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Wilmar: Not a time to sell.

On 5 June 12, I did a blog post on whether it was time to go long on Wilmar. Yesterday, someone asked me as well if it is now a good time to go long on Wilmar.

To any seasoned market watcher, Wilmar's share price must look quite tantalising as it hit a low of $3.41 on 14 June 12. That was a good 43% lower than its one year high of $5.99 a share.

Now, if we should think of a reason for the decline in price, it is clearly because of the company's disappointing earnings. The company's crushing business is likely to remain very difficult for some time to come. In fact, the CEO said it could take a few years for excess capacity in China to be absorbed. As this business is about 25% of the company's revenue, a decline in its share price is to be expected but the decline has been disproportional. I have no doubt that short sellers made quite a bit of money here as well.

Wilmar's share price has seemingly found a floor and has rebounded somewhat. I see immediate resistance at $3.70 or so. If it should break resistance, we would probably see short sellers covering their positions which would send share price higher to test the next resistance.

If the company's share price should test a new low, everything remaining constant, we should see stronger buying interest returning. Technically, the momentum oscillators are rising and, so, support this thesis. Look out for a higher low in the momentum oscillators then. That would be a clear signal to go long as the share price is set up for a reversal.

Is it time to buy Wilmar's shares? I feel, at least, it is not a time to sell.

Related post:
Wilmar and China Minzhong: Time to go long?

SPH: Better investment than retail S-REITs?

SPH is still my largest investment in a Singapore blue chip and it is an important part of my high yield portfolio. CIMB now suggests that investing in SPH is better than investing in retail S-REITs. It would be a happy coincidence for me if CIMB should be right as my only exposure to retail S-REITs is a small long position in Suntec REIT, much smaller than my investment in SPH.

Singapore Press Holdings is becoming increasingly like a retail real estate investment trust (REIT), CIMB Research said, noting its growing retail property arm and stable media business, as well as typical payouts of more than 90%...


The broker also said SPH is a cheaper alternative for investors seeking exposure to retail Singapore REITS after the stock’s underperformance, offering yields of 6.4% versus an average of 6.1% for retail Singapore REITs...


CIMB said revenue compound annual growth rate for SPH’s “gem asset”, Paragon shopping mall in Singapore, stood at 8.3% over 2006-2011, outstripping growth for comparable assets under retail Singapore REITs.


Related post:
SPH: Interim dividend of 7c per share.

CIMB says SPH a “pseudo retail REIT”. It upgraded its rating on SPH to outperform from neutral and raised its price target to $4.19 from $4.13.
Tuesday, 19 June 2012

© 2012 - The Edge Singapore

Singapore property prices to stay resilient?

If the latest report by Maybank is correct, then, the expected 20 to 30% decline in Singapore property prices over the next couple of years might not transpire. The expectation is now for a mere 10% decline in property prices over the next 18 months. This suggests that any dip in prices could see showflats packed with buyers again.

Related post:
Affordability of housing in Singapore.

Singapore residential sector to see soft landing. Shares in CapitalMalls Asia have jumped nearly 32% this year, while CapitaLand rose 22% and Keppel Land is up nearly 39%.
Tuesday, 19 June 2012

© 2012 - The Edge Singapore

Marco Polo Marine: Persistent insider buying.

I find Marco Polo Marine, an offshore and marine company, a rather interesting proposition at current prices of 31.5c to 32.5c a share.

1. PER of about 8x
2. Net profit margin just under 20%
3. NAV per share at 37c
4. Interest cover ratio at 8.3x
5. Gearing at 30%

Marco Polo Marine has the intention of listing an Indonesian subsidiary on the Jakarta Stock Exchange. This could unlock value as Kim Eng estimates the listing could value the company's stake in the Indonesian subsidiary at more than 30% of the company's current market cap.

