deal for existing unitholders? To answer this question, look to distribution yield.

The theoretical ex-rights price (TERP) is calculated to be 70c based on a CR price of 95c.  At 95c, the yield, with an annualised DPU of 7.62c is 8.02%.  At the TERP of 70c and an expected annualised DPU of 6.18c, XR, the yield is 8.83%. So, this acquisition is distribution yield accretive and is good for current unitholders.

Unitholders have the option to sell their nil-paid rights when trading starts if they do not wish to pay for them. Based on the exercise price of 50c and the TERP of 70c, we could see the selling of the nil-paid rights at 20c or so. This could be viewed as a return of capital.

Assuming that a unitholder has 4 lots in First REIT and is entitled 5 lots of rights. By selling the nil-paid rights at 20c per unit, he would get $1,000. This is the difference between the CR price of 95c and the TERP of 70c (i.e. 25c x 4,000). There is no capital gain per se. However, the distribution yield on his existing investment will actually improve from 8.02% to 8.83% without him having to cough up more funds. So, am I saying that we should sell the rights? Well, if we do not have enough funds to pay for the rights, this is not a bad idea.

Personally, I would pay for the rights. This is because the distribution yield would improve 10% from 8.02% to 8.83% with the acquisitions and rights issue. So, the additional funds I am putting in would enjoy a most attractive yield.

Furthermore, from the recent experience with the rights issue of AIMS AMP Capital Industrial REIT in which the TERP was 21c, the XR unit price ended higher and it is currently trading at 22.5c. So, with First REIT, we could see the XR price higher than the TERP of 70c. How much higher? Based on the assumption that units should trade closer to 8.02% yield, the CR yield at 95c, we could see First REIT's unit price going 10% higher to 77c, XR. Accepting and paying for the rights could, therefore, lead to capital gains.

Good luck to fellow unitholders.

See slides here.

Related post:
First REIT: This one is for keeps.

Saizen REIT: Divestment of Jewel Town Suehiro.

Saizen REIT divested another property, Jewel Town Suehiro, which is located in Hakodate. It was built in August 1991 and comprises 30 residential units and 8 car park lots.

The property was sold to an independent private investor for a cash consideration of JPY 146,042,400 (S$2.3 million).  This was at a 2.1% premium to the property's valuation of JPY 143m. Selling at a premium to valuation is good news and supports the argument that there is strengthening demand for Japanese real estate.

Referring to the annual report, as of 30 June 2010, Jewel Town Suehiro was 100% occupied and brought in a total annual rental income of JPY19,327,440. This means a gross yield of 13.2%. A good deal for the buyer.

Following loan repayment from sale proceeds of the Current Divestment, the remaining balance of the YK Shintoku Loan is estimated to be approximately JPY 5.6 billion (S$88.6 million).

Taking into account applicable cash reserves of JPY 0.6 billion (S$9.5 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.0 billion (S$79.1 million). 

Read report here.

Is this the return of the bull market?

On 3 Nov, when I blogged about Macquarie's SiMSCI warrants, a reader, AT, mentioned that "Macquarie runs regular warrant workshops at the SGX, I found the speakers honest and knowledgeable." Seminars are taking place again on 22 and 23 Nov:

Date: 22 Nov 10 (Monday)
Partner: DBS
Location: SGX Auditorium, Level 2, Shenton Way.

Date: 23 Nov 10 (Tuesday)
Partner: Philips Securities
Location: NTUC Auditorium, 1 Marina Boulevard.

Time: 6.30pm to 8.00pm

Light refreshments would be available after each session.

Macquarie's Equity Strategist, Mr. Mark Matthews, will give his view on the market outlook for Singapore and the region in this special presentation. There will also be a short presentation on Singapore warrants.

Admission is FREE. Sign up now as seats are limited.  Register at http://warrants.com.sg/en/home_e.cgi

Related post:
The best way to trade the Singapore Index: SiMSCI warrants.

Advertorial.

Golden Agriculture: Breaking resistance.

CPO hit a 27 month high and this has pushed the prices of CPO counters higher on expectations that they would report better than expected results.  Golden Agriculture is the most levered to CPO prices and could be the biggest beneficiary of higher CPO prices.

