ASSI reaches 6 million before Singapore.

Before Singapore hits 6 million in population, ASSI is going to hit 6 million pageviews first. Might happen in the next hour.

It has been almost 5 years since I started blogging. Lots of ups and downs and never did I think ASSI would come so far.

I think I will have to pop a bottle of oatmeal! Oatmeal?

Yes, champagne is too expensive but a picture? No problem. It is the thought that counts. LOL. ;p

SembCorp Industries: "A safe price of entry."

A reader, Dexter Choo, asked me how did I value SembCorp Industries and determine a "safe price of entry"? Before I go on, I must establish that if we believe that valuation exercises are subjective and this is something I have blogged about many times before, then, it follows that "safety" is also relative.

So, with that in mind, I am going to share in this blog my approach in this instance. Now, please note that I am not saying that this is the right or best approach. It is simply something that makes sense to me and that I am comfortable with. After all, what we do should have a strong connection to our motivations.

For a while now, in view of rising interest rates in the not too distant future, I have been looking to increase my investment in companies which:

1. Are net cash or have very low net gearing.
2. Are able to generate stable earnings.
3. Pay out a good portion of earnings as dividends.

If we look at SembCorp Industries' numbers for the 5 years to 2013, we see that it is generally a net cash company which generates stable earnings. It is also a company with growing NAV/share from $1.86 in 2009 to $2.93 in 2013. Now, as an income investor, the fact that they also pay consistent and meaningful dividends of at least 15c a share (DPS) is important to me.

Now that we have some numbers, we might ask what would be a sensible price to pay for the stock? Depending on the valuation technique we use, we would get different answers.

Personally, in this case, I use a very simple metric, PE ratio (TTM). This looks at the price of the stock today and the earnings in the last 12 months. I might also discount earnings a bit to be more conservative but if by annualising the earnings in the last 6 months I would get a more conservative estimate anyway, I would use that. So, what is a reasonable PE ratio for SembCorp Industries?

Given more normalised circumstances without considering the effect of the Global Financial Crisis in 2008 and the Fiscal Cliff panic in 2011, Mr. Market seems quite happy to pay a price that has a PE ratio of about 11.4x to 13.6x for SembCorp Industries.

Based on an estimated 40c EPS for 2014 and my entry price of $5.04 a share, I got in at an estimated PE ratio of 12.6x. Is it undervalued? Not by a long shot, I don't think so. Then, why did I buy?

Well, apart from the fact that it ticked all my boxes, I reminded myself of an idea by Warren Buffett:

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

A buy price of $5.04 a share is not fantastic but I believe that it is fair enough.

As an investor, I am also informed by Technical Analysis (TA) which tells me that what price Mr. Market is willing to pay often has to do with sentiments and not fundamentals. So, I also look at charts in an effort to time my entries at prices more reasonable. Of course, we have to remember that TA is about probabilities and not certainties. So, there is no guarantee that prices would not go lower.

I will end by saying that there could always be "safer" prices at which to buy a stock. So, buying SembCorp Industries' stock at the depths of the Global Financial Crisis, for example, at a PE ratio of 7x would have been much safer but that is all I dare to say.

Related posts:
1. When to BUY, HOLD or SELL?
2. SembCorp Industries: A nibble.

Tea with Matthew Seah: MSN Money.

SGX have revamped their interface to include some fanciful features for investors. However, I am still not very used to that. MSN Money have also refurbished their website recently to give investors better summaries of companies.

All the key numbers of a company and easy to read charts are provided for investors like me, providing a quick snapshot of a company which is useful before I decide whether to delve deeper into their numbers.

Here are some beautiful screenshots for Mastercard (please click on screenshots to enlarge):

As for companies listed on SGX, MSN Money has also compiled more numbers than SGX although the latter does not have direct access to these (I think). So I guess SGX still has a lot more room for improvement. For now, this will be my preferred choice when screening for potential companies to invest in.

As an example, you can check out Keppel Corp here.