Perhaps, it is the persistent insider buying over the last 12 months that really nailed it for me here:

Announce Date [Date of Effective Change]	Buyer/ Seller Name [Type*]	S/ W/ U **	Bought/ (Sold) ('000)	Price ($)
					After: No. of Shares ('000) ***	% Held ***
05/06/12 [05/06/12]	LEE WAN TANG [DIR]	S	1,095	0.325	195,311	57.02
05/06/12 [05/06/12]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	95	0.325	191,399	56.17
01/06/12 [01/06/12]	LEE WAN TANG [DIR]	S	110	0.335	194,216	57.00
01/06/12 [01/06/12]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	110	0.335	191,304	56.14
16/05/12 [16/05/12]	LEE WAN TANG [DIR]	S	114	0.340	194,106	56.96
16/05/12 [16/05/12]	NAUTICAL INTERNATIONAL HOLDING LTD [SSH]	S	114	0.340	191,194	56.11
10/05/12 [10/05/12]	LEE WAN TANG [DIR]	S	100	0.340	193,733	56.85
10/05/12 [10/05/12]	NAUTICAL INTERNATIONAL HOLDING LTD [SSH]	S	100	0.340	191,080	56.08
15/12/11 [14/12/11]	LEE WAN TANG [DIR]	S	159	0.335	193,892	56.90
14/12/11 [13/12/11]	LEE WAN TANG [DIR]	S	100	0.335	193,733	56.85
05/12/11 [02/12/11]	LEE WAN TANG [DIR]	S	100	0.341	193,633	56.83
05/12/11 [02/12/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	100	0.341	190,980	56.05
02/12/11 [02/12/11]	LEE WAN TANG [DIR]	S	70	0.345	193,533	56.80
02/12/11 [02/12/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	70	0.345	190,880	56.02
28/11/11 [28/11/11]	LEE WAN TANG [DIR]	S	11	0.330	193,463	56.77
28/11/11 [28/11/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	11	0.330	190,810	56.00
28/11/11 [25/11/11]	LEE WAN TANG [DIR]	S	500	0.330	193,452	56.77
28/11/11 [25/11/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	500	0.330	190,799	55.99
07/09/11 [06/09/11]	LAI QIN ZHI [DIR]	S	71	0.337	192,952	56.63
07/09/11 [06/09/11]	LAI QIN ZHI [DIR]	S	100	0.343	192,881	56.60
07/09/11 [06/09/11]	LEE WAN TANG [DIR]	S	71	0.337	192,952	56.62
07/09/11 [06/09/11]	LEE WAN TANG [DIR]	S	100	0.343	192,881	56.60
07/09/11 [06/09/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	100	0.343	190,299	55.85
05/09/11 [02/09/11]	LAI QIN ZHI [DIR]	S	117	0.350	192,781	56.58
05/09/11 [02/09/11]	LEE WAN TANG [DIR]	S	117	0.350	192,781	56.58
31/08/11 [29/08/11]	LEE WAN TANG [DIR]	S	100	0.350	192,664	56.54
31/08/11 [29/08/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	100	-	190,199	55.82
29/08/11 [26/08/11]	LEE WAN TANG [DIR]	S	64	0.345	192,564	56.51
25/08/11 [25/08/11]	LEE WAN TANG [DIR]	S	299	0.338	192,500	56.49
25/08/11 [25/08/11]	NAUTICAL INTERNATIONAL HOLDINGS LTD [SSH]	S	299	-	190,099	55.79
24/08/11 [23/08/11]	LEE WAN TANG [DIR]	S	50	0.340	192,201	56.41
23/08/11 [22/08/11]	LEE WAN TANG [DIR]	S	251	0.332	192,151	56.39
22/08/11 [19/08/11]	LEE WAN TANG [DIR]	S	170	0.333	191,900	56.32
19/08/11 [18/08/11]	LEE WAN TANG [DIR]	S	300	0.347	191,730	56.27
21/06/11 [20/06/11]	LEE WAN TANG [DIR]	S	100	0.374	191,430	56.18
20/06/11 [17/06/11]	LEE WAN TANG [DIR]	S	150	0.373	191,330	56.15
16/06/11 [15/06/11]	LEE WAN TANG [DIR]	S	120	0.376	191,180	56.10
14/06/11 [13/06/11]	LEE WAN TANG [DIR]	S	150	0.377	191,060	56.07
10/06/11 [09/06/11]	LEE WAN TANG [DIR]	S	100	0.386	190,910	56.02
07/06/11 [06/06/11]	LEE WAN TANG [DIR]	S	200	0.385	190,810	56.00

