Mature and sophisticated consumers lease cars, not buy.

From time to time, I would blog about car ownership in Singapore. Without realising it, I have blogged about "cooling measures" for cars at least three times in the last few months.

Now, with the maximum 60% loan allowed for buying cars, some distributors are offering customers the option to lease instead if they find it hard to cough up the initial 40% in cash.

For a Kia Cerato Forte K3 1.6 litre, there is an option to lease for 3 years at about $1,800 a month or for 7 years at about $1,600 a month. Customers don't have to worry about road tax, insurance and maintenance at all. They only have to buy petrol, pay for parking, ERP and the infrequent car wash, I suppose. Sounds attractive, doesn't it?

As usual, the devil is in the details. So, let us look at some numbers:

A new Kia Cerato Forte K3 now sells for $115,990.

If we were to make a 40% down-payment and take a 5 year loan with a 1.88% interest rate for the balance, we would have to make a monthly repayment of $1,268. The car would also be an asset and no longer a liability after the first 5 years.

Click to enlarge.

Cost of car over a 10 year period: $122,479. This might be simplistic and inaccurate but let us assume that the cost of the car in the first 7 years is proportionally at $85,735.

The road tax for this 1.6 litre car is S$738.00 a year while insurance would vary but let us assume that it is $1,500 a year. Maintenance? Based on my car ownership experience, I would put it at $800.00 a year which is realistic if smoothed out over 7 years. So, everything in, we are looking at around $3,100 a year. Over 7 years, it is about $21,700.

Now, if we were to lease the car for 7 years, the bill would total $134,400.

If we were to buy the car instead, in the first 7 years, the "bill" would be: $85,735 + $21,700 = $107,435.

There is a big difference of $26,965 or a $3,852 a year or $321.00 a month!

Now, if we were to drive the car for another 3 years, at the end of the 10th year, we would get back a percentage of its OMV. In this case, we might get back around $9,000 from the LTA. Of course, we would have lost another $36,744 (i.e. $122,479 - $85,735) by then. We would also have incurred another $9,300 in costs (i.e. $3,100 x 3).

However, being able to get back about $9,000 at the end of the 10th year means that we would only lose in each of those 3 years $1,028 a month or some $279.00 lesser than the first 7 years of the car's life.

So, unless there is a good reason not to, it makes sense to buy and to drive the car for the full 10 years or would we rather lease the car for 7 years, give it back and lease another one for another 7 years, losing $1,600 a month all the time?

The "cooling measures" are to protect people who are in financially weaker positions and, in this case, for people who cannot afford the down-payment of $46,396. However, the option to lease offered by car distributors has effectively circumvented the new rules.

Are more curbs from the government needed?

If a job is worth doing, it is worth doing well. So, to further encourage financial prudence, there should be clearer guidelines as to who are poor candidates for such options to lease. Car dealers should then be penalised for flouting these guidelines.

Opel's Mr. David Pang said that, with their option to lease, they are targeting "mature and sophisticated buyers. Those who have travelled and lived overseas can identify with the merits of leasing as opposed to buying."

AK71 has not travelled and lived overseas. He is not a mature and sophisticated buyer. So, you might want to disregard this blog post. I am going back to my well.

UPDATE:
http://singaporeanstocksinvestor.blogspot.sg/2016/05/what-new-mas-rules-for-car-loans-mean.html

Related posts:
1. Cooling measures for cars.
2. Cooling measures for cars spurned.
3. Cooling measures for cars: Buying pre-owned.

Marco Polo Marine: Will FY2013 better FY2012?

Year on year, Marco Polo Marine's ship chartering business enjoyed growth in revenue of 147.2% to S$39.3 million for the first 9 months of FY2013. It grew 234.6% to S$17.4 million in Q3 of FY2013 alone.

Ship building and repairs, unfortunately, weakened 52.3% and this reflects the issue of serious over capacities dogging shipyards everywhere.

The question to ask is whether ship chartering is able to pick up the slack and I think it is reasonable to expect that it would. This could be a good thing too as Marco Polo Marine's ship chartering business is a higher margin business compared to ship building and repair.

For the same 9 months in FY2012, ship chartering accounted for 22.7% of total revenue. Now, it accounts for 60.4%. If the malaise in ship building and repair should continue and it seems like it would, ship chartering would probably account for an even bigger share of total revenue especially with the contribution from the AHTS, MP Prevail, which was acquired in June 2013, kicking in.

This growth in revenue from ship chartering will gain momentum as Marco Polo Marine plans to buy another AHTS before end of the year if the opportunity should present itself. They are also building more AHTS in their own shipyard for delivery to BBR in 2014.

For the full FY2012, revenue was about S$ 90 million. For the first 9 months of FY2013, S$ 65 million in revenue has been recorded. So, the group needs to generate another S$25 million in revenue just to equal last year's performance.

It is likely that we will see ship chartering's revenue in Q4 exceeding Q3's S$17.4 million due to contribution from MP Prevail. Another S$0.5 million, perhaps? So, estimated revenue from ship chartering in Q4 could be in the area of S$17.9 million.

Unless ship repair generates lower revenue in Q4 compared to Q3, it is more likely than not that FY2013's overall revenue will equal FY2012's or maybe even exceed it by a bit.

Furthermore, due to the higher margins in the ship chartering business, I would not be surprised if net profit turns out to be higher in FY2013 compared to FY2012 despite a lack of overall revenue growth, exceptional gain of $5.7 million not withstanding.

Anyone who is investing in Marco Polo Marine must be willing to wait as the numbers are expected to improve significantly in FY2014. This means a waiting time of another 12 to 15 months.