P.S. Matthew Seah does not write about why any company is a good investment choice at any price. Readers should carry out due diligence and verification of information provided themselves. Some other guest blogs by Matthew Seah: 1. Dollar cost averaging and expected returns. 2. POSB Invest Saver Account.
3. Interview with Matthew Seah: Value Investing.

SembCorp Industries: A nibble.

Today, a reader asked if I was interested in SembCorp Industries since I bought into SembCorp Marine recently. Answer? Yes, I am interested and I have been looking at it for a few days.

SembCorp Industries' share price has not suffered as dramatic a decline compared to SembCorp Marine's. I think it would be correct to say that it is less volatile. If we think about it a bit more, this is quite natural since they are a conglomerate and have an interest in other businesses such as utilities which probably helps to cushion their earnings.

Here are some numbers:

Click to enlarge.

So, in line with my effort to increase the proportion of companies in my portfolio which are net cash and which pay consistent dividends, I decided to take a nibble at $5.04 a share as the stock price hit a low of $5.03 today.

With 1H 2014 EPS at 20.1c, expectation for a full year EPS of 40c is reasonable. This gives a PE ratio of 12.6x which seems reasonable. Well, it is definitely more attractive than in July this year when it was trading at a PE ratio of about 13.75x when the stock was about $5.50 a share.

Assuming a dividend per share of 15c, it would give us a dividend yield of 2.98% which doesn't seem as attractive as SembCorp Marine's but I reminded myself that this is based on a lower assumed payout ratio of 37.5% and not 50%.

Could we see the stock price going lower in the near future? We could possibly see $4.99 a share but because momentum oscillators such as the MACD and the CMF did not form lower lows as the stock price formed a lower low, I feel that selling pressure in the near term has somewhat abated.

About SembCorp Industries:
Sembcorp Industries is a leading energy, water and marine group operating across six continents worldwide. With facilities of over 7,200 megawatts of gross power capacity and over eight million cubic metres of water per day in operation and under development, Sembcorp is a trusted provider of essential energy and water solutions to both industrial and municipal customers. It is also a world leader in marine and offshore engineering, as well as an established brand name in urban development. The Group has total assets of over S$14 billion and employs approximately 10,000 employees. 

See Press Release: here.

Related post:
SembCorp Marine: A nibble.

CapitaMall Trust: When is AK nibbling?

Following a recent blog post in which my admiration for CapitaMall Trust's (CMT) management was once again mentioned, with the REIT's unit price having retreated from a recent high of $2.09 a unit, I decided to examine whether it makes sense for me to have some exposure to the REIT soon.

One thing that has held me back for some time is the matter of distribution yield. With an annual DPU of about 10c, give or take a small fraction, at $2.00 a unit, we have a yield of 5% and at $1.80, we have a yield of 5.55%. This is also yield made possible only with financial leverage.

Anyway, I have blogged about how rising interest rates would increase the interest cost for REITs and how it could affect their interest cover ratios and income distributions. It could also affect their valuations as investors demand cap rates which make more sense when a riskier property investment is compared with a more attractive risk free rate.

Well, these concerns could be addressed effectively as long as REITs are able to increase their rental income meaningfully. It would largely be through positive rental reversions and this would hinge upon whether tenants are willing to pay higher rents. I expect that some REITs would be able to do this better than others.

When would tenants agree to pay higher rents?

There are probably many factors involved and only a businessman would have the full answer but factors such as the nature of the business, general economic conditions and availability of suitable alternatives come to mind. Obviously, some factors are beyond the control of even the best REIT manager.

However, for Retail REITs like CMT, if they are able to add value by encouraging shoppers to choose their malls over the competition's, they will create a win-win situation for themselves and their tenants. I believe that CMT is doing a good job of this and the REIT's tenants would appreciate this.

Not much of a shopper myself, it is really after becoming a CapitaStar member and getting the CapitaMalls credit card that I appreciate this as I looked at the REIT through the lens of a business development manager which is the fun part for me.

Then, there is the part that is not as fun for me which are the numbers. I looked at the REIT's debt. CMT has a credit rating of A2 from Moody's. That is a relatively high rating and it helps to ensure that the REIT will have access to cheaper funding.