AIMS AMP Capital Industrial REIT and Sabana REIT: Performance fees.

This issue of The EDGE has a very interesting article by Goola Warden on S-REITs. In a nutshell, it looks at potential conflicts of interest between their external managers and unitholders. To this end, it looks at the layers of fees charged by the managers.

As investors, we want to make sure that the REIT managers are fairly rewarded since no one would work for free. However, we have to safeguard our interests too especially when there is a lack of uniformity in the way the fees are calculated.

On the issue of performance fee, CLSA says that AIMS AMP Capital Industrial REIT and Sabana REIT are amongst S-REITs with the most equitable performance fee structures. The managers are only paid performance fees upon satisfying certain conditions.

The manager of AIMS AMP Capital Industrial REIT gets paid 0.1% of the deposited property value if distribution per unit (DPU) growth exceeds 2.5% per annum. The manager gets paid 0.2% of the deposited property value if DPU growth exceeds 5% per annum.

The manager of Sabana REIT gets paid 0.5% of the net property income (NPI) if the REIT achieves DPU growth of 10% per annum for unitholders.

So, if unitholders get a meaningfully higher DPU, the managers are rewarded with a performance fee. I doubt if anyone would quarrel with this. It appeals to my sense of fair play.

Between the two REITs, however, I believe that Sabana REIT's performance fee structure is fairer. Rewarding the manager with a percentage of the NPI makes sense because a higher DPU is probably due to a higher NPI. 

So, having the REIT manager rewarded a percentage of the NPI makes more sense to me than rewarding them with a percentage of the deposited property value.

Nonetheless, AIMS AMP Capital Industrial REIT's conditional performance fee is still better than those of REITs like Suntec REIT which pays 4.5% of the REIT's NPI as performance fee to its manager regardless of performance. 

Er... Am I missing something here?

Seems like there is more reason to like Sabana REIT now apart from its very high distribution yield. ;)

Reference:
"Growth versus value.", Goola Warden, The EDGE, pages 22 to 24, 18 June 2012.

Related posts:
1. Sabana REIT: 1Q 2012 DPU 2.26c.
2. AIMS AMP Capital Industrial REIT: 4Q FY2011.

Olam: Accumulate now?

A few days ago, I blogged about Olam and how Kim Eng has a SELL recommendation. That got a reader who is invested in Olam sufficiently flustered to send me an email. Hey, I was just sharing an analysis which I thought made sense. Don't shoot the messenger and if it is any consolation, my badly timed initial investment in Wilmar fared worse.

"Olam has been the second worst performing member of the STI this year, with only Wilmar having done worse." (The EDGE, 18 June)

Anyhow, the article by Joan Ng in the same publication went on to report that CIMB Research thinks that present cheap valuations could be a buying opportunity for long term investors.

"The correct investment stratey to follow since 2009 has been to raise market exposure and beta when sentiment enters the panic zone, like now," Ajay Kapur, Deutsche Bank. He notes that there have been three major reflation exercises over the past three years.

"At the start of each of these episodes, investors were incorrectly cynical, consumed by the panic of the moment. We think we are on the verge of another policy reflation in the coming weeks or months. Start buying during this bottoming process rather than over-analysing." (The EDGE, 18 June)

For the numerically inclined, Olam is said to be trading at a price to book value of only 1.2x now compared to its trough of 1.5x during the global financial crisis.