On 5 Nov, I mentioned that "On 4 Nov, the following session, this counter traded the whole day at 70c or higher. Closing at 70c seems to have confirmed it as the new support." and that "With improving CPO price now a reality, it seems less risky loading up on CPO counters and that is precisely what market participants have done. Loading up on a pullback would be the prudent thing to do, however."

I still think that loading up on a pullback is more prudent but the rising wedge pattern has failed and price has pushed higher. 70c support is confirmed and should be something to watch out for in case of a pullback in price.

Golden Agriculture will be reporting its results on 11 Nov. If results disappoint, we could see the 70c support tested.  If results are better than expected, we might see its share price go even higher.

Even though a very long white candle formed today to close at the day's high of 78c, it is worth noting that volume was not as high as 13 Oct. The picture of negative divergence between volume and price is still present. Price moved higher today due to a lack of sellers and not an abundance of buyers. It would take a very brave person to load up to go long at this stage.

Saizen REIT: AK71 responds to a forum.

This is almost all of my very long comment in Wealth Buch in response to certain things said in a forum on Saizen REIT:

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.

As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong.  Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

Related posts:

Saizen REIT: AGM on 19 Oct 10.
Japanese real estate: Has it bottomed?

REITs lower portfolio risk.

Apart from the attractive combination of income and capital return, REITs also offer diversification advantages. Real estate securities have a low correlation to general equities. This creates significant benefits when it comes to improving the efficiency of investors’ portfolios. It means the increasing of potential returns while at the same time lowering the level of risk, which is the underlying aim of every investor.

Unlike other sectors like tech or commodities, there is also a low correlation between the real estate markets across different countries. While global stock and bond markets tend to move together, real estate is basically determined by local factors and what affects the real estate market in one country will not necessarily affect the markets in other countries.

What is likely to have an impact on all REITs is the interest rate environment. As bond yields rise, the relative attractiveness of REITs tends to fall. This is because many investors, especially institutional ones, value REITs by comparing them with long term interest rates.


Source: UOB Asset Management.

Related post:
High yielding REITs.
Increasing demand for S-REITs.

REITs, depreciation and FFO.

The REIT business model is simple. REITs own real estate and they collect rent. For an investor to determine the investment potential of a REIT, one factor he would need to consider is earnings.

Asset value diminishes over time. Real estate is however a special class of assets because land and buildings are not like machines. Their values do not necessarily decline over time but tend to rise or fall depending on market conditions even if they are leasehold properties.

The concept of 'Funds From Operations' (FFO) gets around this problem. FFO excludes historical depreciation costs from net income. FFO has become the industry standard for measuring a REIT's operating performance.

Source: UOB Asset Management.

FFO is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis. The FFO-per-share ratio should be used in lieu of EPS when evaluating REITs and other similar investment trusts.

Source: Investopedia.

Related post:
Replies from AK71: REITs and their assets.

Asterisk Realty: Advisory for Japanese real estate.

This is a Japanese real estate brokerage that I came across. Its website provides views of the real estate market in Japan from within.  It is a perspective which I find bracing.  

From the beginning of fiscal year 2010 in April, we expect CMBS and lenders to offer some excellent properties one by one throughout the year. 

With more confident buyers, we may see a gradual rise in market level. In 2009, there were a couple of very attractive properties that were on sale at discount prices in order to take precaution against oncoming financial pressures, however many properties were unsold due to strict financing conditions during recession. 

This year, a number of these properties successfully underwent transactions as a result of optimism that the worst of the recession has passed. Economic recovery is imminent and the overall attitude towards buying seems to be becoming optimistic. 

Many non-Japanese Asian investors are taking initiative to acquire Japanese prime trophy properties. They are expected to have a significant future presence in the Japanese prime asset market. Japan real estate market generates strong demand from global buyers for its maturity, stability and one of a kind trophy assets in all of Asia.


