Increasing stake in Singtel by 250%

It's a day till the release of Singtel's 3Q result.
Anticipating it? Pretty much.

Some mini bloodshed is seen in the recent days across the global market. While there is no sufficient supporting reasons for such, it is looking more like a technical correction and the market has recover very briefly today. For now, I still feel that this market we are seeing today belongs more to the over-valued region than it used to be. 

Well. I should first apologize as the numbers on the title might look rather deceiving.
If I own 5000 shares of Singtel and doing so - Increasing stake by 250%, it will essentially means that I'm adding 12,500 shares or in another words, plonking S$43,000 into Singtel.

However, as much as I'd wish to say that, sadly, that's not the case. I guess I will need a couple of years more before I can write the same thing with a different set of results.

I did increased my stake in Singtel by 250% and had accumulated 360 shares of Singtel at 3.42
But, base on my holdings of 140 shares previously, this will only means that I've accumulated another 360 shares from Singtel.

Rounding them up to the nearest lot of hundred at 500 shares.
With this event in place, Singtel had became my greatest holdings at this moment.


Based on my poorly done TA post on Singtel, I've queued behind the support line of 3.42 yesterday and the trade was fulfilled shortly after the market opens.

Based on this entry price, it had brought my average price of Singtel down to 3.55 from 3.84 when I got in earlier last year. Based on the usual dividends of 17.5 cents that Singtel have been giving out for the past years, this price will translate to 4.92% yield on my average price or 5.11% yield on the price I've entered (3.42).

Attractive yield? Pretty much for Singtel. But the next question will comes in if they are able to continue paying off their dividend of 17.5 cents with their FCF. Many investors would have known that Singtel might be having some problem in ensuring sustainable dividend based on the recent years free cash flow. Nonetheless, I believe in Singtel's highly paid management team in doing the job.

For an investor like we are, we will need to know what is going on and how this management is doing their job. In the recent days, Singtel is also said to increase it's stake on Bharti Airtel to 39.5%.

"Singtel will be allotted up to 85.45 million new equity shares in Bharti Telecom at 310 rupees apiece, which will raise its stake by up to 1.7 per cent for a total consideration of around 26.5 billion rupees (S$545 million).

The allotment, expected to close by next month, will see Singtel's economic interest in Bharti Airtel increase by 0.9 percentage point to 39.5 per cent.

...

Singtel's total stake in Bharti Telecom will increase to 48.9 per cent with this current investment, according to a press statement by Bharti Airtel."  - from Straits Time


As an investor, I view this move by Singtel to be a move for the longer term, which will be paid off in the next couple of years. With the intensive price war today in India's telco market, I believe that we will be able to see a couple of reds in the next few financial reports.

Singtel's 3Q result will be released in hours time, and we will be able to take a look at it when we wakes up tomorrow! If the results is poor, we should be able to see the support lines be retested once again.

Sigh.. this silly devil here is trying to buy before the results..


Attentive readers will find out that this purchase will not look like a nibble if I were to base this purchase on the weight of my portfolio. However, on my side, I'm trying to increase the amount of shares purchased each time in the late few trades to further reduce on transaction cost.

Time to strap my hands to myself!! No more itchy hand.. no more..

Read:
Singtel's Technical Analysis
Singtel - Special Dividend of 3.0 cents per share

ST News on Singtel increasing it's stake on Bharti Airtel can be found here

Portfolio Update - Divestment of FCOT & SSB Allotment

It had been sometime since anything have happened to my equities portfolio.

Having that said, it's truly a pity that I have to write this today. In my first portfolio update of 2018, instead of the regular 'buy', it had turned into my first 'sell' transaction. I've divested 300 shares of FCOT at 1.46 today after it went into XD. 

Taking into the account of all the transaction fees, this divestment at 1.46 translates to a P/L of 8.29% or S$33.10 (without dividends) and 15.66% or S$62.53 (with dividends). This big increase you see here is due to the relatively small amount that I've placed into the investment. Nonetheless, this also serves as a good lesson learnt along the way.

FCOT announced it's 1Q18 results and had declared a 2.40 cents distribution for the period. Shares of FCOT had since went XD. With it's recent run, and at today's price of 1.46, the current price  translates to 94% of FCOT's book value at 1.55. Surely, it is still trading a small discount to it's NAV, however the sightings of several signs in the financial report had got me shaking my head.