Correct as of June 2014, here are some numbers:
Gearing: 34.3%

Interest Cover: 4.7x

Ave. cost of debt: 3.6%

NAV/unit: $1.76

The REIT's debt maturity profile shows staggered maturities which is very comforting:

Also, 98.7% are fixed rate borrowings.

It is hard to imagine CMT being caught in any situation where they might have trouble refinancing their debt. Now, this is not saying that it cannot happen, of course, which is why, expecting interest rates to rise from middle of 2015, I think that having a larger exposure to companies which pay stable and meaningful dividends out of their earnings with little or no debt is safer than increasing exposure to leveraged income instruments like REITs.

Next, as REIT investors, we would be familiar with the argument why Industrial REITs must offer a higher yield because their land leases are much shorter (although some could hold some freehold properties which throws a spanner into the wheels of this train of thought). Anyway, I feel that what is more important is a REIT's ability to actually add value even if their land leases are getting shorter over time.

REITs are able to add value through Asset Enhancement Initiatives (AEIs) and developments which max out their existing properties' plot ratios, for examples. AIMS AMP Capital Industrial REIT does a good job of this although it is an Industrial REIT with most of its properties having shorter land leases. So, to have a pro-active REIT management that creates value for unit holders is very important.

Now, coming back to CMT, unless we do not visit shopping malls at all, it would be difficult not to see how CMT have done a good job with their malls. I don't visit all their malls but because I stay in the west side of Singapore, I visit Bukit Panjang Plaza, LOT 1, Westgate, IMM and J-cube quite often. I also visit Bugis Junction, Bugis Plus (former Illuma), Raffles City and, sometimes, Bedok Mall. Oh, recently, I visited Junction 8 a couple of times too. 

If we look at the AEIs that CMT did and are doing now, it is easy to see that they have added value and are going to add more value to the REIT again.

I hope to buy at a discount to NAV but with a strong track record and pedigree, under normal circumstances, it would be difficult for my wish to come true. Then, perhaps, I might be persuaded to take a nibble if I could pay only a smallish premium to NAV.

Click to enlarge.

Could we see a re-test of a many times tested support at around $1.80? Maybe.

See presentation slides: here.

Related posts:
1. SPH or SPH REIT?

2. CMT: Buy the retail bond or the REIT?

3. AIMS AMP Cap Industrial REIT: 103 Defu Lane 10.

Tea with TheMinimalist: If Personal Finance and Investing were a religion, what would be your denomination?

The Minimalist, a mysterious and wise man, has contributed another guest blog to ASSI. I hope you enjoy reading it as much as I have:

Over a podcast interview with AK71, he shared that “Investing is a religion”. I can relate to his statement on so many levels. Firstly, there are so many different denominations like value investing founded by Benjamin Graham and David Dodd or permanent portfolio by Harry Browne. Secondly, you cannot “force” someone to adopt an investing style that they are not comfortable with. For example, my best friend is a conservative investor and is satisfied with investment returns that match the inflation rate (3% to 5%). People like my best friend would be best suited for the Permanent Portfolio.

With so many religions in the world, which one is the best for me?

During my university days, I went through a “quarter-life crisis” and was very lost with what I wanted to do in life. Upon the advice of some friends, I decided to turn to religion. As I started reading different religious texts (such as The Bible; Dhammapada; Dao De Jing), attending services, I realise that these religions share common truth. I will share two points that have benefitted me the most. The first one is to engage in meaningful and purposeful work. The second is to love and serve people.

For readers who are new to personal finance and wish to take charge of their finances, where is the best place to start? In my humble opinion, the Bible of personal finance is “The Richest Man in Babylon”.

In this book, it states the 7 universal principles of personal finance. When you secure a copy of this book, read it once, read it twice and commit the principles to heart. More importantly, PRACTISE it. Success only comes by taking actions, NOT by reading. (I have never come across a book that is titled “Read and Grow Rich”) 

After reading the bible of personal finance, feel free to research the different styles of investing and adopt one that you are comfortable with. One of the best ways to shorten the learning curve is to be a mentee to someone who has successfully applied those principles. (Maybe, AK71 can start a mentorship program and start with coaching his mentees to eat oatmeal for breakfast, lunch and dinner. Cheap, healthy and nutritious!) 