Due to stable and high occupancy rate, residential is still the most popular investment sector for all investors relative to office, retail, and hotel markets


 We are recently seeing less opportunities of residential opportunities of 300 million to 1 billion JPY in Tokyo. Large size  residential properties (above JPY 3 billion) will be available one by one from loan lenders and merged REIT for downsizing debt. 

Middle class residential occupancy remains stable due to sustainable demands and some upper class residential occupancy start recovering due to an overall decrease in rent prices.


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

Tea with AK71: A couple of thoughts.

Thought number 1:

Most of the time, I am so self absorbed that I do not think about socialising. Blogging has given me a means of socialising with many more people than I could ever imagine possible while remaining self absorbed. The internet is truly an amazing place. Virtual reality it might be but it is still a form of reality.

Thought number 2:

I spend a lot of my time thinking about things. I have always been a thinker. I remember those long bus rides between home and school and how I would spend time thinking about stuff. I was not a physically active kid. The ECAs I joined were rather bookish in nature: English LDDS, Chinese Society and the Library in secondary school; Drama Club and Chinese Society in JC.

I have always believed that the pen is mightier than the sword but perhaps I am just hiding my indolence.

Tea with AK71: Envious? Find our own way.

I recently had a conversation with a friend about how a friend of his keeps saying that he is envious of how rich my friend is and so on.

My friend keeps telling his friend that he is not rich and that he is using leverage to improve his cash flow.  My friend got fed up with his friend on one occasion and told him to stop whining and to do something about his life.

Make changes and be richer. 

This calls to mind a recent blog post of mine which asked "Do you want to be richer?"

Apparently, this person in question is in his early 30s and has a comfortable salary of $6K a month.  He is single, stays out and spends quite a bit of money having a good life.

So, to me, for him to become richer, he does not really have to work much harder to increase his income. He should work at reducing his expenses. He should think of planning for the next stages in his life.

For a person like him, if he is willing to listen, I would tell him that there are many roads to Rome and there are many roads to becoming richer. I have a couple of blog posts which were written with this in mind: "Roads to wealth creation in the stock market" and "Seven steps to creating passive income from the stock market".

For sure, there are many more ways to make money and my friend has found his own way to do so and that is to invest in real estate and renting them out for cash flow, taking advantage of the very low interest rate environment. It is something he does well and something he is comfortable with.

For me, a personal experience at a very young age of twelve when my family was on the verge of bankruptcy taught me that banks are fair weather friends and I try my best not to owe the banks large amounts of money if I can help it.

I do understand the need for leverage sometimes in order not to miss out on money making opportunities but I would try to repay my debts in the shortest time possible.

What am I saying? Everyone is different. Certain methods which are comfortable for some might not be so for others.

Finding the most comfortable path which would meet our goals in life is most probably a journey of self-discovery. Having reliable guides on this journey would be most helpful but decisions have to be made ourselves.

Ultimately, we have to find our own way.

NOL: Multi-month uptrend.

On 1 Nov, I suggested that "Taking in the Fibo lines, we could see 138.2%, which coincides with the high of 15 April, retested.  This is at $2.35. This, of course, is based on the assumption that the current bullish momentum follows through."

On 3 Nov, the counter hit a high of $2.32 before closing at $2.30. So, the closing price was just 5c shy of the 138.2% Fibo line. Volume expanded significantly, providing the fuel which created an impressive white candle. With the MACD rising strongly above the signal line in positive territory and the MFI yet to break into overbought territory, it looked as if it would retest resistance at $2.35.

On 4 Nov, price action formed a hangman (a black hammer at a peak) which suggested the presence of selling pressure. However, the relatively low volume suggested that the selling pressure was weak. Indeed the OBV confirms a lack of distribution. With MFI and RSI both in overbought territory, this counter could face some short term resistance in moving up further in price. A pullback to $2.16 would be a good price to accumulate if we believe in the multi-month uptrend.

NOL +5.0%; Fed, liquidity behind rally: DBS Vickers 
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
NOL: $2.21 and moving higher?

Japanese real estate: Has it bottomed?

Many asked me if I think the real estate prices in Japan has bottomed. After 20 years of decline, I believe it has.  Why am I so confident? Well, I do not have a PhD in Economics but I understand that price is a function of demand and supply.

