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Friday, February 15, 2019

Singtel - More trouble ahead?

Singtel continues to show weakness with yet another set of disappointing results.

For the three-month period ending Dec 2018, EPS declined from 5.88 cents to 5.04 cents. In other words, the EPS for the full year may decline to 20.12 cents.

If so, the expected dividend payout after the 2020 may decline to 12 cents to 15 cents a share. At current share price ($3), this translates to a yield of 4% to 5%. To be fair, this is by no means terrible for a blue chip stock, but it is a far cry from its current 17.5 cents a share dividend.

A critical factor for the continued weakness was attributed to fierce competition in India (Bharti Airtel), which posted losses. It further did not help that Singtel's ID and TH associates also posted lower profits due to "handset subsidies and advertising".

I believe Singtel continues to be a long term value play, primarily because Singtel's size and experience would ultimately allow it to gain an edge over the competition in its Asian businesses.  Singtel retains a healthy balance sheet, with FCF of 2.53 Bn. This will continue to afford Singtel ammunition to wear down its competition and take a larger slice of pie when the markets revert to sustainable profit structures.

If you have not yet invested into Singtel, or are waiting for an opportunity to accumulate/average down, you might want to wait to see how much further EPS would decline before deciding on an appropriately safe entry price. 

For income investors with long investment horizons, this transient weakness should not be overly disconcerting. Indeed, these may be opportunities to take meaningful positions in a sleeping Asian behemoth. 

Onward to FI!

Thursday, January 31, 2019

#MOGA (Make Orchard Great Again)

Bringing back the orchard

"The plans were unveiled on Wednesday by the Singapore Tourism Board (STB), Urban Redevelopment Authority (URA) and National Parks Board (NParks). Together with the Land Transport Authority, these bodies have completed a six-month review of the plans for the belt."

You know Ah Kong means business when not 1, not 2, not 3 but 4 G agencies come together to devise a plan for rejuvenating the orchard belt. #MOGA - it's a thing now.

Apparently, it will be a "lifestyle" destination - not sure what that means but presumably the inclusion of NParks would suggest that "concrete mall jungle" is not on the cards.  After all, can a place really be called "orchard", if there was nary any flora and fauna.

The image concepts  provided by NParks look straight out of a cheesy china developer property brochure:
New Sheltered Events Space @ Dhoby Ghaut Green
Wavy wood?/metal? roof because everyone loves getting sun baked on a weekend shopping spree.

New Water-Play Features @ Dhoby Ghaut Green
But will this have a Uniqlo?

I have said in a previous post, that one should never question the dogged determination of our 4G leaders.

So perhaps our fellow FIREr Brian Halim, whom I understand has a huge Starhill position, may be the one laughing to the bank in due time.

For the rest of us, perhaps it is not too late to load up on Starhill when it is still in the $0.72 range.

DYODD. Onward to FI brethren!!

UPDATE: Increased my shareholdings in Starhill to 90,000 shares @ $0.715 

Monday, January 28, 2019

Frasers Logistics Trust - Optimistic despite slight DPU drop

DPU rises (but not really)

No thanks Australia

The TLDR version is that DPU went up by 6.5% (which is respectable) but the actual DPU received in SGD went down by 1.1% due to unfavorable AUD/SGD exchange rates.

The impact was slightly mitigated by currency hedging.

Spot rate (28 Jan): AUD/SGD: 0.97102 (source* OANDA)
Hedged rate (1Q19) AUD/SGD: 0.982
The hedged rate is still slightly better than the live rate.

AUD is at historical low

Over the last 15 years, the AUD only went below parity with the SGD for a short period of time during the 2008/09 GFC and recorded its lowest at 0.93 SGD.

The AUD has steadily lost value since Jan 2018 (1.057).  I do not believe that the AU economy is in such bad shape that the value of its currency would drop to GFC levels. One must also remember Australia is an export economy, and is highly dependent on tourism. A lower AUD is in fact a boon for these industries and acts as a hedge against further currency weakening.

While the AUD might stay low for a bit, i think it speaks volume for FLT management that they managed to keep DPU decline at only 1.1%.  Especially when you realise the corresponding drop in AUD (for the same reporting period in 1Q2018) is 7.2% (from 1.0583 to 0.982).