Breakfast of champions'.

A word of caution.

Make sure you are learning from the RIGHT people. I am sure many of you have read of religious leaders in Singapore who have fallen into the money/power trap. Or finance trainers who promise infinite riches by paying $X,XXX to attend their courses.

The end goal of personal finance/investing should be financial freedom where our assets generate sufficient passive income to cover our expenses. The means should justify the ends. If your mentor makes his money through insider trading (illegal), excessive leverage (dangerous) or guess-work (lazy), you might want to reconsider learning from this person.

To end off this blog post, I feel that there is no religion that is “superior” or “right”. Everyone should make a well-informed decision on the faith that he or she is comfortable with. Do not convert yourself to a certain faith just because your wife/husband/best friend/teacher is of that faith (I am a deist for those who are curious about my faith). Similarly, there is no personal finance philosophy or investing style that rules supreme over all others. If you are uncomfortable eating oatmeal for breakfast, lunch and dinner, then don’t do it! (Right, AK71?)

Here are some actionable steps to get you started on taking charge of your personal finance:

(1)    Grab a copy of the book, “The Richest Man in Babylon”

(2)    Read and memorise the seven universal principles of personal finance

(3)    Plan and write down specific steps on how you would apply each of the seven principles. For example, you want to apply the first principle “Start thy purse to fattening”. To do this, you write down “On my next payday, 16^th Oct 2014, I’ll set aside S$500 from my S$5,000 paycheck to a designated savings account with OCBC.”

If you like what I have shared in my blog post, feel free to e-mail or share with your friends on FB.

Richest Man in Babylon
Buy pre-owned with free shipping worldwide at US$6.98 a copy.
Read and learn 7 important lessons in life:
1. Pay ourselves first.
2. Live below our means.
3. Put our money to work.
4. Always have insurance.
5. Our home is a consumption item.
6. Plan early for retirement.
7. Upgrade our knowledge and skills.

Read another guest blog by The Minimalist:
Financial planning? Start with why!

Related posts:
1. Getting paid more while waiting for opportunities.

2. Motivations and methods in investing.
3. If we are not rich, don't act rich.
4. A common piece of advice on saving.
5. Do you want to be richer?

OCBC and CapitaMalls: Providing value for money deals.

At the sharing session with Sean Seah and friends, there was plenty of food. It was like a pot luck session and I saw a few boxes from Polar. They are famous for their puff pastries and Swiss rolls, I believe. Their curry puffs cost $1.80 each and I always thought they were quite expensive. So, until quite recently, I never did buy Polar curry puffs.

Wah! AK recently bought atas curry puffs?

Well, I got them for $1.00 each and that was the first thing I said yesterday to the group. Yes, terrible. I totally forgot that initial impression is very important and they probably thought, "What a cheapskate..." Of course, I went on to say how they could also get $1.00 curry puffs from Polar, oblivious to what they might be thinking.

Actually, it is all thanks to the OCBC Frank VISA card that I have now. To get the special deal, I use the NETS Flashpay function. We will also need the NETS Flashpay Savers app which is free to download. The app lists many special deals and one of them is from Polar.

Each time, we are allowed to buy up to a maximum of 4 curry puffs at $1.00 each and pay with NETS Flashpay. A discount of almost 45%! That is a pretty good deal!

So, ever a sucker for great deals, I tried their curry puffs. Not bad but, honestly, I still prefer Old Chang Kee's curry puffs which are cheaper, heartier and tastier.

What? You think I am saying this just because I am an Old Chang Kee shareholder?

Aiyoh, terrible. How could you think like that?

Anyway, I am very sure there will be comments after this to suggest curry puffs which are better than Old Chang Kee's and I promise not to delete them as long as they are not advertisements. Nice AK.

Then, to augment the impression participants might have that AK is a cheapskate, I told them about how I admire CapitaMall Trust's management very much and how I think they are doing a good job of driving shoppers to their malls. How does this show I am a cheapskate?