Some numbers now for 9M FY2013:
EPS: 5.32c
NAV: 46.8c per share.
Gearing: 59.2%

Stripping out the exceptional gain of $5.7 million, what I believe to be a fair estimate of the EPS for the full FY2013 is around 5.4c. So, at 38c a share, we are looking at a PER of 7x. I don't think the stock is expensive. Given the probability of higher earnings in FY2014, definitely, it is not expensive.

Although I expect that the company is able to repeat a DPS of 0.8c in the next quarter given its cash position, it is perhaps more prudent to refrain from doing so given its current strategy to grow its fleet of OSVs more aggressively.

If there should be a decline in share price, I see support provided by the 100w MA at 37c. I would probably buy more if that should happen.

See media release: here.

Related post:
Marco Polo Marine: Bracing news from Indonesia.

A fan of ABSOLUT Vodka?

My younger sister is a fan of ABSOLUT Vodka. No, she doesn't get drunk drinking it. She gets drunk collecting the different bottles! On a few trips overseas, I was tasked to buy the latest design for her.

I think she will enjoy ABSOLUT Canvas.

This is an exhibition at the National Museum of Singapore and is one of the highlights of this year’s Singapore Night Festival. It features ABSOLUT bottles that have never been seen in Singapore before!

With close to a hundred bottles on display, visitors will get a chance to view rare and limited editions of ABSOLUT VODKA separated into six different themed showcases – the CITY Edition, TRAVELLER’S Edition, DISPLAY Edition, VODKA INNOVATION Edition, LIMITED Edition and RARE BOTTLES Edition.

If you are a fan, you cannot miss this:
http://sg.sharings.cc/AK71SG/share/AbsolutCanvas

SIM GE Open House 2013

Learn how SIM Global Education (SIM GE) equips you for success, with Diploma, Bachelor’s and Master’s Degrees.

Partnering 12 international universities that include the University of London, University of Manchester and University of Birmingham, SIM GE offers more than 50 full-time and part-time programmes.

Breakfast Network for Parents
An event to help parents who want to learn how to guide their child in making an informed education choice. An experienced career coach will share tips and an alumna will also share her education experience in SIM.

Attend programme briefings, scholarship talks and mock lectures to find out more:
http://sg.sharings.cc/AK71SG/share/SIMGE13

NeraTel: BUY. Target price $2.00.

Some people ask me if it is still a good time to buy into NeraTel. Since I was willing to pay 70+c recently for its stock, it must be a good idea to buy at the current price too, especially when a dividend of 2c has just been declared, right?

I think some people got me wrong. They have to understand my motivation for being invested in NeraTel in the first instance. It is primarily for income. For income? Yes, I added to my long position in the stock in a big way not too long ago because I was looking for a non-REIT to become a bigger part of my investments for income. NeraTel fits the bill.

"So, the 10x increase in my long position in NeraTel stems from a need to look for alternative investments which are high yielding but with a low or zero probability of being affected negatively by interest rate hikes." Source: Motivations and methods in investing.

As I revealed, I first got into NeraTel not at 60c or 63c. I first got into NeraTel at 40.5c. I know people who got in even lower. I didn't do much by way of due diligence back at 40.5c. So, it was a smallish position. I just bought and held.

Due diligence in June confirmed that:

"This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable." Source: Which stocks have I been accumulating in June 2013?

Now, at 80c a share, with a DPS of 4c, we are looking at a dividend yield of 5%. That is still pretty decent for anyone who is investing for income but I don't think of it as extraordinary. I think of it more as ordinary. So, in my opinion, it is a fair price. Not expensive but not cheap either.

Then, why did I buy at 70+c? Regular readers might remember that I did that only to restore my long position after a partial divestment at 84c earlier. I did not end up with a long position bigger than what it was prior to that partial divestment. This is consistent with my primary motivation to have NeraTel contribute meaningfully to my passive income. The gains from trading was a bonus.

So, do I not think this is a good time to buy more of NeraTel's stock? Weren't NeraTel's results good? Don't I think NeraTel will be able to deliver on their KPI of a 100% growth in profits over the next 3 years?

Paraphrasing my recent comments on my Facebook wall (https://www.facebook.com/assi.ak.9), I think the results are good. It is a good business to invest in. However, with the share price being where it is, anyone buying now is buying into a belief that the company will do even better in future. Much better. This is not hard to believe but there is, obviously, a risk that we could be wrong.

3 years although not long is not short either. Many things could happen in 3 years. If 100% growth could be achieved, this stock should be worth $2.00 by then. $2.00? Yes, this is just a back of the envelope estimate.

How do we balance the history and the future of the company? Looking at past performance is easy but to look into the future with accuracy? That is definitely not easy. However, this does not mean that people will not try to do it and there are many BUY calls with their own target prices and fair values for the stock. We have to remember that all these are based on expectations.

Although Mr Market is able to accept much higher PERs for growth stocks, if NeraTel should disappoint, Mr. Market will show his displeasure very quickly in the usual way. So, what are the downside risks?

If someone is still wondering if he should be investing in NeraTel at current prices, very importantly, ask what is his motivation for investing in the stock. The investment is a good fit for my motivation at the prices I got in. If I were not yet invested, I might initiate a small position. Is it a good fit for his motivation?

As I am corrupted by TA, I also said that investing in NeraTel at current prices is possibly not for the faint-hearted and if we look at the weekly chart, it is easy to see why I said that:

Now, no chartist in this world is able to tell us that NeraTel's share price will definitely retrace to test any of the supports shown by the Fibo lines. No chartist can tell us that NeraTel's share price will not go higher. Heck, depending on one's motivations, charts might not even be relevant!

