Review of my Sitra Holdings Purchase (5LE.SI)

I rarely buy any stocks based on people's recommendation, at least not without going through their rationale first. However recently, I bought Sitra Holdings based on the call made by The Little Snowball. Their case made for Sitra was fair and substantiated by (or very similar to) previous analyses found here and here. I entered at $0.017. 

Disappointingly, Sitra's 1H2017 results did not deliver as expected, with losses increasing from $245,000 to $643,000. 

Voluntary Salary Deduction

While most analyses had been lauding the company's steady trajectory to an eventual profitability, they have missed out a component enabling that - voluntary management's salaries reduction. Senior management previously took a pay cut to ease the finances of the company. These voluntary salary deductions were reinstated in the latest set of results and indeed, selling and marketing expenses together with administrative expenses increased. 

Senior management reinstating their salary arrangements may be a good sign that company is turning around and they are more comfortable receiving their original salary. However, this factor may have been "beautifying" previous results and maybe the path to profitability may not be as straightforward after all. 

Forex Losses

While results were not fantastic in this half year, peeling back the forex losses will reveal a nicer set of numbers. Ignoring forex losses of $0.43M parked under other losses - net, the losses narrow to $213,000 which is definitely an improvement from the previous 1H result. 

Conclusion

Taken together, it is fair to conclude indeed, the finances of the company are improving if the above two points were factored out. However, senior management fees should be the rule rather than exception and hence the company do have to work a bit harder to eke out profits.

Looking at the cash flow statement, Sitra only has $2,000 cash at the end of the period, paralyzed by high trade receivables and bank overdrafts. This is another area that the company has to brush up on to survive the next economic downturn. Hopefully, rights issue will not be called as I do not hope for a long-drawn investment in Sitra. If need be, I am willing to dispose this stock at a loss as my capital outlay is purposely kept small due to the speculative play. 

Tianjin Zhongxin Pharmaceutical (T14.SI)

Tianjin Zhongxin Pharmaceutical (T14.SI) is engaged in the development, manufacture and distribution of mainly Chinese traditional medicine. In addition to Chinese medicine, its products also include distribution of Western medicine operated jointly with pharmaceutical giants like GSK and Baxter.

Pharmaceuticals in SGX are far and few between and Tianjin ZX certainly piqued my interest. It first appeared in my radar while searching for stocks that have not ran up in this bull market, dividend-yielding, EPS growth in the past 5 years, reasonable market capitalization and in profit. Among all the stocks that appeared, Tianjin ZX had a good economic moat expected. of a pharmaceutical firm.

Digging up the past year's performance, Tianjin ZX was quite impressive as well.

In 2010, the Company reported 0.4 RMB in earnings. This rose to a high of 0.6 RMB in 2015 before dipping to 0.55 RMB in 2016. As shown in the graph above, NAV displayed an even better result. The Company grown from 2.43 RMB in 2010 to 5.38 RMB in 2016. This represent a CAGR growth of 14.16%.

S-chip is still viewed suspiciously by many in Singapore. Most recently, Eratat declared that it has no assets to be distributed to shareholders and delisted without any resolution to them. The cash declared to be held in banks were non-existent. However, Tianjin ZX pays a steady dividend year and this should imply that the cash were certainly present. For year of 2016, Tianjin ZX paid a dividend of 0.25 RMB. This is subjected to a 10% tax rate in Singapore and should amount to a final dividend of 0.225 RMB. At my buy price of 0.965 USD, this will translate to approximate yield of 3.4%. 

At current valuation, Tianjin ZX has a P/E of 11. For a pharmaceutical company, this P/E is somewhat low and have upside potential. For the latest quarter, the Company holds 536,481,000 RMB of cash, approximately 10% of share price. However, the crux of my purchase lies in this fact. Tianjin ZX is also listed in Shanghai at 17.65 RMB or S$3.58. At 0.US$965 or S$1.35, Tianjin ZX is listed in SGX at a 62% discount and 31.52 P/E!!!! I do not understand what caused the extent of this different valuation. However, I do hope that management will buyout my shares in and relist them at Shanghai for better returns. 

All this said, Tianjin ZX has been facing lower revenue but have been compensating by increasing operating efficiency and cost-cuts, leading to higher gross profit margins. In the latest quarter results, Tianjin ZX revealed that it is under challenging economic conditions and competitive environment. It is aiming to overcome these with the following actions:

1. Placing greater emphasis on innovation and creation and establishing the importance of scientific development; 
2. Strengthening its marketing plans to increase the amount of industrial sales so as to create more profits for the Company; 
3. Focusing on research and development activities to enhance the Group’s core competitiveness in technology; 
4. Strengthening the internal controls and management of the Group

Writing this post, I hope that Tianjin ZX will be deserving of my long-term investment and reap future returns. 

Comparison of Falcon Energy vs Ezion Holdings

HC Surgical Specialists Limited (1B1.SI)

HC Surgical Specialists Limited debut on SGX Catalist on 3 Nov 2016 at $0.55 despite an IPO price of $0.27.

HC Surgical Specialists is a a medical services group primarily focusing on endoscopic procedures through a network of 12 clinics in Singapore. These clinics are distributed across heartlands and also in major private hospitals. In addition, the company has entered into a MOU with an independent party to provide training and consultancy at Transport Hospital in Vietnam. Their specialist surgeons will be registered to practice at the hospital and help set up a day surgery and endoscopy centre, thereby securing the exclusive rights to perform surgical and endoscopic procedures for a period of time.

Rational for Purchase

Bought this stock hastily on 6 Jan 2017 to take advantage of the $0.018 declared dividend. At my purchase price of $0.625, it is a 2.88% dividend yield - good for a growth and healthcare stock. I had only analyzed this stock retrospectively (flouting the rules, need to reflect on myself). Besides the attractive dividend for a healthcare stock, this stock caught my attention due to its similarity to another successful IPO by Singapore O&G, attaining multi-bagger returns.