I revealed how I am a CapitaMalls credit card holder and also a CapitaStar member. For a whole month, I get free parking in all their malls any day of the week for 3 hours per visit per mall when I have $1,200 worth of spending using the credit card. The spending doesn't have to be money spent in their malls too. It could be payment of bills at the AXS machines etc.

Assuming that we visit their malls 10 times a month, we could easily save $30 in parking fees. That is 2.5% of $1,200. My sister shares my car and I also go out with my mom once every few days just to spend quality time together and do a bit of grocery shopping. We make sure we visit a CapitaMall when we go out and not a competitor's mall. When I meet up with friends on weekends, I always suggest meeting in a CapitaMall. Sneaky!

Anyway, there is another reason why I like CapitaMalls. Getting discounted shopping vouchers!

Once a year, they will have this special deal for members to buy $300 worth of vouchers and get another $30 for free! I bought plenty last year and I am buying again this year. Everyday, for a limited time, each member is allowed one purchase per mall. The purchase of vouchers will count towards that $1,200 spending to get free parking too. Nice.

We use the vouchers mostly when we shop in NTUC Fairprice supermarkets in CapitaMalls but they are accepted in most of the shops, really. So, it is like getting a 9.1% discount on our groceries, on top of getting Link Points (about 1.3% rebate) and NTUC shareholder rebate of 4%. When I go shopping with my mom on Tuesdays, we get additional 2% discount for senior citizens too.

Some money, we have to spend. If we can save some money in the process, why not?

Related post:
1. CapitaMall Trust: Buy the retail bond or the REIT?
2. Save $: Frank Card, Signature Card & Dividend Card.
3. Supporting my businesses and getting paid in the process.

13 blog posts for a sharing session on investing for income.

I participated in a sharing session earlier today on investing for income in the local stock market. The group was made up of experienced real estate investors who are possibly interested in diversifying their passive income stream by investing in the local stock market.

So, I shared with them my little ideas regarding bonds and stocks and, to a large extent, drew upon past blog posts for this purpose. These were the ones in the notes I gave out:


1. Nobody cares more about our money than we do.

2. Perpetual bonds: Good or bad?

3. Leverage up and buy investment properties now?

4. Gear up and receive more passive income.

5. Bonds, REITs and the instant gratification of yield.


In the course of my rather long winded discourse, I also made verbal references to several other blog posts and I am listing them here for easy reference. Yes, I know it is a chore to comb my blog. I find it a bit demanding myself but thank goodness I still have a fairly good memory:


6. How should we approach REITs as investments for income now?

7. AIMS AMP Capital Industrial REIT: Making money.

8. Saizen REIT: Sell the entire portfolio or find a bigger partner.

9. A simple way to a double digit yielding portfolio.

10. Motivations and methods in investing.

11. Save 100% of your take home pay. What?

12. Recommended books for FA and TA.

13. How to be "One Up on Wall Street"?


It was invigorating as I fielded questions from participants and got to make some pocket money at the same time. :)

Related post:
Two blog posts I would like the recovery group to read.

SembCorp Marine: A nibble.

Shareholders of Marco Polo Marine would remember that they ordered an oil rig from SembCorp Marine earlier this year. The value of the contract was about US$214 million. That is a lot of money. SembCorp Marine is a leader in the building of oil rigs, of course, and they have an impressive order book.

That led me to wonder if it might be a good idea to be a shareholder of SembCorp Marine too and benefit from Marco Polo Marine's purchase of the oil rig. Yes, I know. I am so greedy. Bad AK, bad AK!

SembCorp Marine was trading at about $4 to $4.20 a share back in February. The stock price was in a downtrend. (It still is.) Support was at around $3.90. The moving averages were all descending and the momentum oscillators were not supportive. (They still aren't.) So, there was a good chance that prices could go lower.

The many times tested support at $3.90 gave way eventually and, this morning, stock price hit a low of $3.54 a share. The CMF hinted that selling pressure has reduced. It could be that some short positions were being covered and it could be because this is the last trading day of the week.

Ahead of a long weekend, short sellers might think it safer to close their positions. Selling could resume next week or it might not. So, with share price more than 10% lower than it was in February, I wondered if I should wait a bit more or buy this morning?