The Japanese are fearful of buying any real estate because anyone who bought a piece of real estate in the country within the last 20 years would more likely than not have lost money and this could be as much as 50% of the original purchase price! If the person had taken a bank loan to buy that piece of real estate, including interest on the mortgage, the losses could be even higher.

Little wonder that 40% of the Japanese population rent the roofs over their heads.  Little wonder why Japanese residential real estate's rental rate declined little relative to the decline in real estate prices over the years.

OK, so the rental demand is strong and this means that rental rates would remain resilient but what about the prices of real estate in Japan? Well, the US$ is probably going lower in time. With QE2 (quantitative easing part 2) by Mr. Ben Bernanke, the fate of the US$ is sealed. Anyone who wants to get a better rate of return would be bonkers to put any money in US Treasuries.

So, what are investors to do? They want to invest in assets denominated in currencies which would gain against the US$. They want to invest in assets which would generate cash flow in currencies with relative strength against the US$. Many Asian countries offer opportunities to these ends.

The fact that Saizen REIT managed to sell quite a few of their properties in their YK Shintoku's portfolio is testament to the fact that buyers are back in the Japanese real estate market and they are looking for better returns on their investments. Money will go to where it is treated best.  Borrowing at very low interest rates and getting more than 10% yield in net property income from Japanese residential real estate is a mouth watering deal!

Even if the market has not bottomed in Japan, I believe it nearly has. This could be the next big story.

Related posts:
Saizen REIT's properties: Would I buy?
Japan's debt issue and Saizen REIT.
Invest in Asian equities and inflation is here to stay.
Buy Japanese real estate.

Tea with AK71: Advertlets, owe money, pay money!

One way we bloggers get some income from blogging is through the selling of ad space in our blogs. Advertlets is an online advertising agency based in Malaysia which I signed up with in the early days of my blog. All their ads were metered which means that the higher my blog's traffic, the more they pay.  No clicking on ads required. 

I lost my Glitterati status (aka exclusive status) with Nuffnang, another online advertising agency, by signing up with Advertlets, thinking that it made more sense. The earnings from Advertlets grew quickly and even though I could cash out at every RM100, I chose to wait.  In March this year, I decided to cash out after reading some negative comments regarding Advertlets and how they did not pay.  I waited the requisite 45 to 60 days and did not get any payment.  So, I sent them a ticket (an online enquiry) but did not get any reply, confirming my fears. 

Date          Username Amount   Status

Mar-16-10 AK71        159.42     Unpaid

Removing all ad space for Advertlets, I recovered my Glitterati status with Nuffnang shortly.  Since then, Nuffnang has given me a few metered ads which usually run for 4 days to a week on top of the usual pay per click ads.  Nuffnang also got me to do an advertorial for a financial seminar by an Australian bank a few months ago. I have yet to cash out because every time I cash out, I have to pay a small fee.  Hearing very good things about Nuffnang from fellow bloggers makes me confident that Nuffnang would pay when I choose to cash out. Not worried.

Why did I wait so long before blogging about my negative experience with Advertlets? Honestly, I didn't think of blogging about it. Just another bad experience in life was how I thought of it. However, while chatting in LP's cbox a couple of days ago, I learned that other finance bloggers also didn't get paid by Advertlets! So, I am taking up LP's suggestion to blog about it and tell the world! We should not let Advertlets off so easily! Grrr! 

I found this very creative artwork on WayangTimes.com, another victim of Advertlets

Really apt! Owe money! Pay money! O$P$! Ok, ok, I shall stop here.

Golden Agriculture: Toppish.

On 1 Nov, I asked "Would the rising 20dMA be able to push the price higher? My suspicion is that sellers would turn out in force if price moves closer to 70c as it is a thrice tested resistance in recent memory.  Therefore, 70c remains the resistance to watch."  That resistance was breached on 3 Nov, the second time in 7 sessions. It suggested that 70c was no longer as strong a resistance as before.  However, closing at 70c means that it was still the resistance to watch. With the 20dMA still rising, immediate support moved higher to 66c from 65c.