• Both are companies related to healthcare, though Singapore O&G focuses another field
• Both had IPO price in the $0.20-$0.30 range
• Both trading at P/E in excess of 30
• Both declares dividend
• Singapore O&G traded in the $0.60 range when it first debut

With these similarities, I am hoping HC Surgical Specialist will replicate the price trajectory as well. 

On a more fundamental basis, HC Surgical is good due to the following reasons.

• Singapore is an ageing society, with more need for healthcare
• Specialist medical services
• Entry into Vietnam with clear business outlook

This is a superficial comparison that I should be ashamed of, but since my Buy Order was unexpectedly triggered, why not I publish this here as a record. 

Financial Performance

I had briefly looked through the half year financial statement before the purchase. With a quick peek, I gulped at the bottom line, with a 98.5% drop. I knew there was an IPO expense but did not have the time to add it back to compare. Now that it is the weekend, let's sit down and go through the numbers.

IPO expense was $1.258M. Adding it back to profit before income tax, it comes up to $1.357M - still 15% lower than the previous year. I factored in an increase tax expense to reach end profit of $1.357M. With outstanding shares post-IPO of 146,311,530. The EPS comes up to $0.0075 for the half year ended 30 Nov 2016.

Assuming consistent earning at the second half, the P/E at $0.625 is a whopping 42 - really going against my usual theme of value investing.

The declared dividend policy is to pay out 70% of its profit. With my estimated EPS of $0.015, the dividend payout is nearly 120% of profit. So this $0.018 dividend essentially has some parts coming out of the IPO proceed and I should not expect this rich a dividend in the future.

Maybe I have been pessimistic since finance costs will likely go down in subsequent quarters. New subsidiaries will boost earnings (with a chance expenses outpace it) and entry into Vietnam presents growth. But overall, I had find my purchase rather risky and not entirely based on fundamentals. Rather, it is speculative based on my comparison to Singapore O&G. In addition, HC Surgical had declared that "operating environment of the medical industry to remain challenging in the next 12 months..." 

However, a buy is a buy and I will like to see this stock still emulating the trend of Singapore O&G for a better Goat Year!

Falcon Energy (5FL.SI)

Falcon Energy (5FL.SI) - One of the forefront in offshore marine and also O&G sector. It is divided into 5 business sectors namely, Marine, Oilfield Services, Drilling Services, Resources Division and one more that I couldn't find (LOL!). All this, you can read from their company website. Essentially, Falcon Energy feels like Nordic Group which provides O&G support services yet has a more direct exposure to oil prices through the Drilling Services and Resources Divisions.

I started searching for an O&G company as I wanted to gain some exposure to the potential oil price movements. Truthfully speaking, I did not do any deep research into oil prices. But seeing how far it has come down and the relative stability now, I wanted to capture some gains when the industry move into the up-cycle again. And I chanced upon this stock - a rare profit-making O&G company amidst the gloom and doom. Below are some of the points I like about this company:

1. Financial Metrics

Easiest go-to method to valuate a company from the surface. Was really too lazy to predict cash flows with expected oil prices etc. The ratios I calculated were really impressive till I started to doubt the going concerns of the company (the ratios were like that of a distressed company)!

Based on the time I did my calculations, where the price was at 17.2 cents and data obtained from the latest FY report,
EPS: 6.45 US cents
P/E: 1.975
P/B: 0.348
Debt/Equity: 0.9854
Dividend: $S 0.005 (2.9% yield interim)

In this set of data, it only seem that debt-to-equity ratio is high. I give it leeway as it is expected for O&G company to have significant debt, especially in these trying times. In addition, this 2016 figure is actually lower than 2014 and 2015, having paid off a sum of debt in the latest quarter. P/E and P/B is super impressive and actually needs no explanation. In the final dividend, I will guess that another half cent of dividend will be given out, ending with a near 6% yield. Warren Buffet had always like to buy stocks with significant higher book value and I actually think Falcon Energy fits the criteria.

2. Stake in CH Offshore

Falcon Energy actually owns 86.7% stake in CH Offshore, another listed firm on SGX. When I was doing this research on Falcon Energy, the market cap of the company was 139.2M while that of CH Offshore was 282M (sitting at 275M as of 06/07/16). This means the stake Falcon Energy has in CH Offshore is worth at least 244.5M! That's right, the market is selling the core operations of Falcon Energy for nothing and its stake in CH Offshore is valued at discount! This is the singular most blatant mispricing of Falcon Energy which I didn't believe. And if I calculated wrongly anywhere, please let me know to save me the money and embarrassment.

3. Share Repurchases

The company is aggressively doing stock buyback since 17 June 2016. The volume of the stock traded is not high, hence by aggressive, I meant as a percentage of the transacted volume that day. I suspect the company is doing so to meet the minimum trading price of 20 cents and since the volume is so thin, the company is able to do so easily - since there is little sellers blocking the queue. This is an situation that can be taken advantage of as the company is essentially being a guarantor of your entry price. It started doing buying back at ~16.8 cents till 19.5 cents today. In the last 2 days, it seems that there were some public support. As of now, still monitoring closely to see if the company is still going to support at current price.

 4. Conclusion

I had actually bought in at 17.7 cents on 27 June 2016, which I vaguely remember as the day Brexit occurred. I figured if it did not drop at such a dramatic event, surely it will grow when things got better. As my buy-in capital is small, I am not very tempted to take profit at current price. I hate to write this post as I do not want to jinx it (things are still going well) but in the spirit of sharing and also in the spirit of not being accused of hindsight-predicting, I have decided to write this post in the end.

NOTE: This post is not to comply you to buy the above-mentioned stock. Notice the price has actually gone up. Do your own due diligence before you take any action. To make sure you do indeed do your homework.... yes if you buy, you are helping me to prop up the share price!!