I took a look at some numbers:

From a valuation perspective, the stock is more reasonably priced now. In April 2011, when it touched a high of $6 a share, it was trading at a PE ratio of 16.66x. Pretty high. Mr Market obviously expected better earnings to come but better earnings did not come.

Today, share price touched a low of $3.54 in the morning. At that price, assuming an EPS of 24c, annualising 1H 2014's figures, we are looking at a PE ratio of 14.75x. This would seem like a fairer valuation although still not cheap.

If we believe that oil is still going to be an important energy source in the world and if we believe that any weakness in oil prices is temporary, then, weakness in the share prices of rig builders with good track records like SembCorp Marine presents an opportunity to get in at more reasonable valuations.

As I like to be paid while I wait, I looked at the dividend payout record of SembCorp Marine:

It seems to me that SembCorp Marine normally pays out about 50% of their earnings as dividends to shareholders and more during good years with better earnings. An 11c to 13c DPS would mean a dividend yield of 3.1% to 3.67%, given an entry price of $3.54 a share. As an investment for growth and income, I feel that this is pretty decent.

So, although a PE ratio of 14.75x  does not look cheap, I decided to initiate a long position this morning at $3.56 a share. A nibble, so to speak. Didn't throw in too much and definitely not the kitchen sink. Continuing weakness could see gap cover happening at $3.30 and for people who believe that gaps will eventually be covered, it could be worth waiting a bit more.

What would I do if price should test $3.30? I would probably be buying more.

Related post:
Marco Polo Marine: Drilling for higher income.

A H&S story: Make money that helps us spend less money.

Hospitalisation and surgery (H&S) insurance coverage is a must have for everyone. What might not be perceived as a must have is the rider that is usually offered and one possible reason is that this is an out of pocket item which means that we cannot use our Medisave savings to pay for it.

However, I am quite happy to pay for the rider and will encourage anyone who can afford the rider to get it. Early last year, I shared that:

"So, it means that I only have to pay 10% of my total medical bills if I were to be hospitalised and this 10% has an annual cap of $3,000 in my case. So, if my hospitalisation and related bills were to total more than $30,000 in any year, I would still pay a maximum of only $3,000."

Hospitalisation bills could turn out to be quite burdensome. Knowing that I have only got to pay $3,000 even if my bills should exceed $30,000 in any one year gives me peace of mind.

The rider costs more as we age but don't let that dissuade us from having it because the rider will become even more important as we age. Why?

The chances of being hospitalised and of being hospitalised for many more days per visit will only go up as we age. This is quite natural. So, naturally, we should keep the rider. Simple.

So, in the case of my mom, I told her I will pay for her H&S rider if she cannot afford it. I would rather pay for the H&S rider and also the maximum of $3,000 annually in case of hospitalisation than to pay the regular deductible and co-insurance with each stay in a hospital for her. There is no way of telling how much these might cost on a per visit and per year basis but with the H&S rider, I know how much I should be prepared to pay every year.

If only risk management was always so easy.

Get ourselves and our loved ones insured well and we will not have to fear big hospitalisation bills that will one day come to us. This is simple enough to understand. So, for those of you who have yet to act on this, there is no time to lose.

Of course, I understand that it is a pain having to pay for anything. It would be wonderful if everything in this world was free but that would remain a dream. So, we work so hard to make money only to see the money going to pay for all the expenses in life? I know the feeling. Ouch.

Well, it would be less painful if the money used to pay for all the expenses in life were money that we did not work so hard to make. Huh? Well, what if it were money that was made by money that we worked hard to make? OK, I am sure you get the idea now.

Make some money that will help us spend less money especially on necessities in life. H&S and the rider are two such necessities.

Related posts:
1. How to get free medical insurance?
2. Enhanced Incomeshield for my mom.

Which investment and personal finance bloggers to follow? (5 revelations from a regular retail investor.)

Whether we like it or not, many things in life have to be measured. However, it gets rather irksome when people want to measure us against others. 

If you get the feeling that AK is going to be ranting in this blog post, you are right!