On that note, happy holiday!

Is investing in stocks suitable for you? (UPDATED: "Some people should not own stocks." Warren Buffett)

Some people say that investing in the stock market is risky. 

Some people say that leaving money in savings accounts is risky. 

So, if we put half of our money in the stock market and leave half of our money in savings accounts, we are doubling our risk exposure. 

No? Oh dear. 

This is what I have been doing. 

I am in trouble, I think.


If you feel that this blog post is beginning to feel somewhat surreal and totally not in AK's style, you are not alone. 

I feel the same way too.





From time to time, I receive emails from readers and, from time to time, there would be a reader who says he has $5,000 or less to invest with. 

The question is usually what should he invest in? 

Personally, I feel that the pertinent question is if he should be investing at all? 

Well, if I had only $5,000 or less to invest with, I wouldn't.

I think the money is better left in an emergency fund. 





It is too little to really make any big difference to a person's financial well-being even if he were to achieve, say, a 10% return a year. 

After 7 years, that $5,000 would become $10,000 perhaps but there is also a chance that he could suffer financial loss in that 7 years. 

There is no guarantee that he could get back his money if he should need it.





Of course, now, we have services like those by POSB and OCBC which will allow such investors to gain exposure to the stock market. 

Matthew Seah, a guest blogger here, has also blogged about these recently.

Reading the latest issue of The EDGE, I came across this:

"Ultimately, the most important thing for investors to know is whether exposure to stocks, in whatever form, is really what's best for them. 

"Banks such as POSB do, of course, inform investors of the risks they would face with any investment products they sell.

"Yet, are stocks really a good investment for someone with only a small amount of savings?

"Is the risk that comes with potentially superior returns really acceptable?

"Can long-term financial goals be achieved through spending less instead of investing more?

"Portraying a portfolio of blue-chip stocks as a packet of crisps isn't helpful to investors who might be searching for answers."





Very pertinent questions, I feel.

This reminds me of a comment by a reader and fellow blogger, hyom hyom:

"I am always attracted to posts that talk about money-saving techniques because successful saving provides a guaranteed return as opposed to investing which is risky by nature."

Although I feel that we should learn about investing as early as possible in life, I agree that investing in stocks, for various reasons, might not be suitable for everybody at one point or another in their lives.

Of course, like Warren Buffett said before, some people should not own stocks at all.





Related posts:
1. POSB Invest-Saver account.

2. OCBC Blue Chip Investment Plan.
3. Know what is good for us.
4. A common piece of advice on saving.
5. At what age to start investing in stocks?

Cheap! Cheap!

For a long time now, I have not bought Ferrero Rocher chocolates because I refuse to pay 40c or more per piece. Today, I went on a rampage:

My precious!

Price: S$ 4.80 for 5 packets (3 pieces per packet). 32c a piece! Cheap!

This is a National Day deal at The Cocoa Tree.

If you have a weakness for chocolates like I have, must be fast hands fast legs hor. ;p

(Not an advertorial but it is a fantastic deal!)

Related post:
7 money habits of AK71's

Perennial China Retail Trust: 1H 2013 DPU 1.9c.

Here are some numbers I pulled out:

NAV/unit: 74c
Gearing: 23.74%
Debt Service Ratio: 3.2x

So, what do I think? I did a rather detailed blog post back in February and my view of the Trust has not changed.

Buying into PCRT is really buying into the story that Chinese domestic consumption, at only a third of GDP, will grow and that the Chinese economy will stay strong. We are buying into the Trust's potential to deliver in future.

Right now, I would say that investing in PCRT is still relatively risky although the level of risk is much reduced compared to the time of its IPO.

People who invest for income must realise that much of the distributable income is made up of money from earn-out deeds. It is not cash flow generated from operations of the buildings per se. It is money that is being paid out from guarantees while we wait for the buildings to generate more cash flow.

Based on the earn-out deeds currently available, the Trust is able to continue distributing income to unit holders for another 18 months. Translated, it means that its properties must pick up the slack by end of 2014, everything else remaining equal. Of course, it is unlikely that things will not see any progress and just stand at where they are now.

A more pertinent question is how much improvement can we see? This is really something we cannot say for sure and this comes with the territory when we invest in start ups which is also why I insisted that the distribution yield must be higher for PCRT compared to CRCT for it to be attractive to anyone investing for income. Investing in PCRT arguably is not mainly for income but for growth.

Investors will want see stronger occupancy and evidence of improved cash flow from operations over the next few quarters. The management has to show better results and fast.

See slides presentation: here.

Related post:
Perennial China Retail Trust: DPU 1.96c.

Soilbuild Business Space REIT (Soilbuild REIT).

This REIT's full name is a mouthful. Reminds me of Sabana REIT and AA REITs' full names. Maybe, based on that, I should be interested in it.

Soilbuild gave a range of unit prices from S$0.77 to S$0.80 and had to settle for $0.78. This gives me the impression that Mr. Market might not be too keen on the IPO.

"Soilbuild Business Space REIT (Soilbuild REIT), which owns two business parks and five industrial properties, is offering 586.5 million units. The placement tranche comprises 524 million units and the public offer 62.5 million units.

"At S$0.78, the REIT offers a dividend yield of 7.7 per cent based on projections for fiscal 2014.
Soilbuild and founder Lim Chap Huat will hold an interest of about 27 per cent in the REIT post-IPO, the company said.