Cheers

I'm selling HPH Trust (NS8U.SI)

Following HPH Trust's result announcement, I've finally decided to part ways with this stocks. In many posts here, here and notably here, I had voiced concerns about the sustainability of the dividends payout and the effect of China's slowdown. Unfortunately, due to procrastination and the time taken up by school work, I was unable to followup with a review of HPH Trust. On top of the 26% drop in underlying NPAT attributed to shareholders, this announcement also came with a very jarring note which stated it is:

"...repaying a minimum of HK$1 billion of debt annually beginning in 2017"

Dividend Issue

Woah, hold it right there. The amount is no small sum at all. Taking 2015's distribution amount which comes up to HK$2996.6 million or 34.40 HK cents per share, repaying HK$1 billion per year will cut this distribution amount to 22.92 HK cents or 33.3% drop!! Now, this is just purely assuming that the repayment solely comes from the hand dipping into the distribution income. Some might be taken from its existing cash pile...?

But take a look at Total Consolidated Cash at 31 March 2016: $5,995.6

It's not much at all. Keep in mind that HPH Trust need $1 billion per year for 5 years, not to mention servicing of short term debt. Another consideration is the dropping NPAT attributable to shareholders (no time to consolidate data, sorry!), which will eventually lead to decreased DPU. 2015's yield was exactly 8.0% based on my purchased price of US$0.68. Given that the first half of the dividend had already dropped 14%, the forecasted yield based on my purchase price is around 6.8% for this year. Conservatively taking out another 20% drop in DPU because of debt repayment, the dividend yield in 2017 will be just 5.5%!!. I had mentioned that my comfortable level was actually 6.5% and this violated my reason to buy/hold HPH Trust.

Will it fit into my portfolio?

5.5% is a decent dividend for any stocks and the fact that STI is one of the top dividend yield index in the region may just be because of HPH Trust! However, does it justify a place in my portfolio after all? I'll be using a concept I've learnt in my FIN3101 class (hello Prof Ruth!) - the Modern Portfolio Theory. 

I'm not going to explain in details about this concept, but in general it is about using diversification to bring the risk of a portfolio down to your acceptable level and get the best expected returns, through varying the weights of your portfolio components. 

To cut to the chase, I had actually found that by removing HPH Trust from my portfolio, the standard deviation or risk of the portfolio did not change and it was actually accompanied by a marked increased in expected mean return of the portfolio. This essentially signified that HPH Trust did not contribute to my portfolio in terms of risk and was actually detrimental in terms of expected returns. 

This was actually my first time using this method to analyze my portfolio and I was excited to find out about this fact! The photo below shows my calculation and any guru that may come by this humble blog can double check my workings. 

Seeing that future dividends are going to be cut and finding out that HPH Trust is useful in my portfolio, I have decided to sell this stock. Queued at US$0.465 all day to no avail, I will continue to try tomorrow or at least in the immediate term. 

My Stock Holdings (March 2016)

After a long wait, I can finally sit down and count my gains for the month of March! With the Singapore stock market in the doldrums for the first two months, there were finally some rebound even though I did not enter anything prior to it. However, as I also did not let go of any stock, it meant my portfolio clawed back some gains.

This also highlighted how investing is actually advantageous to constant trading. According to this article, missing just the best ten days of S&P in the period between 1993-2013 will cost the investor a 3.8% drop in annualized returns. While many will argue that trading is better as one can let go of stocks at the highest and buyback at a lower point, I can assuredly say that I neither have the skills nor the time. Hence, as a student and eventually a working adult, passive investing will still be the way to go.

On the matter of dividends, I received a total of $227.42 for the month of March. This amount was disbursed from HPH Trust, SingPost and Karin Tech. Hence for the first three months, the total dividends received comes up to $261.57, a little over a quarter of my dividend goal this year.

Also, I had bought GLP on 31 Mar 2016 for a cost of $1.955. A little high, but through the average of valuation methods which I may subsequently write about,  the fair value price of GLP I came up with was actually $2.42. Coupled with GIC being the majority shareholder, I feel that there is some merit to the purchase of GLP. With the addition of GLP, the breakdown of my portfolio is shown below. Let's hope 2016 is a good year for all in the stock market =)

My Stock Holdings (February 2016)

Whew, busy month with Design Project, FYP Presentation, projects, tutorials, midterms. For record sake's, I have come online to record this short entry of my stock holdings in February. Whilst the market condition is still bad, there is a restoration of stability and hence marginal growth.

In the month of February, Keppel Reit has declared a dividend of $0.0168 per share. I chose to reinvest this dividend through the DRP. While filling up the form, I realised that I can allocate the shares I own to either 1) Receive the cash dividend OR 2) Receive new shares. Knowing this, I can allocate some of my share to receive cash dividend while still receiving the same number of new shares. This is possible because there can be no shares lower than 1 and is thus rounded down. Might as well use this spare shares to receive the cash dividend! The amount is not huge, but I hate to give away free money.

Therefore, the first dividend I received this year will be $34.15. The start to my $1000 dividend aim for this year. Below is my stock holdings at the end of February. Noticeably, HPH Trust has fallen in overall value to stand below Keppel Reit.

PS: I finally found a job!

My Stock Holdings (January 2016)

Below is my portfolio distribution for the first month of 2016. Here's to a better investing future for the rest of the year! 

From the start of this year till end of January, the main movement was me selling Bank of Ireland in favor of Karin Tech. The sale of Bank of Ireland was triggered by the disappointing lack of positive push to the stock. Though the economy for Ireland and Europe had been improving for a while now, with stable dividend on the way, it had not translated into positive movement for the stock. The premise of me buying Bank of Ireland back in 2014 was based on the improving economy in Ireland as well as the improving of the bank's balance sheet. Both events happened without any significant price increase. Hence by referring to my buying motivation, I had realised holding the stock by this point, meaningless. This also serves as a good lesson for readers out there that when buying stocks, remember to write down your reasons for writing it. Periodically review it to see that the reasons are still valid and if the reasons are not valid anymore, consider selling it. 