Accumulate? Olam's management seems to think their stock presents great value too.

Related post:
Olam: Share price up on buy backs.

Soup Restaurant: Gain of $7.7m.

On 14 June, Soup Restaurant confirmed the sale of its stake in YES F&B Group Pte Ltd. The consideration is S$7.9m which represents an excess of some S$7.7m over the cost of investment of the Group at the end of FY2011.

The net tangible assets (NTA) per share and consolidated earnings per share (EPS) of Soup Restaurant will be positively impacted in the current FY2012. The former would see an increase of 1.18c per share while the latter would see an increase of 1.05c per share.

The completion of such a sale is not going to happen immediately. It is going to take some time but the rising OBV seems to be telling us that smart money is accumulating shares of Soup Restaurant even as its share price suffers from some weakness in recent sessions.

I bought some shares recently at 12.3c. If I do not make money from this investment, at least I would get a 15% discount when I dine at Soup Restaurant outlets in future as a shareholder. ;p

See announcement: here.

Related post:
Soup Restaurant: Special dividend?

China Minzhong: High volume white candle day.

Having added to my long position in China Minzhong recently, believing that it was not a time to sell, I am pleased to say that I seem to be on the same page as Mr. Market now.

I added more to my long position today as share price broke resistance provided by the 20dMA at 57c on the back of very high volume in the morning. Volume is the fuel that drives rallies and the high volume breakout could see some follow through.

Fundamentally undervalued, China Minzhong was, technically, also very oversold. However, with the relentless selling by Mr. Market and decline in share price, the technicals are pretty damaged and it would take some time to repair.

The share price is in a downtrend; there is no doubt about it. Drawing a trend line shows us where resistance could be found over time in the event of a price recovery. Shortists who might have covered their shorts today could come out of the woodwork once the share price is at resistance.

In the meantime, the rising momentum oscillators suggest that selling pressure continues to ease and if buying pressure should continue to overcome the sellers, a test of trend line resistance is on the horizon.

The resistance provided by the declining 50dMA is something to watch out for as, if I were to hazard a guess, sellers would be out in force then. Immediate support is now provided by the 20dMA, formerly resistance at 57c.

Related post:
China Minzhong: Too cheap to sell.

Buying a piece of real estate within your means.

This blog post is part of ASSI's voluntary community service to help raise awareness on personal financial planning. Sounds altruistic, doesn't it? Well, it doesn't cost me anything.

Sky Habitat. 509 units in two 38 storey towers. Price: $1,700 psf!

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If you haven't given much thought to your home purchase, use the checklist created by the CPF Board to guide you through your decision making.

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Related post:
Buying a private property?

Olam: Share price up on buy backs.

I have always thought Olam's gearing level quite scary. Then again, it is the same with Noble and Wilmar although not as highly geared as Olam. I was told that their business models are such that high gearing level is nothing to worry about. Indeed, Mr. Market seemed to think so as their share prices were sky high once upon a time.

Gearing is a double edged sword and if a business is able to magnify its returns through gearing, then, higher gearing would intensify the returns many times over. However, in down times, things could turn really ugly. Then again, in the current environment of very low interest rates, borrowers are shouldering much lighter burdens.

When Olam announced that they are buying back shares from the market, my immediate reaction was a positive one. Hey, the management are confident in their own business and are walking the talk. However, when we remember that it still has plenty of debt in its books, it doesn't seem to make much sense anymore.

Kim Eng has this to say:
Share price jumps on buyback mandate. Olam’s share price has jumped 11% since the company announced last Friday that it has commenced a share buyback programme. While such a move is usually a positive sign, the circumstances for Olam seem rather unusual. Fundamentals-wise, other than to deter the short sellers, we do not think it is necessarily an enhancive step for shareholders. Borrowing money to purchase shares. The case for a share buyback is stronger for companies with piles of idle cash coupled with strong operating cash flows. Olam, however, is considered highly leveraged with net gearing of 189% and adjusted net gearing of 42% as at FY6/12. Since listing in 2004, its operating cash flow has been positive only in 2006 and 2009 as funds were needed for expansionary working capital.