Credit must be given to the management for cushioning the FX loss by growing the DPU via EPS accretive acquisitions. Which brings me to my next point.

Diversification and Expansion into Europe

FLT has been buying into Germany and Dutch properties. I think that is a sensible move to diversify out of Australia. It is further noteworthy that, unlike local Industrial REITs, FLT holds a majority of freehold assets, which makes its NAV a lot more defensive. A lot of industrial properties in SG are on 30 year old leases, which makes lease depreciation a significant issue when valuing the property portfolio.

Industrial REITs tend to provide higher yields (see Cache, AIMS) because they need to account for the relatively rapid lease decay compared to other classes of property. This is where i think FLT truly differentiates itself from the rest of the pack.

Despite its mostly freehold assets, it is still providing unit holders close to a 7% yield if you had bought when it was hovering around the 1.02-1.03 range. Extraordinary.  Definitely a gem I will continue holding on to.

Tuesday, January 22, 2019

Frasers Commercial Trust - On its way up

There is talk  on the street that Google is interested to lease the vacant space at Alexandra Technopark.

One may recall that the occupancy rates of Alexandra Technopark was left in tatters after HP terminated its lease and moved out. The space has since undergone AEI and should Google decide to lease space, the occupancy of the asset will become close to 100% (from its current 68.6%).

I bought a bit FCOT a few months back, hoping for something like this to happen. While this is all speculative at this stage, one can be forgiven for being cautiously optimistic that the occupancy of the Technopark won't stay low for an extended period.

Coupled with an comparatively low gearing of 28.3%, which is way below the regulatory ceiling of 45%, there is also more than fair chance that some form of acquisition (in UK?) may happen in 2019.

All in all, FCOT seems to be poised for recovery.  DBS has a TP of $1.70, which seems a tad unrealistic. Nevertheless, even at current prices, FCOT has a trailing yield approaching 7%, which is more than decent compared to its peers (Capitacom trust, K-Reit). OUE Com Reit appears to have a slightly higher trailing yield but its gearing has exceeded 41%, which leaves it little room to manoevre before unit holders have to pump in funds via even more rights issues. 

FCOT declared a distribution per unit of 2.40 cents, payable on 1 March 2019. Looking forward to receiving my first dividend from FCOT. 

Let's hope the best, but be prepared for the worst.

Onward to FI!

Friday, January 18, 2019

Meritocracy is both essential and justified

Today, i received a rather funny (but sad funny) email from a clerk in my firm.

Her email attached an invoice bearing the date 11/12/2018. A client from the US had requested that we re-issue the "November invoice with a December date".

Now, it is immediately clear to me that the US client is confused by the date format. Unlike the rest of the world, the US appears to revel in its odd ways of not using metric, and adopting counterintuitive date conventions i.e., month/date/year.

But this is not my point.

That clerk knows full well that both the service and the invoice were rendered in December, being the same person who processed the work and issued the invoice. There should be zero doubt in her mind that the invoice was correctly issued in December.

But what does Ms Clerk do?  She simply forwards the invoice to the accounts department, asking that the invoice be re-issued with a December date, with a note, "Client's request".

Stupidity? Nonchalance? Incompetence?  A bit of everything?

Is it any wonder that people like that would never improve their station in life. They simply cannot be bothered, or worse, are incapable of doing so. These are the same people who then go to online forums, or election rallies and complain about wage stagnation.  Well, maybe, just maybe, you fully deserve to be left behind?
What SJWs like Teo You Yenn seem to often forget is that meritocracy does not just exist simply because a group of social elites banded together and somehow willed it to.

Meritocracy is an immutable aspect of life. Every business owner wants the best person for the job, so that they are getting bang for their buck.  No one wants to hire an imbecile just because that imbecile fared well academically.  They do so because a good degree from a reputable University is a reasonably good barometer that the person you hired is not a robot zombie like Ms Clerk above. It is not fool proof for sure, but it sure beats any other indicator at this time.

People who attribute a perceived lack of social mobility to the meritocratic system in Singapore need to take a few years and work in the private sector. There is a marked difference in both attitude and aptitude between graduates with proper degrees and those who simply enrolled in the "school of hard knocks."