Following the previous post about Karin Tech, I have decided to add the stock into my portfolio for the strength of management, resilient earning power, advantageous foreign exchange and good dividend. However, from the announcement from the company on Wednesday, I might have misjudged the strength of the business itself. Profits from Karin Tech plunged approximately 80% due to softening consumer electronics product. I had reservations about that section of business due to the low economic moat, but I did not expect it to drop so much. Nevertheless, a dividend of 0.05 HKD translate to a half year dividend yield of 3%. This is sufficient for me to consider holding it for longer periods of time. A warning to any investors though, the stock had fallen below the 3-year low of $0.285. Hence, a short term investor may have problem holding it. 

HPH Trust has also announced their results recently with a drop of dividend. A constant worry of mine is the huge debt of HPH Trust. Though HPH Trust has good dividends in the past years, the stock price drops along with the dividend and I wonder if the dividends/business is sustainable in the long year. I will be reviewing this stock with more spare time. 

SingPost announced marginal growth in profit despite higher revenue. It is really frustrating that profit does not grow proportionally with revenue. Logistics can be a lower margin business. However, having waited over 2 years for profit catch up, it does not appear to be happening. Management guided that "transformation" is finalizing and it is time to reap its fruits of labor. With the departure of Wolfgang Baier, I really wonder how the company is going to fare in the future. If not for my wonderful entry price, I may have sold this stock already. Perhaps I sound salty, but the downgrade from OCBC is infuriating. Within a quarter, the bank has conveniently slashed $0.82 off the target price of SingPost. While details has been lacking for the justification of the new TP, I find it unbelievable that the cut is so much within a quarter. Makes me wonder do the research house just see.... "heyyyy, the current trades so far from our TP. I think it's time to cut it nearer to current price to stay relevant." Also, I don't see eye to eye with people stating that dividend has increased from 1.25 cents to 1.5 cents. This is because it had been declared by SingPost since 1 year ago and should have been factored into stock price long ago. Don't mislead potential investors.

-End of whinings-

With the removal of Bank of Ireland, my portfolio has transformed into a full dividend machine and I hope I can meet my dividend target this year. The Year of Monkey should be good to people born in the Year of Goat and I hope it is true! So Happy Chinese New Year all! Have a prosperous year ahead!!

Karin Technology Holdings (K29.SI)

http://www.karingroup.com/eng/images/global/home_logo.gif

Business

Karin Tech is a leading electronic and industrial components distributor and providor of IT solutions, as well as outsourcing service provider in Hong Kong and China. In 2011, Karin included retail arm to its operations, opening four In-Smart stores in Hong Kong. . Though the business sounds unappealing, the surprising fact is this:

Since 1977, the company had always been in profit!

The company did not enjoy continuous EPS growth as its earnings were affected in the wake of 2008 GFC and in 2014. However, the fact that the board was able to maintain profitability despite many economic downturns is indeed commendable. The company also has a substantial economic moat due to its very diversified business. Listed on its Products & Services, Karin Tech looks like a semiconductor company and a IT solutions provider. Throw in the retail arm, Karin Tech has a hand in every section of the technology sector. The business not as exciting as companies like Apple or even Foxconn, but I particularly like companies that no one pays attention to.

Dividend

Business aside, let's look at the company's past dividends. The most attractive part of Karin Tech is actually a dividend yield that matches REITs and Business Trusts. Below is the dividend yield for 2013, 2014 and 2015. 

Year	Dividend (S$)	Closing Price for Year	Dividend Yield
2013	0.0264	$0.33	8.00%
2014	0.0228	$0.30	7.60%
2015	0.0313	$0.31	10.10%

As you can see, the dividend yield for Karin Tech is substantial and comparable, if not better than many dividend stocks out there. Another point to note is the closing price for each year. Notice that the price is not volatile at all. Hence if you would are okay about not chasing capital gains but settle for dividends, Karin Tech is indeed very appealing. 

As with all dividend, one have to check how sustainable the dividend policy is. Below is the graph of how dividend payout correlates against EPS of the company. From the graph, you can see that management had discipline in keep dividend payout in line with EPS. Dividend payout average at approximately 50% throughout the years. Therefore, the dividends are indeed sustainable and payout are strictly adhered to by the management.

Valuation Metrics

From Yahoo website, the P/E of Karin Tech currently stands at 8.16. For a company that is relatively low profile with not as "attractive" business, I would say that the P/E is reasonable but leaves room for upside. For P/B, I referred to POEMS Stock Analytics and yield a figure of 0.56. Both P/E and P/B indicated that the margin of safety is relatively large. A downside I identified is actually how the stock rolls with the dividend payout. For example in 2010, when 8.2 HK cents of dividend was paid, the year end price was $0.22 - 6.5% yield (ignoring currency). Market historically had priced this stock to yield high dividend, which means that upside might be limited as well.

A catalyst that warrants a share price increase is the fact that HKD, by proxy of USD had already increased against SGD. Since HKD is pegged to USD, the stronger USD meant that the earnings of the company will be higher. Also, dividends paid out by the company is denominated in HKD, which might potentially mean higher payout. Most of the time, I feel that the market do not pay much attention to currency exchange (maybe because the companies always strip of forex gain/loss anyway) but in this case where dividend is transacted in HKD, perhaps this Karin Tech might be worth a look.

I'm none the wiser about the general strength of the industry. However, judging from the slowing economy in China, perhaps Karin Tech might be negatively affected by it. But, it is definitely worthwhile to note that the strength of management will make me comfortable holding the stock long-term and ride out downturns with them, all the while collecting the dividends they give out.