Kim Eng has a SELL recommendation on Olam with a TP of $1.43.

Defensive stocks and REITs outperform in volatile times.

Market volatility has become a norm and it is getting harder to time the market. Rather than sitting on the bench and having your savings eroded by inflation, REITs have what it takes to provide you the value protection barring any major exogenous shocks. Defensive play would be better option taking into condition of the current erratic climate. Above all, the compelling yield will support the price and smoothen the overall individual’s portfolio returns.

Source: Phillip Capital
Read: REIT Sector Update, 12 June 2012.


Related posts:
1. Investing in REITs: A flawed strategy?
2. Telcos and REITs are top performers in May.

Saizen REIT: Insiders are accumulating again.

I read this in The Business Times just last evening:

CEO, Chang Sean Pey and executive director, Raymond Wong, acquired units in Saizen REIT this month with a combined 602,000 units purchased from 4 to 7 June at 14 cents each.

This is the CEO's first on-market trade since September 2011. The CEO now holds 3.65 million units or 0.26%. He acquired 2.02m units from March 2009 to September 2011 at an average price of 15.5c each.

Executive director, Raymond Wong, now has a deemed stake of 24.909m units or 1.74%. Prior to the acquisitions this month, he acquired 6.7m units from February 2009 to August 2010 at 10c to 17c each or an average of 14.3c each.

Also positive this quarter, executive director, Chan Kin, purchased 530,000 units on May 25 at 13c each. His deemed holdings increased to 185.041m units or 13.8%.

Of course, with insiders buying, it does not mean that the unit price is only going up from now.  However, do they know something we don't? Or do we know what they know but are unwilling to act like they have?

I do know Saizen REIT would be paying its half yearly income distribution in September. Is it going to be a bumper distribution?

Related posts:
1. Saizen REIT: Why did I buy and would I buy more?
2. Saizen REIT: Insiders buying again at 14c.
3. Saizen REIT: Acquisitions to increase DPU.

China Minzhong: Too cheap to sell.

One of the things we hear is that we should buy at prices we would not sell at and to sell at prices we would not buy at. Not too long ago, on 5 June 12, I said that it is not a good time to sell China Minzhong's shares and that it would be more sensible to think of adding to any long positions. See the blog post: here.

In a research dated 11 June 12, Kim Eng says that:

We would not recommend investors to cut loss at this stage as stock valuations are still too cheap to do so. ... The next catalyst for the stock would be the full-year results ended in June 2012. We expect to see revenue recovery due to the late-winter season and the fact that Minzhong should also be able to collect the bulk of its receivables in 4QFY6/12. The full-year numbers should reveal the impact of the European problem on both demand and asset quality.

How low can the share price go? We conduct a scenario analysis to determine how low the share price can fall to ... Although we believe that the share price has already factored in the potential slowdown in demand in Europe and our target PER of 4.7x is 25% below the historical average, we have:

1. cut our sales volume further by an aggressive 40%,

2. written down CNY200m in receivables for FY6/13, and

3. revalued the share price at 3.7x PER, which is 1 standard deviation below the historical average PER.

The upshot is a target price of SGD0.51, which is only a little below the current price of SGD0.53.

Minzhong’s worst case NAV per share (we exclude land use rights, land improvement costs as well as 20% of trade receivables) also suggests the current share price provides a very safe floor.

Soup Restaurant: Special dividend?

Some of us might remember the recent saga of Soup Restaurant VS. Dian Xiao Er. For those not in the know, there was an announcement on 4 April by Soup Restaurant: read it here.