"The IPO closes on Aug 14, with listing scheduled for Aug 16." (Source: TODAY online)

At $0.78 a unit, it is at a slight discount to NAV of $0.80 a unit and gearing is approximately 30%. The weighted average lease of its portfolio of properties is 50.5 years.

While seasoned investors in REITs might say that it is possible to get a higher distribution yield from Sabana REIT, with Soilbuild REIT, we wouldn't have to worry about expiring tenancies until much later. Also, Sabana REIT's gearing is closer to 40% than 30%.

Of course, the longer weighted average lease of its properties might make Soilbuild REIT a preferred choice for investors worried about land lease renewals.

Is this a buy? Well, investors for income should be attracted to this IPO. I do not see any red flags in the numbers. However, given the current cautious mood towards REITs, if we are expecting big capital gains, we could be disappointed.

Could it not do a 10% price appreciation on its debut like SPH REIT did? Although that would send its distribution yield for 2014 to under 7%, it could happen. Who knows? Frankly, if that should happen, AIMS AMP Capital Industrial REIT, with its redevelopment plans and AEIs, would look more attractive then.

So, I do not see how Soilbuild REIT is significantly more attractive than other industrial S-REITs for Mr. Market to pay much more for it. I feel that the IPO is pricing Soilbuild REIT at a fair price.

STE's story: The Millionaire Next Door.

Thanks to a reader, Sun, who reminded me of the fact that STE is a "millionaire next door", I remember that there is a very good book that shows us how common people can become millionaires.







Generally, there are two types of people:

1. "Under-accumulators of wealth (UAWs)": This type of people spend everything they earn as soon as they get it.

2. "Prodigious accumulators of wealth (PAWs)": This type of people are frugal. They save and invest. They become millionaires.





People sometimes think that high income earners are wealthy people. This might not be true. In fact, in the book, it is revealed that most high income earners are not wealthy. They make a lot of money but they don't keep much of it.

To become wealthy, we have to own income generating assets which will appreciate in value over time.

STE's story shows us, once again, how common people can become millionaires. He has done it and so can you! (You must be tired of hearing "If AK71 can do it, so can you!". So this is a change.)






I have found some bargains for anyone who doesn't mind pre-owned books:


Paperback:
15 copies in Very Good condition at US$ 6.48 each.



Hardcover:
US$8.98 each.



Free shipping worldwide.

Related posts:
1. STE's story: Personal finance.
2. STE's story: Investment strategy.

STE's story: Investment strategy.

In this second instalment of STE's story, he shares his investment strategy. Here, we see how he frankly admits that luck plays a part in the grand scheme of things.

Like I found out the hard way, never trust anyone who says that his success is due to foresight and that luck has nothing to do with it.

Someone who is humble and admits that he was lucky as well is the more credible investor.

..................................................

My investment philosophy is simple. We only need to know two things:

1) Margin of safety
2) Mean Reversion

In the long run, the stock market trends upwards and, of course, it is hard to catch the bottom. However, one should try to avoid hype and enter the stock market when things are hot. If we had invested in tech stocks when their share prices were chased sky high, I think we might not have recovered even now.

Most of time, the stock market is stable and doesn't move much. Although stock prices will fluctuate, big fluctuations are rare and maybe happen on less than 5% of days.

"Mean reversion is a mathematical concept sometimes used for stock investing, but it can be applied to other assets. In general terms, the essence of the concept is the assumption that both a stock's high and low prices are temporary and that a stock's price will tend to move to the average price over time."
Source: Wikipedia.

I suggest that we study and understand the market by reading some books on behavioural finance and economics. This, I believe, is more important than any books on investment. They help us to understand market psychology.

I was lucky to buy some shares during the 1998 Asian Financial Crisis. I bough a lot of Malaysian banking stocks back then. I skipped the dot com bubble. I also bought stocks of many blue chip companies like IOI, Perlis Plantation and Genting, making a few hundred thousand dollars soon after.

As we decided to switch citizenship in 2007, we disposed of all our assets in Malaysia, including our house in JB. On hindsight, we were really lucky because the sub-prime crisis erupted at the end of 2008 and we had the cash to take advantage of the situation.

At that time, I wondered what to invest in. Since the property market was badly hit, I thought it must be a good bet and since I needed some margin of safety, I decided to invest in REITs which generate stable income. Most REITs were giving double digits distribution yields then. I bought into Suntec REIT, K-REIT, Mapletree Logistics Trust, Cambridge Industrial Trust etc. I am still holding on to some of them now.

Another reason why I invested in REITs was because of "price stickiness".  Rents might be adjusted downwards but I believe they will not go to zero especially in Singapore which is such a small country with high population density. Although interest rates might increase in the next few years, inflation will still be a problem.

I would usually try to maintain 10 to 20% in cash BUT this time round I bet BIG and invested all, including my CPF money. I might be wrong but who knows for sure?  Anyway, every 2 to 3 quarters, we will have more than $100K collected from dividends. Since we are both still working, we can save all the dividends collected.

We plan to retire by age 50 and that is 7 years away. Using the magic of compounding, our investment portfolio should have added another $2 million by then without any fresh injection of capital. I believe that we will be able to retire comfortably if we are not extravagant, keeping our life simple. We are happy and contented with what we have.

I hope to inspire others with my story that we could achieve financial freedom through our own efforts even without anything in the beginning.

Read the other blog post on STE:
STE's story: Personal finance.

Related posts:
1. To be richer, be comfortable with being invested.
2. REITs: For those who have paid higher prices.

AK71 is watching Fairy Tail!