Valuation

The historic EPS growth between 2004 and 2015 was 5.87% annually. Projecting CAGR forward, the EPS in 2017 will hit 0.3295 HK cents or approximately $0.06. Applying the same P/E of 8, the simple projected price of Karin in 2017 should be around $0.48 (share increase in excess of 50%).

The current value arrived using Gordon Growth Model is looks even more monsterish. From Reuters, the beta of Karin Tech is 0.21. Re-using the risk-free rate and market's rate of return from previous post, the required rate of return or discount rate amounts to 3.465%. In 2005, the dividend was 6 HK cents while in 2015, it was 17.6 HK cents. Taking into account that 2015 was a record profit year, I will slightly adjust the "ending" dividend to 15 HK cents. Thus in the span of 10 years, the dividend growth of Karin was 9.6%. If you realise, the discount rate is actually lower than dividend growth and hence lead to a negative stock price (technically not possible).

Hence, an alternative will be to lower expectations and change using Constant Dividend Growth to valuate the company. Let's lower expectations even further and assumed that the upcoming year's dividend is 10 HK cents (44% drop). Using the formula, the current stock price for Karin Tech should be HK$2.89 or S$0.52.

Conclusion

 From the valuation section, you can see how horrifyingly undervalued Karin Tech is. However, there are some issues to consider. One would be the continuation of business and dividend. Will dividend continued indefinitely? Is the survival of business a cause of concern? Perhaps the growth of the entire business will be in jeopardy in the near future due to slowing economy of China.

However:

1. P/E and P/B are very low, similar to unfavoured industry. Given that it is a high dividend yield stock, I think it should command higher valuation
2. Business had always been profitable. Good economic moat
3. The company had been faithfully declaring dividend for the past 10 years
4. Recent hike in US$ (of which HK$ is pegged to) against S$, translating to higher dividend

Given all these reasons, I think Karin is  a safe bet and have taken a small position. 

STI ETF Monthly Investment Plans in Singapore

It's been awhile since my last post. The reason being that I'm currently residing in Sweden for an overseas exchange programme and had been spending the time preparing for this exchange. The cost of living in Sweden is indeed high. A McChicken meal here costs 65 SEK, equivalent of nearly $12 in Singapore. And nope, the portion is the same. The huge expenditure that is going to come with this exchange got me thinking how to recoup the money back eventually. I can only depend on my fixed salary in the future to recoup this expenditure.


However, it is obviously known that the salary is going to be the same every month. How do you maximise this salary that is going to come in every month? INVEST! Like what Warren Buffett once said, "Pay Yourself First". Take out a portion of your salary each month and invest it in monthly investment plans that are provided by POEMS ShareBuilder Plan, OCBC Blue Chip Investment Plan (BCIP) and POSB Invest-Saver. These platforms allow you to invest as low as $100 each month at lower commissions. Once the GIRO instruction goes through, the designated amount will be deducted every month and invested into counters you chose at the start. I highly recommend that you choose one counter to invest in and that is the STI ETF counter. Without going too deep into the subject, STI ETF tracks the STI index and it has been shown that it is very hard to beat the index's return even for seasoned hedge fund managers. So instead of fretting which counters to invest in at the start, I am recommendeding just one: STI ETF



I did a comparison of the three low-cost investment plans and it is shown in the table below.

A few points to note here:

1)  Buying-in Commission

POSB appears to be the lowest cost amongst the three at 1% flat rate. Suppose you choose to invest $100 per month, the commission rate of POEMS itself will be 6%! If you are investing $600 per month, then go for POEMS. $500-$600, you might want to go for OCBC BCIP.

2) Dividend Reinvestment

To me, this dividend reinvestment differentiates POEMS Sharebuilder Plan from the other two. Any dividend from STI ETF will be reinvested the following month. On the other hand, OCBC and POSB only credit the dividend into your bank account. Those who are privy to the power of compounding interest will know that reinvesting dividend will "snowball" your gains over the longer time horizon. Therefore POEMS wins in this aspect.

3) Misc Costs (Dividend Charges, Sell Commission)

After praising POEMS to the sky in point, it's time to point out the elephant in the room. The so-called "hidden costs" in POEMS are pretty high. Any dividend issued by STI ETF will be subjected to a $1 charge. Not mentioned in the table, there are also charges for scrip dividends, corporate actions, insufficient amount for GIRO. Furthermore, the commission that comes with selling the shares accumulated is definitely a downer. From all this, I gather POEMS is trying to attract people that are willing to invest more per month such that all this costs become negligible.
Edit: Self-assisted selling using POEMS is possible at min $25

4) Underlying ETF

The underlying STI ETF that each platform buys differs. However, the difference is minute and should not concern us. For general info, SPDR has a lot size of 1000 shares while Nikko AM has lot size of 100 shares. Also SPDR charges a fund fee of 0.3% per year while Nikko AM charges 0.39%. Again, this only concerns the people running the three platforms.

5) Partial/Total Redemption

POEMS and OCBC allow partial redemption of the shares accumulated. POSB, on the other hand, only allows total redemption. This might be disadvantageous if you are in an urgent need of money. However, since I believe that once you sign up with these investment plans, you should be looking at the time frame of at least 5 years. Therefore this account should not be your piggybank when you want to go on a Europe trip or something. That said, if you happen to run out of money, you can opt to freeze the GIRO payment and continue earn dividends, rather than redeeming the shares for cash. 

EDIT (18/1/16): Partial redemption of STI ETF units is now possible for POSB.

Conclusion:

If you are investing upwards of $500, go with POEMS for the dividend reinvestment. However, if you are still uncomfortable with the numerous charges that POEMS carries, by all means go with OCBC BCIP. 

If anything between $100-$500, choose POSB because of the low commission cost. Also, if you are new to investing, POSB is good as it is more clear cut with the charges. 