Although volume improved, the picture of a negative divergence between price and volume was still obvious. The MFI and RSI were both descending and suggested that they could go lower to retest their respective uptrend supports. Momentum was weakening. The long upper wick on the white candle suggested some selling pressure beyond 70c.

On 4 Nov, the following session, this counter traded the whole day at 70c or higher. Closing at 70c seems to have confirmed it as the new support. The very low volume suggested a wait and see attitude ahead of the long weekend. Could we be seeing the formation of a rising wedge? This pattern could be valid if volume keeps decreasing which seems to be the case thus far and the downside target would be 61c.

With improving CPO price now a reality, it seems less risky loading up on CPO counters and that is precisely what market participants have done. Loading up on a pullback would be the prudent thing to do, however.

Palm oil plays rise again; CPO price catalyst 
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: Up or down?

LMIR: Foreign exchange forward contracts.

LMIR reported stronger earnings for 3QFY2010. Distributable income at $11.7 million. DPU at 1.09c is higher than the 1.04c in the last quarter. This represents a marginal increase of 4.8% over the previous quarter despite revenue increasing 53% year on year. LMIR also managed to have rate increase in rental renewals to the tune of 16%! Indonesia is doing well, as I expected.

Unfortunately, the management lost $2.9m in foreign exchange forward contracts. Without these contracts, the distributable income would increase by 24%! A DPU of 1.35c for an annualised DPU of 5.4c? Now, that would be in line with its actual performance on the ground!

The management is singing the old tune that these contracts are a prudent measure to protect its income denominated in the Indonesian Rupiah. The very strong Rupiah has caused it to lose money quarter after quarter on these contracts. Who is making money, I wonder?

What do they expect from an economy that actually weathered the last financial crisis unscathed? Indonesia was one of only three Asian economies that did not go into a recession, the other two being China and India! These contracts should have been reduced significantly in the last three quarters! I have wondered on various occasions why the CFOs of LMIR could never last very long. Did they go against the idea of having foreign exchange forward contracts? I keep wondering.

Having said this, the REIT remains a relatively safe investment that should generate consistent income for unitholders although its inability to deliver significantly higher DPU is galling, given such impressive growth in revenue.

Lippo-Mapletree Indonesia Retail Trust achieves higher 3Q distributable income of $11.7m. In 3Q 2010, there was a realised loss on foreign exchange forward contracts of $2.9 million as the cross currency swap remained “out of the money”, compared to 3Q 2009 when a realised loss of $0.4 million was recorded as the IDR was weaker at that time.
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
LMIR: DPU reduced 20%.

Saizen REIT: Huge sell down in consolidation phase.

Just as I said on 2 Nov, "I noticed that there seems to be more buying interest in Saizen REIT today too. Of 3,260 lots that changed hands today, 2,968 lots were bought up at 16c. This could just be an anomaly or this could be the beginning of something bigger. Who can say for sure? A crack in the wall of worries? Perhaps.", the counter experienced heavy volume sell down on 3 Nov. The wall of worries was very much intact.

The golden cross between the rising 20dMA and the 50dMA failed to materialise as 20,291 lots were sold down at 15.5c out of 24,231 lots traded. MFI sank deeper into oversold territory, suggesting very weak demand.  This is confirmed by the OBV which showed extreme distribution activity that day. The consolation seemed to be that the selling at 15.5c was very well absorbed, considering that volume was at least 6 times more than the previous session which in itself was a rather high volume day for such a thinly traded counter.

On 4 Nov, I was kind of disappointed that the volume dried up.  I was hoping for more panic selling which might allow me to buy some at 15c.  Wishful thinking, it seems.

Related post:
Saizen REIT: More buying interest.

The best way to trade the Singapore Index: SiMSCI warrants.

Macquarie introduces a new warrant to the Singapore market. Macquarie's SiMSCI warrants allow investors to take a leveraged view on movements in the broader Singapore sharemarket.

Macquarie's warrants allow you to take a leveraged exposure to the SiMSCI with no margin calls or forced selling, thus limiting your capital at risk. Macquarie has listed both call and put warrants, so you can potentially profit from both rises and falls in the market.