My all time favourite anime is Naruto. Now, I am still watching Naruto Shippuden which is ongoing.

Recently, I started watching Fairy Tail! I really like the music:







Very Celtic and at the same time, it has some Oriental tones. Fusion!

Like it?

STE's story: Personal finance.

There are many savvy investors in Singapore and the majority of them are not in the public eye. They could be our neighbours, our colleagues or even our relatives and we might not even know that they are actually millionaires from their investment efforts.

Recently, a reader, STE, contacted me to share his story to show how common working people could become millionaires without being entrepreneurs. His story shows how hard work, frugality, investment savvy, patience and luck are the ingredients to financial freedom.

He sent me a lot of information and I am thankful for his trust in me. However, I have exercised much discretion as to what is to be published. I think it will be more than enough to inspire.

Don't ever say that common people cannot achieve financial freedom. It is simply not true.

-------------------------------------

My wife and I came from Malaysia. My family is quite big and I have 7 siblings. I am the youngest. We were poor and most of my siblings didn't even have a chance to complete primary school education. I was lucky as I had the opportunity to go to the university on a Malaysian government scholarship.

My wife came to Singapore after her "O" levels and I joined her in Singapore 5 years later. When we first came to Singapore, we worked very hard and even held part time jobs although we had full time jobs in the day. We worked on Sundays and even public holidays.

We keep our money separate but most of the investment decisions are made by me. She is a good wife, very hardworking and takes good care of our family. We have two daughters.

As we were not born with silver spoons, we had to work hard in order to have money for investments. Saving money is very important as how much we save is more important than how much we earn. If we earn $10k a month but spend $11k, we are in the negative.

We were very frugal and, for example, a few years ago, a friend laughed at us because we still did not have a flat screen TV although it was already a common thing. I thought that as my TV, then 9 years old, was still good, there was no reason to change. At that time, I was also still using "dial-up" for internet access while most of my friends had broadband.

Only very recently, we decided to enjoy the fruits of our labour and our family went on a holiday to Alaska two months ago. Although I take the MRT daily to work, I do have a car but a weekend car. This is for the convenience of going back to Malaysia for social visits.

Read part 2 of the story in:
STE's story: Investment strategy.

Related post:
The very first step to becoming richer.

Where to go for this long weekend?

This is not just a LWE, it is a super LWE!

Many have taken the opportunity to go on a short holiday while many more are staying in Singapore because we are patriotic and want to celebrate National Day. No, this is not the reason why you are staying in Singapore? Oops.

Well, if you are thinking of where to go, there is a new ‘one-stop’ food enclave in Singapore! Yes, eating is one of Singapore's national pastimes, isn't it?

The Dining Edition boasts an impressive 50,000 sq ft of dining area!

Where is this place? At Marina Square!

I think most of my blog's readers are Singaporeans but just in case a foreigner is reading this, Marina Square is accessible by both City Hall and Esplanade MRT stations.

You might also get lucky:

Find out more about The Dining Edition at:
http://sg.sharings.cc/AK71SG/share/TheDiningEdition

Another Day In Paradise.

I had such a moment last week when, walking to look at the progress made on the construction of my new home, a man asked me if I had $1.60 because he didn't have the money to take the bus back to his hostel. 

I paused, thought about it for a second and gave him the money.

How likely was it that he was a fraudster? I don't know but I guess giving him the money was erring in the direction of kindness. 

$1.60 was an amount I could afford and it could have meant the world to him.

Related post:
Kindness of strangers.

Tea with AK71: The kindness of strangers.

There is a small part of an email a reader sent to me very recently which I feel like sharing but at the same time, a little corner of my mind tells me that maybe I shouldn't.

The reason why I feel like sharing is because it is something that the boy scout in me has always believed in. I feel that if we can make a positive difference in the lives of others, why not? 

If we can show some consideration to others and make the world a better place, isn't that a good thing? 

In our pursuit of wealth, we should not forget to extend a helping hand to those in need if we can.

The reason why I think I shouldn't be sharing is because I am afraid that I might be accused of self-promotion once again.

Then, I remember something a fellow blogger, SMOL, told me: "Be the mountain!"

Photo taken on a trip to Japan.

Here it is:

"We live in a dog eat dog world these days, and every where I look I see the ugliness of the human spirit. People 你争我夺。People 笑里藏刀。 So it's quite rare and heartening to see that there are people around - willing to share knowledge and help readers. And because of this, I don't just see a rotting world anymore-  I retain a bit of optimism for the future, a bit of belief in the human spirit, a bit of love for the world."

I am not ashamed to say that, reading this, I was almost moved to tears, especially in the state that I was in.

It is easy to become hard and cynical as we grow older in today's world. We lose our youthful optimism and trusting nature. 

It is hard to believe in the kindness of strangers and for some reason it is more so in Singapore and places like Singapore (example, Hong Kong).

Well, if we find it hard to accept the kindness of strangers, perhaps, we can be kind strangers to others instead. I dream of the day when the kindness of strangers will stop being a strange thing.

How should I end this blog post? Let me borrow from a quotation another reader sent to me and that is we should all "err in the direction of kindness."

Yongnam: A chance to accumulate cheaper.

If anyone is still wondering why Yongnam's share price plunged today, it is due to a 28.6% drop in quarterly net profit, year on year. The weakness in share price now has a reason.

The question to ask is whether this drop in net profit is because of an enduring change in Yongnam's businesses or is it a one off event?