As much as I would like to start this monthly investment plans right now, I'm a poor student that can only afford to invest $100 a month at most. However, I really like the automatic dividend reinvestment provided by POEMS Sharebuilder. Therefore, I'd prefer to start with the Sharebuilder plan when I draw a regular paycheck upon graduation.

Hutchison Port Trust (NS8U.SI)

Hutchison Port Trust (HPH Trust) started trading with much fanfare on 2012. Listed in SGX, it is touted as the world's first publicly traded container port business trust. HPH Trust owns interest in container port assets in Hong Kong and Shenzhen - two of the busiest ports in the world. In 2013, its container berth handled a combined throughput of 22.8m twenty-foot equivalent unit (TEU).

HPH Trust is one of the thirty components in Straits Times Index (STI), having replaced F&N in 3 April 2013. As of 13 December 2014, it is also the highest yielding stock within STI at 7.8%. On 27 October 2014, the company ended the third quarter with an operating profit of HK$1.24 billion, a 3.5% increase year-on-year.

Given the high dividend that HPH Trust pays out every year, one should be prudent and check whether these dividends are sustainable into the future. The key objective of the Trustee-Manager was stated in the 2013 Annual Report as the following: "... to provide unitholders with stable and regular distributions and long-term growth in distributions per unit (DPU)" However, a quick look at the DPU since IPO was actually decreasing.

This also points out the deceptive nature of dividends yield. Dividend yield is based on past dividends and definitely not indicative of future dividends. Furthermore, dividend yield is based on current stock price and this means that falling stock price inflates dividend yield. For instance, HPH Trust indicated that it is distributing 45.88 HK cents in its IPO Prospectus and that translated to 5.8% dividend yield based on IPO price of US$1.01. However, due to the subsequent price fall to US$0.78, the yield had been bumped up to 7.5%. Hence, a lesson to take home is that stock purchase should not be based solely on the dividend yield number.

Besides the falling distributions, there are also a few points that does not paint a rosy picture of its financials. The first point is the enormous payout ratio. In 2011, the payout ratio is 167%. Next year, it increased to 199% and subsequently stood at 213% in 2013. Such high numbers indicated the distributions were likely unsustainable and that might have been the reason why distributions were falling. 

The trust might be able to give out that much dividends with its positive operating cash flow but quick inspection of the cash pile over the years indicated that it is dipping into its coffers to give such high dividends. In other words, the distributions for the past 3 years are unlikely to be sustainable. The Trust must find ways increase its profits otherwise unitholders will be looking at reduced distributions.

Another point of concern is the liabilities of the Trust. While the debt to assets ratio are pretty reasonable at below 50%, we can see that significant portion of the liabilities have been transferred to Current Liabilities recently. Current Liabilities are debts and obligations due within one year and with significant increase in that amount, a cut in dividend might be plausible in the near future. 

With all these data, is HPH Trust properly valued at US$0.69? Analysts opinions were quite differing with UBS having at TP of US$0.67 and DBS at US$0.78. However, one common point in both reports was that the management was considering whether to match cash flow generation to distribution payout more closely. Given that cash flow were negative in 2012 and 2013, distributions look to be suppressed in the mid- to long-term.  

Having bought HPH Trust at US$0.68 way back in 21 November 2013, I am fairly pessimistic about the dividend outlook. However, since I am comfortable with dividend yield above 6.5%, I will hold on to it until capital gains (around US$0.725) justify me switching out to other dividend stocks.  

ST Engineering (S63.SI)

Amidst the recent drop in oil prices, there are gems to be found. Some are oil-related stocks like Keppel Corp which may or may not have been oversold compared to crude oil price. Others, like ST Engineering (S63.SI) are dragged down by the pessimistic market. Upon some search on how oil price affects the business of ST Eng, I found this statement in the company's 2009 annual report:

"Oil prices have been on the uptrend since the beginning of the year and was around US$70 at year’s close. High oil prices would have a negative impact on the Group’s customers in the Aerospace sector, and this may in turn impact the Group’s performance. However, such an environment of high costs could present opportunities for third-party MRO providers like ST Aerospace, as airlines outsource more MRO work in an effort to contain costs." 

Although a report in 2009 is too outdated for my liking, I will conclude that oil price does not affect the company negatively at the very least. Due to its slump in stock price, the dividend yield had been bumped up to 4.7% from 4+% previously. Attractive, in my opinion.

However, as fate would have it, I chanced upon an article which highlighted the hidden risk of dividend stocks. In the article, SIA Engineering was cited as an example where high dividend payout did not mean that it was a good buy. This was due to its unsustainable dividend policy where dividends regularly exceeds its earnings. The shortfall between earnings and the dividends have to been patched up using its cash pile.

Following what the article did, I went to compile a list of ST Eng's financial and dividend history as below.

Financial Stats

Year	EPS (cents)	NAV (cents)	Dividends (cents)	Payout Ratio
2004	12.26	47	12.39	101.06%
2005	13.64	51.2	13.6	99.71%
2006	15.15	53.1	15.11	99.74%
2007	16.95	54.7	16.88	99.59%
2008	15.82	52.7	15.8	99.87%
2009	14.78	52.09	13.28	89.85%
2010	16.21	53.38	14.55	89.76%
2011	17.28	57.79	15.5	89.70%
2012	18.76	61.51	16.8	89.55%
2013	18.73	68.14	15	80.09%

The Earnings Per Share has been increasing steadily throughout the years with a slight bump in the wake of 2008 Financial Crisis. Dividends had been steady since 10 years ago. With decreasing payout ratio, it seemed that ST Eng had been prudent with its cash pile. This also implies that ST Eng does not need to dip into its cash reserves in order to maintain same dividend payout even if EPS drops. ie Sustainable Dividend Policy

Having bought half a lot of ST Engineering at $3.37, I would seek to complete my other half of the lot by waiting at $3.24. ST Engineering is a very solid company as I see it as a company that is effectively backed by SAF. During NSF days, almost all the vehicles were serviced or modified by ST Kinetics, a subsidiary of ST Engineering. Following Warren Buffet's advice, I would still see ST Engineering existing 50 years down the road and thus bought the stock amidst some market turmoil. 