My school results were measured against my cousins' all the time, I remember.

When I was a bit older, I told my mom and my aunts very firmly that I didn't like that. They stopped.

I think it was more fun for them than it was for me.

Now, for investments, it is the same thing. For some people, is not enough that we do well, we must be the best. 

Why do some people get so fixated with measuring and comparing everything?






"Wah, you are short! I am long!"

(Hey, I am talking about positions lah. Think straight hor. Huh? What do you mean 64 positions? Aiyoh, I don't know what you are talking about.)

Anyway, it gets so tiring sometimes that I wish I do not hear or read anything like this for a long time. 

It just gets quite pervasive at times.

I have been asked by some people on and off to give more details regarding my portfolio so that they can decide if I am beating some benchmark. 






What benchmark? 

The only marks I know on benches are graffiti in the public parks which might include the odd phone number offering some services by some people. 

Huh? Financial services? 

You say leh?

When I politely declined (for the umpteenth time), some people asked, 

"How would I know if you are worth following if I don't know?"

Wah! WAH! WAH!!!!!

Which color tastes better?

Hey, bro. Here are a few things I don't mind revealing:

1. Don't follow me. 

I have this fear of stalkers. I don't know why. I am just so scared of being stalked.

2. My investments might beat the index or they might not. I don't really care. 

All I care about is getting in with a margin of safety and having a dividend yield that makes sense. 

OK, sometimes, I get a little adventurous but I try to make sure that the occasional misadventure will not kill me. Yes, what I do care about is not losing money overall.





3. I never claim to be an expert or a guru. 

I am just a regular retail investor who got lucky quite regularly (I will admit). I say this all the time. There are some people who believe me and although not all are polite about it, I have no doubt that they are all clever chaps.

4. I am not very clever at spotting growth in companies. 

I can't seem to see very clearly what is in the future. I don't think anyone can guarantee growth. So, I rather get my hands on something which is more or less guaranteed, trying to avoid being stung at the same time.





5. The only person you should really follow is yourself. Know yourself. Know your temperament. Know your aptitude. 

You could be good at some forms of investment. Then, just stick to these.  If you want to be the best in the field, well, go ahead. Just, please, don't think that I feel the same way and that I have to be the best too.

OK, now I have a blog post I can direct some people to in future.

Related posts:
1. Motivations and methods in investing.
2. Market gyrations, my portfolio and a sabbatical.

Singapura Finance: 1 for 1 rights issue.

I have been a Singapura Finance shareholder for a few years. If you have not heard of Singapura Finance, well, it is not surprising as it is one of those sleepy stocks that don't really shout out for attention.

Why did I become a shareholder a few years ago?

1. They have a good track record of rewarding shareholders with meaningful dividends.

2. The stock was trading at a big discount to NAV. (It still is.)

Nothing exciting, really. Just the usual stuff I look out for.

In the last few years, however, earnings came under pressure. EPS declined and dividend per share (DPS) also declined.

The reason really is due to the low interest rates environment and the Chairman said:

"The Singapore Dollar interest rate, which closely tracked the US Dollar interest rate, remained at an exceptional low level throughout the year. As a result of the continual low interest environment coupled with the relentless market competition, interest margin was subjected to immense pressure and deteriorated further during the year. Against such challenging external backdrop, and the need to provide additional collective impairment for the loan allowance, the Group profit after tax for the current year declined 21.2% to $5.3 million." (Taken from Annual Report 2013.)

How are things looking now? Results improved in 2014 and profit after tax rose 10.2%.

Now, with interest rates likely to rise next year, it seems that Singapura Finance might do much better again in future. To ready themselves, they are strengthening their capital base by having a 1 for 1 rights issue at an issue price of $1.00 per share. This rights issue is renounceable which means that shareholders could sell nil-paid rights in the open market if they do not mind having their shareholdings diluted.