99.9% correlation with Straits Times Index (STI)
The MSCI Singapore Index has a basket of 30 stocks and tracks the Straits Times index (STI) very closely. In fact, the MSCI Singapore Index has a 99.9% correlation with the STI over a period of two years, and a 99.6% correlation over five years.

SiMSCI - the only liquid alternative to the STI
The SiMSCI is the name for the futures over the MSCI Singapore Index, and tracks it closely. The SiMSCI is much more liquid than the STI futures in terms of volume traded. In fact, the SiMSCI is the only liquid alternative to trade a Singapore sharemarket index.

For both futures expiring in August, the SiMSCI had 228,287 contracts traded (for the month of Aug 2010) while the STI futures only had 6 contracts traded over the same period of time.

Why SiMSCI warrants?
As the SiMSCI is a liquid and efficient futures market it provides a live tradable market reference price for the warrants to track, this makes it a more transparent and easy reference point for warrant investors. Investors can now see the live SiMSCI price at this website and also the dedicated live SiMSCI pricing page which includes a list of the current warrants.

Read more about it at http://www.warrants.com.sg/en/warrants/simsci_live_e.cgi

FAQ: What are warrants?

A warrant is a powerful investment tool that enables you to gain exposure to a security for a fraction of its price. Warrants can be used to either increase or decrease your level of risk and, unlike ordinary shares, they can be used to profit from both a rise and fall in asset price.

Macquarie Warrants are available over individual shares or indices, they are listed on the SGX and can be bought and sold like ordinary shares.

A warrant gives the holder the opportunity to buy or sell a share at a future date for a fixed price. The two basic types of Warrants are "Call Warrants" and "Put Warrants". Call Warrants give investors the potential to profit from share price rises. Put Warrants give investors the potential to profit from share price falls.

A Call Warrant gives the holder the right, but not the obligation, to buy the underlying share at a fixed price known as the "exercise price" at a future date or, in the case of a cash settled warrant to receive a cash settlement amount reflecting the amount by which the share is above the exercise price. A Put Warrant gives the holder the right, but not the obligation, to sell the underlying share to the Warrant Issuer at the exercise price, or, in the case of a cash settled warrant to receive a cash settlement amount reflecting the amount by which the share price is below the exercise price.

The price at which a warrant holder may buy or sell the underlying shares or the price used in determining the cash settlement amount is known as the exercise price.

A call warrant is said to be out-of-the-money when the exercise price is higher than the share price and in-the-money when the exercise price is lower than the share price.

A call warrant will be worthless if the share price is lower than the exercise price on the expiry day. However, with upward movements in the share price, the holder can still earn excellent returns trading the warrant prior to the expiry date.

The opposite occurs for a put warrant. It will be in-the-money when the exercise price is above the share price and out-of-the-money when the exercise price is below the share price. With downward movements in the share price, the holder can make profits trading the put warrant prior to its expiry date.

Advertorial

Asian REITs 1H 2010.

The report by CBRE RESEARCH (ASIA) titled REITS AROUND ASIA 1H 2010 makes for interesting reading. See the following two paragraphs from the report regarding S-REITs:

The total market capitalisation of S-REITs stood at US$21.1 billion as of the end of the first half, making it the second largest REIT market in Asia after Japan. The outlook for S-REITs is stable as the sector continues to be supported by the strong rebound in Singapore’s economy, the stabilisation of rents across the retail, office and industrial property sub-sectors  as well as the steady performance and lower refinancing risk of many S-REITs.

The simplicity of S-REITs as an investment instrument, their strong underlying fundamentals and relatively risk averse nature continue to make them an attractive option for investors. The S-REIT market has developed and matured over the last eight years, in size as well as in complexity and depth. S-REIT portfolios now cover a wide array of assets in retail, commercial, industrial, healthcare, hospitality and residential sectors, all of which are situated in diverse locations around the region. Investors in REITs have also evolved and now look towards the potential of a REIT’s property portfolio. These include factors such as asset type, geographical location, occupancy rates, demographics, lease terms, tenant quality and diversity, all of which combine to provide support for the portfolio’s aggregate rental income and in turn the sustainability and stability of the REIT’s distributable income. Investors also consider the REIT manager as this directly involves the development and implementation of the REIT’s investment strategy, the management of its portfolio and capital structure to foster long-term profitability.