Investing Report Card

Amidst the lab reports, presentation, projects and upcoming exams, this post was done up in light of my third year anniversary in investing.

My first transaction was done back in 8 November 2011 with the purchase of STI ETF. Throughout these 3 years, I had recorded and subsequently archived all my stock holdings with no way of finding out how well I fared against the market index. However, I recently discovered that I could track the CAGR of my portfolio using the XIRR function within Microsoft Excel and thus started to input my transaction history in the spreadsheet.

XIRR function works by inputting two sets of data, transaction value and date (this is reflected by column A and column B as shown in the picture). There are also a couple of rules to follow in order for the function to work. 

1. Beginning value of portfolio must be positive
2. Any "deposit" into the portfolio must be keyed in as a positive value
3. Conversely, any withdrawals (sale of stocks/dividends) is a negative value
4. When you finally want to compute the CAGR, input the ending balance as a negative 
5. Note that the date of transactions need not be in order (but must correspond to transaction!)

Using this method and inputting three years' worth of transaction, my portfolio's CAGR for the three year period turned out to be 9.25%!

This figure is definitely an A+++++ grade for me.  If this CAGR is sustained for 10 years, $10000 at the start will have turned into $24782 at the end of 10 years. However, given that there was a fantastic bull run these past three years, I am not optimistic that this growth will be sustained. Let's wait and see!

In the mean time, here are some interesting facts of my 3 years investing journey

1. My largest gain (unrealised) is currently Singpost, having bought it at $0.98. It is currently at $1.935 now. Including dividends over the years, Singpost is one of my two multi-bagger stocks
2. My second multi-bagger was Straco. I first bought it at $0.335 and watched it climb to $0.70 range. In the middle, I also received a special dividend of $0.020 per share.
3. My worst investment was definitely Vard. I first bought it at $1.37 and subsequently average at $1.28 and $1.08. All these was in hope that the takeover by the Italians would not succeed and stock price will run thereafter. I was only half right. The takeover did not succeed but the stock price did not run. Haha... Sold it some time after Vard declared that it is caught in a tax charge from Brazilian government (whew, missed a bigger fall when it declared profit guidance)
4. Had good profits in the US market. Bought and sold Bank of America for a good profit before. Currently have Apple Inc in my portfolio which I bought in at $88.58
5. On track to receiving $1000 dividends this year based on average capital size of $28500. This translates to 3.5% yield.

This is the end for my 3-years-investing report card. Hope you have gained some insight (however little) from this post. Pardon if there are many grammar errors or what not within this post as I am blogging this in the middle of my mugging session! Hope my finals will do as well as my investing :/ 

 

Signing off,
SG Youth Investor

Nordic Group (MR7.SI)

Nordic Group is a company that specialises in control system and automation needs for vessels. The company is mainly divided into 3 business segments: Systems Integration, Precision Engineering and Scaffolding Services. (http://www.nordicflowcontrol.com/)

Having a market capitalisation of 38.08M as of 24 September 2014, Nordic is a relatively small company. Although it is a small player in the industry, its does not really have the competitive advantage in the industry. Therefore, the reason to buy is mainly due to its undervalued stock price.

The following is the EPS through the years.

Table of Key Stats

Year	EPS (cents)	NAV (cents)	Dividends (cents)
2009	2.9	-	-
2010	2.3	9.4	0.53
2011	0.4	9.3	0.25
2012	1.1	10.2	0.25
2013	1.5	11.5	0.25

As you can see from the Table, the EPS has been improving for three years straight with the NAV increasing steadily. An additional bonus is the consistent dividends over the years. Based on the closing price of $0.097, P/E = 6.47, NAV = 0.84 and Dividend Yield = 2.58%

The low P/E and NAV ratio are really attractive, although "unpopular" stock usually command these low valuations. With the decent dividend yield, one can hold this counter for the long term and wait for the market to discover its true value. Given the small size of the company, Nordic might even be good for takeover play.

You can try to take advantage of the illiquidity of Nordic to get it on the cheap. At the current situation, Nordic has a Buy queue of $0.097 and a Sell Queue of $0.100. Try to queue low, and wait for sellers to hand the stock to you. If aiming for quick gain, similarly queue early to sell high. On some days, Nordic may have sink or spike sharply. Take those periods to grab cheaply or sell on gain.

Unfortunately, I sold all my Nordic shares recently to fund my exchange trip. Otherwise, I would have kept it for the annual dividend and/or wait for larger spikes to offload them.

Dividends: A Passive Income

Dividends are payment made by a company to its shareholders, usually out of its profits. Dividend policy varies from company to company. For example, some company do not pay dividends regularly. Others, like Singpost, pays dividends every quarter. Hutchison Port Trust pays bi-annually and Straco pays yearly.

People view dividends as an added bonus when they trade stocks. For an investor, dividends may be the make-or-break decision for buying the stock. This is because in the long run, dividends eventually becomes your passive income. One good example is Dividend Warrior, who regularly blogs about his dividend returns and income. In the latest 13 August 2014 post, he had accumulated $10,262 of dividends. These dividends are based on a capital of $222,560. That is my idol right there!