FCOT's 1Q18 Financial Highlights

There have been a lower occupancy rates at ATP given the departure of HP and along with the weaker AUD, it had resulted in a 11% down in gross revenue year on year. NPI had also decreased significantly by 15% due to the given factors and DPU had shrink by 4%.

Fortunately enough that FCOT's management fees are paid in units rather than cash. Should FCOT's management decide to receive cash instead of units, the DPU will be badly bruised. With 2.40 cents in mind, this translates to an annualized dividend of 6.5% based on the latest price of 1.46, which is no longer attractive.

However, if it is based on my entry price at 1.295 earlier last year, the DPU is neither too attractive either at 7.4%. Considering if the DPU continues to fall, or the management deciding to take cash as management fees, the yield will be far less attractive. Revenues should be able to well recover when more areas in ATP are leased out.

With HPS leases expiring, and should they leave ATP, this event will vacated roughly 16.7% of ATP's NLA. With that in mind, the distribution will once again be impacted negatively.

On a side note, they have also went into the acquisition of 50% in Farnborough Business Park, UK. This deal is set at £175 million. A rough calculation based on the latest exchange rates (1-1.84) will mean that FCOT is acquiring this FBP at S$161.22 million.

Page 9 of 1Q18 Financial Statement

A quick look into their financial statement at the end of 31 December 2017, it shows that FCOT does not seem to have sufficient cash for the purchase which is said to be completed by end-January. This makes me wonder on how this acquisition will goes about. 

With a decent gearing at 34.8%, FCOT is able to take up loans easily for the acquisition. However with that in mind, the gearing will no longer be attractive anymore. Or perhaps, a rights issue might be coming?

Today, FCOT continues to have a relatively decent gearing at 34.8% while prices today, despite FCOT trading at a 5% discount to NAV, tells me that FCOT is no longer undervalued. With the uncertainties ahead and considerations, I decided to divest my shares of FCOT.

Assuming that HPS vacates from the premises, based on a simple envelope-back calculation of HP's total GRI of 11%. Stripping that off will impact it's DPU to shrink to 8.54 cents, which translates to a DPU yield of 5.85% based on today's price of 1.46.
This yield today at 5.85% is no longer attractive for FCOT considering the uncertainties ahead such as increased gearing, rights issue or even the vacating of other tenants and is also unable to compensate the risk for this investment.

As I've divested on XD, I will still be receiving $7.39 of dividends from FCOT on 1 March. As to the 8 balance script shares that I've subscribed previously, I guess, that shall be considered my 'legacy' positions in FCOT? Haha! Nonetheless, FCOT will be officially removed in my coming portfolio update.

FCOT's results presentation here.
FCOT's financial statement here.

On a side note, I've been successfully allocated with S$500 worth on SSB from the previous SSB exercise. (GX18020A). The SSB had been oversubscribed by S$172 million. Applicants who applied for $41,500 or higher would receive $41,000 or $41,500 based on the latest news from MAS.

Guess, for small birdies like me, nothing much. However, as mentioned earlier in my previous post, the purchase of SSB serves as a form of diversification as well as personally, I view that SSB is a really attractive and good platform for me to park my money in.

News on SSB oversubscribed can be found here.

Read: Singapore Saving Bonds (SSB) - 1.55%

Portfolio Update - Far East Orchard

2017 is a great year for property developers. A number of property developers on the SGX such as CDL, UOL, Wing Tai and even recently, Guocoland had a significant run up since the start of the year.

Far East Orchard had been in my radar for sometime and it's a small pity that I missed entering at 1.4X range. However, after much analysis and earlier today, I've initiated a position in Far East Orchard of 800 shares at the price of $1.515

Far East Orchard is a property developer that has a real estate portfolio that can be split into 3 segments - hospitality and property and investment. With an outstanding shares at 422.6 million and price of 1.50, it has a market capitalization of 633.9 million.

Business structure of FEO

1. Property segment
FEO's property segment consists of property investment whereby they hold the properties and leases them out for rental income and property development projects.