What interests me is this:

On 4 April 2012, the Plaintiffs communicated their acceptance of the Defendants’ 3 April 2012 offer. The Plaintiffs have agreed to purchase SRG and SRI’s shareholding of 50.98% in YES for the sum of S$7,901,900.00 (i.e. 50.98% of S$15,500,000.00), and for parties to withdraw or discontinue their respective claims and counterclaims in the Suit.

The Company is pleased that the Plaintiffs have accepted the Defendants’ offer without qualification, and that they have agreed to settle the Suit on the basis proposed by the Defendants. The Company is of the view that this outcome best ensures that shareholders’ value in the Company is preserved.

This was followed by another announcement by Soup Restaurant on what might they do with the money coming in. Read announcement by the Company: here.

Soup Restaurant said if the sale goes through, it has three options available to it on the use of the proceeds: distribute all the proceeds by way of a special dividend, use the proceeds to fund expansions, or distribute part of the proceeds to shareholders and deploy the balance for expansion.

Based on the number of shares on issue (298.5m shares), if Soup Restaurant were to pay out all the proceeds of $7.9m to shareholders, each share would get 2.6c in special dividend. If the Company decides to pay out half of the proceeds and retain half to fund its business expansion plans, it would still be an attractive 1.3c per share in special dividend.

Its share price closed at 12.5c in the last session.

Read the story: Dian Xiao Er no longer in the Soup.

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Find out how to do it: here at Nestle!

Wilmar and China Minzhong: Time to go long?

My ill fated investments in Wilmar and China Minzhong are 30% and 45% down, respectively. The decision to be vested in these two counters were based on macro ideas and technically, they looked like they were resting on supports.

As regular readers know, I do not have cut loss prices and would seek to add to long positions if the technicals are favourable. Favourable? Yes, I look for higher lows in the momentum oscillators as share prices move lower.

Today, I added to my long positions in Wilmar and China Minzhong as their charts show me rising momentum oscillators while their share prices are retreating. The trading volumes have dwindled as well which led me to think that a floor could possibly be forming, if not the bottom.

Wilmar's share price is currently sitting on a golden ratio and if this should break, we could see $3.30 or even $3.08 tested next. Although the momentum oscillators are rising, the OBV is in decline which suggests that distribution activity is ongoing. I won't be too ambitious in adding to long positions.

China Minzhong's chart is similar to Wilmar's and if the Fibo lines I have drawn are any good, we could see 51.5c tested next. We could be seeing more selling although the the trading volume suggests that the action might not be as intense as before.

In both cases, it is not a good time to sell. Indeed, it would make more sense to stay vigilant for opportunities to buy in.

My strategy is to nibble and increase my additional purchases at lower prices if the technicals suggest that it could be a good idea. Of course, there is no way we can be absolutely sure and we can only call a bottom after it has been formed.

Telcos and REITs are top performers in May.

This is taken from an article in The Business Times today:

LMIR's Pluit Village.

The high dividend sectors of telcos and REITs performed the best in May. SGX highlighted the defensive nature of these two sectors in a market update on June 1.

In May, telcos declined 0.43% and REITs dropped 1.73%. The STI fell 7% from 2.979 to 2,773, the largest monthly drop this year.

SGX noted that the top performers year to date are FCOT, gaining 28.4% and AIMS AMP Capital Industrial REIT, gaining 20%.

Industrial buildings belonging to Cache Logistics Trust.

With 70% of my portfolio made up of S-REITs with good fundamentals, I sleep better at night, enjoying rather high yields and receiving regular income distributions.

Related posts:
1. Staying positive on S-REITs.
2. AIMS AMP Capital Industrial Trust: 4Q FY2012.
3. FCOT: DPU up 16.8% in 18 months.

DBS ups Starhill Global target price
Tuesday, 05 June 2012

© 2012 - The Edge Singapore

Tea with AK71: A new car for S$75,000?