I know that some readers might be thinking about possibly buying Singapura Finance's stock now to participate in the rights issue. If you are one of them, you might want to consider the following first:

With a theoretical ex-rights price (TERP) of $1.275 per share, nil-paid rights selling at any price lower than 27.5c (when they start trading) would be "cheap". At a NAV/share of $2.10, a share price of $1.55 is cheap (26% discount to NAV) but, post rights, NAV/share becomes $1.55 or so. So, the TERP of $1.275 is less cheap (17.75% discount to NAV, post rights issue). Of course, rights shares at $1.00 each represents the best value for money (35.5% discount to NAV, post rights issue).

Expect EPS and DPS to half as well, ex-rights. 3.5c and 2.5c, respectively, perhaps? Of course, this is assuming that everything else remains equal and that there is no improvement in business performance in future which seems unlikely to me.

For existing shareholders to subscribe for the rights allotted to them is, ultimately, to show confidence in the management that they will be able to improve earnings by more than 100% in due course. It has to be more because even if earnings should improve by 100%, it would mean that business performance has not improved one bit on a per share basis. Then, it would be better not to have had the rights issue.

I will subscribe for my rights as I am confident that interest margin will improve in future although the business environment is likely to stay competitive. I will apply for excess rights too but I will give the nil-paid rights a miss.

Taking part in the rights issue is to believe that the additional funds will generate a much higher EPS in the medium term. In the short term, business performance could continue to be lacklustre and whether this would put downward pressure on the share price or not is hard to say.

See announcement on rights issue: here.
Visit Singapura Finance's website: here.

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Saizen REIT: Sell the entire portfolio or find a larger partner.

One of my more successful investments in the last few years is probably in Saizen REIT and regular readers who have followed the story would be quite familiar with it. So, I shan't repeat the narrative.

In the past issue of The EDGE, it was reported that a major investor in Saizen REIT is unhappy with the lack of growth in the REIT. Well, actually, the fact that Argyle Street Management (ASM) is unhappy isn't anything new and I blogged about my view in November last year.

Now, the CIO of ASM is suggesting that "we either sell the entire portfolio or find a much larger partner." There is quite a bit of frustration but it is probably justifiable.

This is because Saizen REIT's NAV/unit is $1.22 and it is trading at around 90c a unit. If all the REIT's properties were to be sold at valuation, shareholders would receive $1.22 a unit or a 35% gain from the current market price. So, if there should be a willing buyer, selling the entire portfolio at valuation makes sense.

In fact, I am inclined to believe that Saizen REIT's properties are worth much more since they managed to sell a property in May at 19% above book value and another one in August at 12.8% above book value. This suggests that the book values of the REIT's properties are rather conservative.

The REIT's NAV could be about $1.35 to $1.40 per unit. This means a potential capital gain of 50% to 55.5%. It is, however, I believe, harder to find a buyer for the entire portfolio at such high prices.

Well, whether or not the current managers of Saizen REIT are replaced, for me, is less important than how my investment in the REIT could be impacted.

I have examined before the sustainability of the current day DPU and, if I remember correctly, I said it should be sustainable for the next 8 years. Could we see the Japanese economy and currency strengthen in the next 8 years? I don't know but I do know that there is enough resources to maintain the current level of distributions for a few more years. Beyond that, I expect DPU to reduce, everything else remaining equal.

A DPU of 6.3c translates to a distribution yield of about 7% at a unit price of 90c. If I should be paid $1.22 per unit for my investment in the REIT, I would liken it to collecting many years of income distributions in advance which is not a bad thing. A bird in hand is worth two in the bushes, as the saying goes.

So, am I going to increase my exposure to the REIT? No. Why? Isn't it a good investment for income? I believe it is but my exposure to the REIT is already quite large and I estimate it to be some 12% or 13% of my entire portfolio. My only other two investments which are bigger are AIMS AMP Capital Industrial REIT and First REIT. I don't see any need to increase the weighting of any of these REITs in my portfolio.

What if I did not have any exposure? Well, if I should be happy being paid a 7% distribution yield buying into rather undervalued freehold Japanese residential real estate, I might initiate a long position. Then, all that is left for me to do is to wait.

Related posts:
1. Saizen REIT: Good investment for income?
2. Saizen REIT: Undervalued.
3. Saizen REIT: Is the dividend sustainable?