Yongnam posted a quarterly net profit of S$ 8.6 million attributable to shareholders which is lower than the S$ 12.1 million a year ago. This is after a S$ 5.1 million provision for doubtful debt because Alpine Bau GmbH, the main contractor for the Downtown Line 2 MRT project, went bust.

Now, if this had not happened, Yongnam would actually have seen a 13.2% growth in quarterly net profit, year on year, instead. This tells me that Yongnam's underlying businesses are probably still doing well and that this provision, as long as it does not become a regular occurrence, does not have any long term impact.

There are three other points which I want to highlight:

1. Gearing has gone up a notch to 0.45x. This is not a bad thing if the borrowings are able to generate greater returns but we should always keep an eye on gearing.

2. Gross margin in the last quarter went under 20% to 19.4%. Ignoring the provision for doubtful debt, net margin is 11.9% which is still pretty good for a construction company but it tells us of the existence of rather significant cost pressure.

3. First half EPS now stands at 1.59c. Unless the second half results are so abysmal as to be a loss of more than 0.59c, Yongnam is fully capable of paying a dividend this year and going by what happened in the last two years, it would probably happen.

I put in a buy order at 28c last night and the stock also hit a low of 28c a share today. A total of 17 lots changed hands at 28c but, fortunately or unfortunately, my order was not filled.

If Mr. Market should continue to feel rather depressed about Yongnam in the coming sessions, I will make use of the opportunity to accumulate.

See Yongnam's presentation: here.

Related post:
Yongnam: Buy since price is more reasonable now?

China Minzhong: Increased long position at $1.065.

The last time I sold shares of China Minzhong's was at $1.185 a share.  Since then, I added to my long position twice at $0.97 and $1.025. Today, I added to my long position again at $1.065.

Technically, even though there is some volatility in the share price, the MACD is supportive as a higher low was formed even as a lower low in price was seen. Another higher low in the MACD would mean that momentum is relatively strong.

$1.055 seems to be the immediate support which is being reinforced by the rising 50d MA. The 100d MA seems to be flattening at $1.065. Of course, there exists a chance that the 200d MA might once again be tested and it now approximates $0.995. I am willing to hazard a guess that it would bring out the buyers if it should happen.

Apart from the technical picture, why am I willing to buy at $1.065 today? Well, quite simply, I believe that China Minzhong's share price is relatively cheap. Its stock is undervalued even at $1.065. With a NAV/share of RMB7.00 or S$1.47, the stock is currently trading at a 27.5% discount to its book value. At $1.065 a share, if we could simply repeat the last quarter's EPS, we are looking at a PER of some 3.44x for 2013. This is hardly expensive even after taking into account that the PERs of companies in the business of farming seem to be rather low.

On 13 May 2013, I said that China Minzhong reported what I thought to be a good set of numbers. Both revenue and net profit were up. What was also really impressive was the 260.5% increase in cash flow from operation for the first 9 months, year on year. The company is now effectively in a net cash position.

What is the free cash flow? This is what many value investors would say is generally more important than earnings. It is harder to fake cash flow but easier to fake earnings.

For the first 9 months, China Minzhong generated a free cash flow of some RMB 299.9 million. This is about S$ 62.98 million. We will have to wait for its 4Q results to see if this goes up or reduces. As there are about 653 million shares in issue, it means that there is already a FCF of about S$ 0.096 per share.

There is intention to pay a dividend in 2013 and with FCF positive, there is a good chance of this happening. The practice of paying an annual dividend could also become a standard because of Indofood which has an almost 30% stake in China Minzhong. Indofood pays out 40% of its earnings as dividends consistently, according to sources.

With China Minzhong's full year earnings possibly at S$ 0.30 per share, a 40% pay out is equivalent to S$ 0.12. Even if FCF bumps up proportionally in the 4Q, this is unlikely to happen as China Minzhong still needs to fund growth initiatives.

I would be quite happy if China Minzhong is able to provide a 5% dividend yield which will move the investment from the growth category to the income and growth category in my portfolio. Based on today's price of $1.065, it would require a DPS of $0.053. Possible?

Well, this could be wishful thinking. I will just have to wait and see.

Related posts:
1. China Minzhong: Good results and long black candle.
2. Tea with Mark Mobius: Focus on long term goals.

Yongnam: Buy since price is more reasonable now?

Yongnam's share price has been declining and in the last session, it closed at 31c. Now, this got my attention.

I initiated a large long position in Yongnam at 24.5c and have collected two rounds of dividends. I have also divested three quarters of my investment in the company by now as its share price rose. As I started divesting a bit too soon, I estimate that only two third of my remaining long position is free of cost.

Including dividends collected, however, close to 90% of my long position is free of cost. Remaining long position still shows a 26% paper gain even after the decline in the last session. All in all, this has been a pretty good investment for me.

So, why do I like Yongnam?

Yongnam is a natural beneficiary of the planned expansion of the MRT network in Singapore. It is a leader in the provision of structural steelworks, specialist civil engineering and mechanical engineering services. It has a proven track record even in Hong Kong, having clinched many contracts in the territory's MTR network expansion, the latest of which was announced on 25 June 2013. Why won't its businesses be chugging along nicely?

Yongnam's competitive advantage is to a large extent due to its massive investment in reusable steel struts. To have such assets and in such quantity like they have at today's price is not easily achievable and this presents a high barrier to any potential competitor. That was also a reason why I thought paying a price slightly above its NAV was acceptable when I got in at 24.5c.

The updated NAV/share on 31 March 2013 for Yongnam was 26.5c. So, my buy price is now at a discount to its NAV. This is a positive development.