Property Investment includes:

1. Medical suites: Units at Novena Medical Center & Novena Specialist Center
2. Student Accommodation: In Brighton and Newcastle upon Tyne
3. Offices: Tanglin Shopping Center
4. Shops: SBF Center @ Robinson Road (20%)

Property Development Projects includes:

1. Residences: euHabitat (20%), RiverTrees Residences (33%), Harbourfront Balmain in Sydney (50%), Floridian & past projects such as Regent Grove, Glendale Park, West Bay Condominium etc.
2. Offices: Wood Square (33%)
3. Industrail: Tannery House

The student accommodation in UK (Brighton and new buildings on Newcastle upon Tyne) is currently in the progress of development and is expected to complete in 3Q2017. The opening of this student accommodation facilities will brings in more revenue to FEO in their upcoming FY2018. 

It's also good to note that there's a good number of investment properties in FEO that are of freehold. The benefit of freehold properties building vs leasehold building are that the leasehold buildings will be subjected to a rate of depreciation over time. 


Harbourfront Balmain in Sydney has already been completed and is currently in the selling phase. In their upcoming financial reports, which the sales of HB will be reflected as their revenue in this next financial report. Currently, there is only 5 units remaining and 1 resale unit left.

Details of HB's sales can be found here.

The student accommodation in UK also has a free-hold tenure. The long-term fundamental of UK property market does look appetizing and will definitely be better after the Brexit.

2. Hospitality segment
FEO's segment includes management services, operations and property ownership. Their hospitality management arm - Far East Hospitality, operates over 90 properties with close to 14,000 rooms that spans across Australia, UK, Germany, Denmark, Singapore and Malaysia.

These properties includes Orchard Parade Hotel, Village, Quicy, Oasia and Rendezvous brands of hotel in Singapore & Australia and Adina Apartment Hotel in Copenhagen and Berlin. The concentration of hotels are slightly heavier in Australia and Singapore.

Hospitality is a cyclical industry and the current outlook for the hospitality sector in Singapore is weak due to the large supply of hotel rooms with a softer demand. On the Australia front, hospitality industry is positive, however different across the different cities in Australia.


3. Investment Holdings
FEO also has 33% of shareholdings in the REIT Manager and Trustee Manager of Far East Hospitality Trust (FEHT). 

Now, after knowing what their business is. It's time to take a look at the various metrics for FEO.
As the earnings for property developer varies from time to time depending on their development projects, to understand a property developer better, metrics such as P/E will not be able to accurately tell how much it's worth.

Net Asset Value
FEO's NAV at the end of 2Q2017 results stands at 2.89, and at the price at 1.515 today, this will mean that they're currently trading at a very big discount of 48% to their book value.

NAV of Far East Orchard as of 2Q2017

At this price, they're very undervalued and that it also provides a huge margin of safety for me at this entry price.

A comparison between it's peers with regards to their P/BV ratio is as follows:

Wing Tai's P/BV Ratio too represent a great discount at the current price with a 45% discount, which had a run-up recently and is close to trading at it's 52W high.


Debt-to-equity ratio
FEO at the end of 2Q2017, had a total gearing of 21.97%. As a property developer, they're quite reliant on loans and debt is most frequently used to finance their assets. As such this is also one metric to look out for. Comparing to it's peers like CDL, which has a gearing of 63.74% and a closer match, Wing Tai at 28.22% and UOL at 29.65%, FEO is relatively fine as compared to it's peers when there is an interest hike from fed.


Dividends
Ahhh. Now to the part about dividends. For the past 7 years since 2011, FEO has been regularly paying out 6 cents of dividend to it's shareholder. At this price of 1.515 I'm paying today, it translates to a dividend yield of 3.96%. I'm pretty comfortable with receiving 3.96% dividend from a property developer while waiting for it's value to unlock.

Currently at the end of 2Q2017, their EPS stands at 1.56 cents for the FY2017.

  
Who is behind FEO?

Far East Organization Pte Ltd have a 60.99% direct interest in FEO and it is founded by the late Mr Ng Teng Fong, the richest man in Singapore. Currently, it is being overseen by the son of Mr Ng Teng Fong, Phillip Ng. Together with the sister company of Far East, Sino Group - the largest property developer in Hong Kong. Far East Organization is also the largest landlord and property developer in Singapore.