Usually when I tries to preach about the importance of investing for passive income, the usual response is that the capital is too low to start. However, I beg to differ. Everyone must start at some point and when better to start than now? For young investors, the most precious asset you own is TIME! Given that your capital returns an interest of 5% per annum and that you reinvest your interests, $1000 will become $2000 in 14.4 years. Make your money work as early as possible! In addition, SGX will cut lot size from 1000 shares to 100 shares by 19 January 2015. Currently, you can only buy stocks in blocks of 1000 shares, or 1 lot. By next year, you can purchase stocks in blocks of 100 shares. This means that blue chips like DBS or Keppel Corp will be more affordable to the public.

The gains to be made from investments are from either capital gains from rising share price or dividends. Although capital gains are usually gained in a shorter period of time and thus more satisfying, a smart investor will realise that dividends pay well in the long term. Everyone looks forward to retirement eventually and living expenses after retirement generally comes from CPF. But what if you manage to build a sizeable portfolio by the time you retire? Instead of putting your cash into a saving accounts which yields less than 1%, put it into dividend-yielding stocks like REITs and Trusts. These two types of stocks usually yield at least 5% dividend a year. In addition to CPF withdrawal, dividend payment can really add to the comfort of your retirement. For me, investment is really about building a portfolio that can eventually provide enough dividends for financial freedom/retirement. That should also be the objective that other have for investing.

As a result of my love for dividends, I had been slowly buying dividend stocks like Trusts and REITs the past 2 years. Below is my humble dividend records in the last two years of investing:

Do note that Dividend Yield reflects average yield of only dividend-bearing stocks while Portfolio Dividend Yield is the dividend yield based my enlarged portfolio capital.

I've highlighted the benefits of dividends in investing and also briefly covered how time is our most precious asset. Also, I've mentioned about two categories of stocks, REITs and Trusts, which bears comparatively higher dividend yield. Hopefully after this post, you might give investing a good thinking over and start your own investing journey!

Straco: Art of Pricing Stock Price

When looking for stocks to invest in, there should be a fixed tangible strategy in place. In that way, it is really  investing and not just a game of luck and chance (aka gambling). For me, I use the methodology set out in the book written by Mary Buffet (check out my reading list post). To scout for stocks, the company must have:
1) a competitive economic moat, and
2) a steadily increasing EPS.

Competitive economic moat refers to the high entry barrier that a certain business may possess. For example, setting up a bakery is easier than setting up a smartphone company. A bakery may need bakers, baking equipment, retail space and cashiers. A smartphone company needs the patents and technology, supply chains, distribution lines.. not to mention the manpower! Between these two types of companies, which do you think is easier to set up? Companies with high economic moat mean that their businesses are not easily threatened and margins may be higher. Choosing to invest in these companies ensures your investment has high level of security against business failure.

Mary Buffet also stated that Warren Buffet liked companies with increasing EPS over the years. The companies he mentioned in the book include Coca-Cola, Johnson & Johnson and Kraft Food. It signals the strength of management and business. Furthermore, the intrinsic value of stock can be calculated from the EPS growth.

In my case study, I'll use Straco priced on 18 Aug '13 as an example. The closing price was $0.775.
Straco (S85.SI) is listed on the Mainboard of Singapore Exchange. The company owns and manages a number of tourist attractions in China. These include Shanghai Ocean Aquarium, Underwater World Xiamen and cable car services at Xi'an. It had also ventured into entertainment business with startup of Straco Creation Private Limited.

The EPS of Straco over the years are as follows:

Year Earnings per share (cents) 2005 0.34 2006 0.39 2007 0.71 2008 0.89 2009 1.02 2010 2.15 2011 1.91 2012 2.31 2013 4.01

From the EPS, you can see that Straco has a steadily increasing EPS over the years, barring the drop between 2010 and 2012. This may be the sort of business you want to be interested in. Though Straco certainly isn't the sole player of tourism in China, it is the first few and enjoys the first-mover advantage. Furthermore, China is increasingly into domestic tourism which is positive for the company.

Once you determine that the business model and EPS growth is satisfactory, you can proceed on to estimate the intrinsic value of the company. The steps are shown below.

First Step (Finding CAGR):

Between 2005 and 2013, in which 8 years have elapsed, the EPS of the company has grown from 0.34 cents to 4.01 cents. Using a CAGR Calculator found here, find the CAGR of the EPS. 

Input the data accordingly:

Beginning value: 0.34 (starting EPS)

Ending value: 4.01 (ending EPS)

Number of periods: 8 years (years elapsed)

If done correctly, you will yield a CAGR of 36.13% per year. 

Second Step (Finding the Future EPS):

Once you have establish how fast the EPS is growing, you can estimate the EPS the company will earn in the future. First, you must determine the time frame for the stock investment. For me, I am more interested in the middle term time frame (~ 5 Years). 

With the time frame decided, proceed to calculate the future value of EPS with Future Value Calculator. 

Input the data accordingly:

Interest Rate Per Time Period: 36.13 (this value is the CAGR obtained earlier)

Number of Time Periods: 5 (your desired time frame here)

Present Value: 4.01 (latest EPS of the company)

If done correctly, you will yield a result of 18.75. This is the estimated EPS of the company in 5 years' time. 

Third Step (Establishing the Future Stock Price):

The EPS of the company is estimated to be 18.75 cents ($0.1875). Now, how do we translate this piece of information into stock price? That depends on the price-to-earning ratio (P/E) of the company in 5 years' time. Once again, we have to estimate the P/E of the company. You can do that by studying the historic values of the P/E ratio.  

Being more conservative, I set the model P/E at 8. Normally, P/E is between 10-20.

To get stock price, multiply the EPS with P/E. Therefore, Stock Price = $1.50

Fourth Step (Deal or No Deal?)

The current price of Straco is $0.775 while the predicted value is $1.50 in 5 years. This is an increase of 93% in 5 years. Also take note that the increase is not including dividends! 

Make sure to double check that the calculations have been accurate enough. Take note if there had been one-off gains in EPS and strip it off accordingly. 

When everything is done and the potential return proves to be tempting, the hardest part will be to press the buy button.