I bought my Mazda 2 nearly two years ago for slightly more than S$70,000. I thought it was a little expensive but I pillarised my then Mazda 6 and was somewhat depressed. So, I got a new car.

Read the stories here:
1. Tea with AK71: Pillarised.
2. Tea with AK71: Bought a new car!

Anyway, buying a new car then proved to be a somewhat fortunate move since car prices have shot through the roof!

Read: Tea with AK71: The price of my car now.

Indeed, I found out that it would cost more than $100k now to buy a new Mazda 2!

As if that is not depressing enough, I am constantly reminded by foreigners what I could have bought in their home countries with the money I paid for my car.

Today, I am reminded once more of how expensive cars are in Singapore as I read the weekend's edition of The Business Times. Couldn't have missed it. It was on the front page.

In Singapore, a Chery QQ would set us back by S$74,988 now, after discount!

In the USA, we could buy a Porsche Boxster Black Edition for S$71,060!

In the U.K., we could buy a Mercedes Benz SLK for S$53,692!

OK, those countries are far away. What about nearer home? Well, in Malaysia, we could buy a Volkswagen Golf 1.4 TSI for S$60,704.

In Indonesia, we could buy an Audi A3 Sportback for S$70,672.

It is enough to make a grown (Singaporean) man cry.

SoundGlobal: Rising 14.1% in a day!

I am having some difficulties uploading charts this evening. Don't know why. So, you would have to search out the chart for SoundGlobal if you want to look at it.

SoundGlobal's share price went up 7c (14.1%) today to close at 56.5c. The long white candle started the day at 50c which is where we find the 20dMA. It dipped below this MA and touched a low of 48.5c before rocketing to a high of 56.5c where it closed, breaching resistance provided by the 50d and 200d MAs in a single session.

Momentum oscillators like the MACD and MFI are rising strongly. OBV has formed a higher low which suggests that there is accumulation ongoing. The bulls seem to have returned to the stock.

I bought more shares of SoundGlobal on 22 May at 46.5c as price opened at 46c which was higher than the closing price of 45c in the preceding session which formed a long legged doji after touching a low of 44.5c.

A long legged doji is usually a sign that things could be reversing but the signal needs confirmation the following day. In this case, the signal was confirmed and, hence, my purchase. The purchase helped to average down my initial long position which was entered at 59c a share.

I would like to see volume expanding in the next session if price were to push any higher in order to have a more convincing case to be bullish. In the meantime, it is quite clear that the downtrend that started on 15 February 2012 when the share price hit a high of 68c has been broken. Things are looking up for SoundGlobal's share price, it would seem.

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Saizen REIT: Why did I buy and would I buy more?

There are so many ways to look at an event.  

Some might look at it positively and some might look at it negatively. 

Some might jump for joy and some might break out in cold sweat.

All of us have imperfect knowledge and what we think is reality very often is enough to push us into action. 

Of course, what we think is reality might not be reality and those who are eventually proven right might just have been lucky.






What is all this rambling leading to?

The recent weakness in Saizen REIT's unit price has been a source of concern or interest, depending on where we stand. 

Personally, I am not concerned. 

I am more interested. 

I also hope that I know Saizen REIT a bit better than most.

When I last blogged about Saizen REIT, its unit price had declined to 13.6c. 

That was already a 10% decline from its high of 15c a unit just a few weeks ago. 

In that blog post, I presented some numbers and asked that interested parties decide for themselves if 13.6c was a good enough entry price.

Well, I added to my long position yesterday at 12.8c to 13.1c a unit. 

Taking in the dilutive effect of the warrants, buying at these prices would give me distribution yields of 8.24% to 8.44%, all else remaining equal, which I believe to be rather attractive for freehold residential properties in Japan.

Some might even say that buying at these prices is similar to buying right after the triple disasters early last year when the REIT was sold down to 13c a unit. 

Is the REIT in a situation which is similar to last year's panic? 

Is a low of 12.7c per unit justified by worsening fundamentals? 