I also like how Yongnam has plans for a recurring income base although this will take many more years to bear fruits. An example of this is a joint venture for the construction and management of an international airport in Myanmar. Result of that tender exercise has yet to be released, I believe.

When this news was made known, many people chased the share price of Yongnam and it hit a high of 38.5c not too long ago. This was all based on speculation. There was no certainty that Yongnam would get the contract and even if the consortium it is a part of should get the contract, it would not see immediate benefits. With share price at 31c now, probably, many got burnt.

Isn't Yongnam a good stock? Yes, qualitatively and quantitatively, I believe so. So, why did this happen? Well, even with a good stock, the more prudent thing to do is to wait for a pull back to what is a more reasonable valuation before buying.

Is the valuation more reasonable now at 31c a share since I said it got my attention. Well, it is definitely more reasonable now than at 38.5c! That is a safe answer to give. OK, end of blog post. Kidding!

Let us look at earnings? 1Q EPS was 0.91c. If we annualise this, we get 3.64c which gives us a PER of 8.52x with a share price of 31c. At 38.5c, the PER was 10.58x. Remember that all these calculations do not take in probable improvement in EPS in future quarters.

If we are conservative, buying at NAV is probably a good idea. However, I would say that paying a small premium to its NAV is acceptable. I liken it to paying a higher price for a powerful weapon in a fantasy RPG game that will give me an unfair advantage over others. Evil grin!

As usual, I am corrupted by TA and if we look at the chart, the longer term uptrend is still intact if we take reference from the 200d MA which is still rising. It now approximates 29c. This is a long term MA and is expected to provide stronger support although it does not mean that price might not whipsaw which could see 27.5c as a possible target.

So, I should rush to put a buy order at 27.5c? Remember, TA is about probability and not certainty. A smallish hedge at the 200d MA might not be a bad idea.

Reminder: I am talking to myself.

Results announced on 15 May 2013: here.

Related posts:
1. Yongnam: Investing in infrastructural developments.
2. Yongnam: 1c dividend per share.

Response from AK71 (to accusations) regarding "the" seminar.

I really didn't want to talk about this anymore. Unfortunately, it has come to my attention that I am being accused of withholding information regarding my fee for helping to promote "the" seminar due to some ulterior motive.

I don't see why this should be material at all as what should be material was already revealed in this paragraph in an earlier blog post here:

"To be fair to myself and other advertisers in my blog, I told him that I can help him spread the word but there would be a one time advertising fee. He said that he was only helping the organiser of the event and had to check with the organiser. He came back to say that the organiser offered to pay me for every ticket I sold in my blog and to make it more attractive, my readers will get a discount off the official price of $64 per ticket. A "discount code" or "promotion code" was created for this purpose."

Now, did I hide the fact that I was going to be compensated for my efforts? Anyway, since how much I was going to be paid for helping to promote the event seems to be important although the reason escapes me why it should be, I will reveal it as there is no reason to hide (as much as there was no reason to reveal).

Here are the emails, starting from the first email I received from SC, after I replied to his comment in a blog post that I cannot allow free advertisement in my blog. This was when a seminar ticket was advised to be at $57.00 a piece:

Dear AK,

 

I've checked with the organizer and they are definitely paying you a fee for helping them to advertise.

 

Ticket is at $57 per pax.

For every referral from you that sign up for the seminar, you get $6 (more than 10%) if they pay via internet banking.

If the referral pay via EventBrite, then it is $4, as admin cost like eventbrite and paypal takes up a significant portion.

 

So basically, all the cost of paying eventbrite and paypal, goes directly to you as well.

 

Is this ok with you?

 

Event is held at:

 

Nexus Auditorium
5 Koek Road #05-07 S(228796)
Cuppage Plaza (near Somerset MRT Exit B)
Singapore 228796

 

Monday, 19Aug 2013

Time: 7-10pm

 

Let me know.

 

Thanks,

Swee Chye

As I preferred the simplicity of having a one time fee, I replied:

Hi Swee Chye,

Thanks for this. :)

I would like to propose a more straightforward method.

For Value Investing Summit, the organisers told me my blog referred almost 70 participants in January 2013. Of course, since then, I think my blog's readership has grown if you saw my most recent blog stats which I blogged about.

So, I would like to offer a big rectangle banner space (300x250) on the top of my right sidebar for S$400.00. This will run to 18 August.

If the organisers accept this, please deposit the money into my POSB savings account 093-44286-5. They will have to provide me with the HTML code for the banner ad which links to their website too, of course.

As a bonus, I will also compose a short advertorial on the event. This will usually enhance the effectiveness of the campaign.

I hope to hear from you again soon. :)

Best wishes,
AK

A counter proposal was made by the organiser where the commission offered was raised from S$4.00 - $6.00 to $27.00 a ticket! Mind boggling:

Dear AK,

 

Thanks for the quick response.

 

I've checked with the organizer, and they are counter proposing to create a special link for the payment just for you, if you can promote for them, with the number of tickets shown online for that link.

 

The link will have the number of tickets at the start, and it will decrease as tickets are bought in order for you to know how many tickets are sold from your referral.

 

For every tickets sold, you will get $27, so selling only $15 (sic) tickets will net you $405.

So the more tickets that are sold via your referral link, the more you get paid.

 

Is this a fair deal for you?

 

Let me know, so that the organizer can do the necessary link for you.