However, with a high interest from Far East Organization, it may both mean a good/bad thing. The performance of FEO will be hitting the Ng Family directly, should the stock not perform. At the same time, the interest from Far East Organization which exceeds 50%, they will also be able to conduct a buy-out easily when they feel that their stocks are too cheap.

With the public float of 133.87M share, it will be not be difficult for the parent organization to fork out S$267.74M, at a privatization price of $2/share which will translates to 30% on their NAV when they feel that the share price is too cheap.


It's also good to note that with the run up from the fellow property developer peers, hopefully that this laggard will be able to follow up and not forgetting that the hospitality sector about to turn around. With fingers crossed, let's hope that FEO will be able to turn around with the possible catalyst in the future.

The initiation of FEO is more of an asset play, whereby the combined asset value is much higher than it's market capitalization, and backed by assets. While waiting for it's value to unlock, I'm happy to be paid close to 4% dividends :)

2Q17 FEO's financial statement can be found here.
DBS research on Hospitality Sector can be found here.

Accumulating ComfortDelGro

CDG has declined sharply last Friday to a new low of 2.09, dropping further when the market open on Monday and this continues to the price of 1.965 today.

LTA has announced on last Friday that SMRT has clinches the operating contract for Thomson-East Coast Line (TEL). The bid SMRT submitted was however 30% below it's rival SBS Transit, a subsidiary of ComfortDelGro.

Map of Thomson-East Coast Line (TEL)

The response is very negative from the market for this, shredding 11% of CDG since the last closing price on last Thursday

I've taken this opportunity days ago to cash in and accumulate 500 more shares of CDG at 1.99, which is 10% down from my previous average price at 2.22. CDG has became my greatest holdings so far. After averaging down, my new average price for CDG stands at 2.07/share. The last time CDG is trading at 1.96 (the price today) is back in March 2014, a 3.5 year low. Market capitalization from the drop has resulted in a decline of $475.81m.

There has been a big controversial in CDG recently, with different individuals voicing out different concerns about CDG's drop such as:

Falling fleet and 2000 Comfort's driver switching over to Grab for the heavily discounted rental.
A rental of $120/day x 2000 x 365 = $87.6m fall in revenue for the next year. 
This may continue to worsen should more driver of CDG switches over to Grab/other taxi provider.

Grab is currently very aggressive in the war with Comfort, I believe that the taxi fleet would continue to fall.

Towards which approach would CDG take to overcome this problem - selling their taxi business/scrapping their unused cars/price-war or offering incentives to retain their drivers. This shall be left to the highly-paid executives to make their decisions.

SMRT winning the tender to TEL.
This represents a "loss in possible revenue" to CDG's subsidiary, SBS Transit which will affect their earnings in the years to come when TEL opens.

On a positive note,

DTL3 will be opening in months time, and I believe that this will be able to slightly mitigate their pain in their revenue loss.

Healthy Balance Sheet - A good question will also be towards how Comfort is able to deploy their cash into generating more revenue for the group. With this destructive technologies, companies like SPH is also facing problem but has since diversified into other sectors such as properties. Will Comfort do the same thing? Again, This shall be left to the highly-paid executives to make their decisions.


With these in mind, the revenue losing businesses will translates to a falling EPS the next year. With the fallen share price, the price today at 1.96, it's priced at 13.25x their earning.

EPS now at 14.83c, assuming a 10% off it's revenue across all businesses in a terrible scenario, 13.347c of EPS will translates to 14.68x their earnings. To buy at the same 13.25x their earnings, 1.76 looks to be another price to enter.

Fortunately, my sizing are all extremely small. Should I catch a falling knife, it will be a good lesson for me.

There's still another blow to CDG should strategic alliance with uber fall through. I'll be reserving some bullets to accumulate more on the next blow, should it takes place and I will be looking towards to accumulating more shares of ComfortDelGro when opportunity presents :)

Fear, fear and more fear?
Read: A lookback into 1987 Black Monday


After the great correction of October 1987, the end of the world and the end of the banking system were widely predicted.
Peter Lynch


News on SMRT winning tender to operate TEL can be found here from CNA and here from Straits Time. TODAY report on ComfortDelGro's Taxi fleet here.

CDG's 2Q17 Report can be found here.