(This is really a rhetorical question since, often, there would be a mismatch between price and value.)





Well, the warrants outstanding, if fully exercised, would have a 12% dilutive effect on distribution yield, everything else remaining equal. 

However, the REIT is now without the problem it had with YK Shintoku back in early 2011. 

The REIT is currently in possession of a much stronger balance sheet and looks set to grow its DPU over time.

So, buying more of Saizen REIT now at 13c a unit has less uncertainty compared to buying at 13c in the aftermath of the triple disasters last year. 

Less uncertainty perhaps but what about value? 

Is buying at 13c now the same in value as buying at 13c back then?

The Palms Denenchofu, Tokyo. Acquired on 30 March 2012.

The NAV/unit now, taking into account the dilutive effect of the warrants would be 31c . 

This value, actually, has not changed since March 2011. 

Although it is good to know that we would still have the same value of asset backing each unit we purchase, we are really investing for income here and are not after discounted assets per se. 

What about its DPU?

With gearing, adjusted for warrants, reducing from 28.3% to 21%, the REIT has more resources to increase DPU through yield accretive purchases. 

Its DPU looks likely to be higher in future than not, all else remaining equal.

Would I buy more? 

I would continue to accumulate units of Saizen REIT next week if it should trade at 13c per unit or lower.




Related post:
Saizen REIT: To buy or not to buy.

Republished in NextInsight as:
Saizen REIT: Buy more of the REIT or no?

Saizen REIT: To buy or not to buy?

Regular readers would know my whole story with Saizen REIT. I remain invested in the REIT for various reasons which I believe are still valid.

This blog post is to answer a question which I have received from readers, friends and family alike. Is it a good time to buy more units of Saizen REIT?

This is a question which I would avoid giving a direct answer to. There is a great deal of subjectivity.

However, I would present some numbers here and you decide.

The annualised DPU is some 1.22c based on the last payout. At 13.6c a unit, the distribution yield is some 8.97%. Sounds good?

However, bearing in mind that its warrants will expire on the 1st of next month, I expect the warrants to be fully exercised within these few days. The exercise price is 9c. This would increase the units in issue by some 13%.

So, everything being equal, it would be reasonable to expect the DPU and distribution yield to reduce somewhat. Revised DPU is about 1.08c which would give us a distribution yield of 7.94% based on 13.6c a unit. Still sounds good?

I would also like to throw in the possibility of the JPY weakening further. The lowest the JPY has been against the S$, I remember, was S$12.50 to JPY1,000. That was a few years ago. It is currently about S$15.80 to JPY1,000. This is already weaker than late last year when it was more than S$16.00 to JPY1,000. Assuming that the JPY weakens another 20% from current levels, I expect the DPU to be 0.864c which would give us a distribution yield of 6.35%. Still good enough?

Of course, the weakening of the JPY is very unlikely to happen overnight in such a large magnitude. Neither is this a guaranteed scenario although it is highly probable with the Japanese government keen on weakening its currency.

What I have done so far is to assume the worst case scenario, barring more natural disasters and an attack by Godzilla. What I have not done yet is to take into consideration what the management might do to bump up DPU in JPY terms.

With the warrants exercised, the gearing of Saizen REIT would drop to the low 20+%. The REIT would probably continue looking for yield accretive purchases. Gearing is expected to hit the optimum 40% in such an instance. It is estimated that DPU could increase some 30% then. Promising, isn't it? Remember that this remains guesswork on our part, however.

I have mentioned this before but it pays to be reminded also that Saizen REIT's loans are amortising in nature. This means that its debt burden would reduce in time. In fact, I made the observation before that if the REIT's loans were not amortising in nature, its DPU would be some 50% higher than it is now.

Now, you decide if Saizen REIT is a buy for you at 13.6c a unit.

Related post:
Saizen REIT: Acquisitions to increase DPU.

See Saizen REIT's May 2012 presentation: here.