Read complete research paper here.

Saizen REIT: More buying interest.

I received an email from a reader today saying:

"Seems like u like japan. Saizen see pick up in vol today and yesterday"

My reply:

"I like Japan a lot. Beautiful country, nice people, good food. Everything works. It is like Singapore but costs more.

"Saizen REIT is very undervalued. It is a matter of time that more investors take notice. It also takes time for its troubled past to fade. I have been holding for a year. I can wait a few more months."

Reader's reply:

"About one of your question, if the yield at 6.5% is attractive. I think the current yield is not attractive, and if the price goes up, the yield will fall further?

"Even though it has upside potential due to the NAV, it may be cap by the yield, unless the revenues improve?"

My reply:

"6.5% is attractive because the properties are Freehold. It is perpetual. If the properties are leasehold, then, it is not very attractive.

"For such a portfolio, a fair yield should be 5% which means unit price should be about 21c."

This reader is not the only person with negative perceptions or reservations about Saizen REIT, I am sure. There are also those who are worried about Japan's future which includes its debts and its demographics. I have voiced my opinion about these concerns before and you might want to read it here.

How do I feel towards these negative feelings and perceptions? Glad. Yes, glad.  There are still many doubters and the wall of worries is still intact. When everyone is bullish about something, that is a sign that we should think of exiting.

However, I noticed that there seems to be more buying interest in Saizen REIT today too. Of 3,260 lots that changed hands today, 2,968 lots were bought up at 16c. This could just be an anomaly or this could be the beginning of something bigger. Who can say for sure? A crack in the wall of worries? Perhaps.

The very thin trading volume of this counter makes TA unreliable but, for want of a better tool, let us look at the charts anyway. In end May and early October, Saizen REIT touched a low of 15c. It is interesting to note that the MACD has formed a higher low in early October. This is interpreted as a positive. The MACD has, in fact, moved higher into positive territory which suggests the return of positive momentum.

The MFI, a function of volume and price, is in oversold territory. The OBV does not show any big moves of accumulation or distribution. All the daily MAs seem to be bunching together. I have seen such a gathering before and likened it to a spring coiling up with tension. The 20dMA is set to complete a golden cross with the 50dMA. Immediate resistance at 16c.  Immediate support at 15.5c.

Let us now look at the weekly chart which could be revealing for a counter with such thin trading volume like Saizen REIT. It is immediately apparent that 16c is a formidable resistance level as that is where we find the merged 20w and 50w MAs.  However, the gently upturning 100wMA and the rising MACD which just did a bullish crossover with the signal line suggests that the longer term trend of Saizen REIT is positive.

Related post:
Saizen REIT: AGM on 19 Oct 10.

Golden Agriculture: Up or down?

Golden Agriculture's share price staged a recovery today, forming a short white candle, closing at 68c. Note that the price moved higher today on relatively low volume. Since 18 Oct, this is the counter's second attempt to move higher. We need to see volume expansion to have a meaningful upward movement in price that is sustainable at the same time.

Would the rising 20dMA be able to push the price higher? My suspicion is that sellers would turn out in force if price moves closer to 70c as it is a thrice tested resistance in recent memory.  Therefore, 70c remains the resistance to watch.

Critical support is at 65c. If this were to break with high volume, we could see price retreating to 61c, a possible resistance turned support and this is also where the rising 50dMA is approximating soon.

Golden Agri +5.3%; Positive press helps a tad: Analyst. Analyst adds, fundamentally, no impact on company, RSPO compliance actually a money-losing issue, estimates RSPO compliance cost at U$3/tonne. “It’s a PR issue for Golden Agri, and now they’ve got some positive press, the stock has moved up.” $0.705 recent peak may cap medium term.
Monday, 01 November 2010

© 2010 - The Edge Singapore