 

Cheers,

Swee Chye

 

PS: On a personal note, do continue writing your interesting articles in your blog, as from time to time, I do visit it when I am able to have some time. :D

I thought this over for quite a while because it was quite an attractive offer and I was also somewhat surprised at their generosity but I still preferred the simplicity of a one time fee. So, I wrote:

Hi Swee Chye,

Advertising income is nice to have as pocket money but being the fastidious person I am, I know I will be checking on the ticket sales daily. Yikes. I want to avoid that. This is why I proposed a straightforward upfront one time payment. My blog could end up selling 100 tickets and it wouldn't matter to me. :)

I got to know someone who blogs for a living in the USA and he told me that with the traffic I have now, I should charge US$150 a month for a 125x125 button. Example: "TheFinance" in my left sidebar. So, I believe that S$400 for the proposed 300x250 banner is inexpensive.

Please tell the organiser that I appreciate their offer which is very generous. It is more than fair because I am sure I will end up making more money with their method but this would be important to me if my primary motivation for blogging is for money. ;p

Well, if they don't need me to write an advertorial in support of the banner ad, I could lower the price, I guess. However, I can say from experience that an advertorial helps. :)

Best wishes,
AK

Then, I received a reply from SC which I guess shows that he is more knowledgeable about internet marketing than I am:

Dear AK,

 

I've spoken to the organizer, and they are more interested in actual ticket sales, and that is why they made that proposal to you.

 

Of course, any advertorial in support of the banner ad is most welcome, but they cannot track nor have any means to know the actual conversion rate simply from putting up a banner and a blog post.

 

Getting lots of traffic is definitely good and no doubt about it, but it is the actual conversion and sales that is what any advertisers are most interested in.

 

I believe Bloggers and Internet Marketers wants lots of traffic, but their source of income comes from actual sales, ppc, ppv etc 

 

Let me know if you are willing to help the organizer on the actual sales.

 

Cheers,

Swee Chye 

OK, at that point, I really should have just ended it and I would have avoided this entire nightmare. Unfortunately, much to my regret, I gave in:

Hi Swee Chye,

Yes, I quite understand their concerns. Must make sure that their advertising dollar is well spent.

I have given this more thought and have decided to accept the organiser's proposed special arrangement just for me. I could end up making more money. ;p

I will wait for the HTML code and instructions. Thanks. :)

Best wishes,
AK

This was followed by an email from SC in which the official price of a ticket, for the first time, was stated as $64.00:

Hi AK,

 

Here are the details for you to promote the event.

 

The event link:

ttp://www.eventbrite.sg/event/7661797643/

 

You are free to write as creatively as you can, and can use the link information for your write up.

You will notice there are 200 tickets for sale for this special link, and it is displayed visibly.

So every sale for this link will decrease the count by one, so the tracking of each ticket is visible to all.

 

You have a promotional code for all your referrals and subscribers to pay for the event if they are interested.

 

The promotional code is AK71-MSOI

This gives those interested to sign up at least 10% discount from the official price of $64.

 

Some pictures and banner you can use:

 --- (AK71 deleted the link)

 --- (AK71 deleted the link)
 

A picture for your banner in your website as attached.

 

Let me know if you have any other questions or need any other information for your promotion of the event.

 

I thank you on behalf of the organizer and hopefully it will be a successful campaign.

 

Cheers,

Swee Chye 

I took a screen capture to show that I did not make this up:

Click to enlarge.

Then, there were a few more emails on how to set up the ads which I am pretty sure there is no need to reveal, well, just like the above emails really.

Is the fee negotiation process an important part of the revelations? I don't think so. What was material was how certain details were left out in the negotiation process which led me to making a badly informed decision. These details which were left out were pointed out to me by readers of my blog! (You know who you are. Thank you.)

I would have insisted on early bird prices of $30.00 a ticket and $57.00 for three tickets if I was told they existed when they first approached me. Of course, with the publication of my blog posts on the matter, the organisers have stopped the early bird prices. The price is now $57.00 a ticket.

I would have insisted that the official price be stated as $57.00 if I had known that it was being marketed as such in another local finance blog. Instead, I was made to think that the official price was $64.00 and that to buy at $57.00, my readers must use a "discount code". The regular price of $57.00 over at kiasuparents.com's forum now supports my point that $64.00 is not and was never the "official" price.

Have I knowingly left out any details which might skew readers' perception of the organisers of the event? No and I have no need to lie.

One only has to think logically as to what AK71 has to gain from lying about anything. Why would I put in work to promote an event just to tear it down? I gain nothing from it. As another blogger, SMOL, said, I could have simply shrugged it off and put it down to "willing buyer, willing seller". I could have been absolutely nonchalant.

Everything I know, my readers know. Anything else that people say I should know and that I chose not to share with my readers now, well, they are entitled to their beliefs. I don't need to fabricate anything. I don't go around making baseless accusations as a pastime. Regular readers will know that is definitely not in my character. I say it as it is.

If people have been totally honest and fair from the onset, laying down all their cards on the table for me to see, would this have happened? Would there be any need for damage control? No, there wouldn't be any damage in the first instance!

For people who still think that I am blogging because of the money I get out of it, well, I can say with confidence that I won't miss the income but I WILL miss blogging.

In a reply to SC above, I said:

"Please tell the organiser that I appreciate their offer which is very generous. It is more than fair because I am sure I will end up making more money with their method but this would be important to me if my primary motivation for blogging is for money. ;p"

In another reply to SC which I shared in an earlier blog post, I said as much:

"You might know this but the organiser might not: I am not a blogger who is blogging for money. I care about my blog's reputation more than anything else."

I will stop here or else some people might accuse me of having ulterior motives (again).

Related posts:
1. I will not attend Multiple Streams of Income Seminar.
2. Multiple Streams of Income closed early bird prices.