Sembcorp Marine Corruption Probe

The recent market rally has been a most unusual one. Overall, most investors are still tepid about the general economy. This means while many are likely to have sat out of the rally, those who took part are looking for indications of a change in sentiments to reduce their holdings.

I picked up Sembcorp marine during the recent market correction as its price fell by 10% after news that its office in Brazil was raided by anti-corruption officers. I found it strange that such corruption considered rampant in Brazil could have implicated Keppel Corp but left Sembcorp unscathed.

While nothing has been proven at this juncture. Semb Marine will likely be facing a fine probably on the same scale as that of Keppel Corp, given that the contracts awarded to the yards by Sete Brasil are about the same in number (article). While it is still early days yet for any conclusion to be reached on this.

However, there are always two sides to a coin and the present Semb Marine has had more breathing space given its recent deleveraging exercise, provided by parent Semb Industries and Temasek. I also like the fact that the soon to be in force IMO Sulphur 2020 cap has meant more Sulphur scrubber installations and the progressive change to D2 standard for BWMS would likely increase the amount of business with semb Marine for this year, as they are more exposed to this sector than Keppel. Though in most likelihood will only cushion any impact from the fine should it be implicated.

Similar to First Reit, this is a turnaround play for me, as the heavy volume selling is likely to taper off soon while I wait for the market to recognize Semb Marine’s value. While more bad news may follow, I believe that the income reports for the coming 2 quarters will vindicate my thesis.

In the long term, while they have their own niches. On their own Sembcorp and Keppel are still small players in a very large offshore market. That said, their technical know-how and execution ability are still considered top rate in this industry. With the ongoing global trend of mergers for shipbuilders it would not be difficult to see how synergies can be form through a merger, especially when some of their yards are located in close proximity with each other.

Turning back to the portfolio, the equities part of the portfolio crossed the 50k milestone this month. Including the bonds part of the portfolio and my warchest I believe we should be in good stead to capitalize on any opportunities offered by Mr. Market.


18Q4 Portfolio Updates

Just wanted to do a quick recap of my current portion my thoughts on the market for the next few months.


No. Counter

Mkt Price


Mkt Value





2 SingTel




3 StarhillGbl Reit




4 Straits Trading




5 Wilmar Intl




6 Mapletree NAC Tr




7 Mapletree Ind Tr




8 CapitaR China Tr




9 Keppel Corp




10. Raffles Medical










I sold off AIMS AMP CAP REIT when the sponsor bought the REIT manger and the price shot up. At a selling price of SGD 1.36, I broke even from my buy in price, though inclusive of dividends the return has been 11%.

I added several Reits during the last quarter’s bargain. On retrospect, the fed raising rates and backtracking in Jan was just what the market needed to get some perspective.

In Q4 2019, I added MNACT, MINT, Starhill and Keppel Corp.

MNACT had stated that rental reversions were double digit positive and I believe the location of Festival walk is strong. China’s tier 1 cities and Hong Kong are both ridiculously packed and malls generally do well. I wished I was gutsier to add more CRCT, but I thought I’d hedge my bets with MNACT.

MINT’s management has a very deep moat. I don’t think there are many industrial reit management teams that can do a full spectrum of AEI’s from warehouses to datacenters. I feel that this ability sets them apart from other small time industrial reits. The Taiseng acquisition is poised to become a gamechanger, especially with the nearby new town of Bidadari.

I was waiting for either Starhill or CDL-HT to fall further before acting, but it looks like prices have raced ahead for both. At a +6% yield and a lower PE and P/B ratio Starhill was the more conservative choice. I think most investors are feeling bullish on the upcoming Toshin rental. But I have not overlooked the positive announcements in Australia. This reit does not have a very strong moat in my opinion and I hope the price will appreciate enough before the Starhill gallery AEI.

Keppel Corp is an interesting story as the price tanked almost immediately after I bought on fears of low oil prices. I don’t think that Keppel like other pure property counter plays deserves to trade below NAV. I feel that LNG projects are the way forward for Keppel and I am optimistic that it would be able to snag a few deals in the next cycle. I think a consolidation of the Sembcorp and Keppel O&M would be a bonus, but it was not a consideration.

In the next 2 months, I am looking to add more Singtel and Raffles Medical, though I am keeping an eye out for further pricing erosion and China revenues respectively. I am also looking to divest some ESR as the balance sheet looks quite stretched. Let’s see if the market provides opportunities.

Lastly, let me end of with a reminder from Warren Buffet, try not to to listen to macroeconomic calls either when making individual stock decisions: “You cannot get rich with a weather vane.”

Bulls, Bears and SWANS

(SWAN stands for Sleep Well At Night, but it really alludes to a company that has strong underlying competitive advantages and financial metrics).

I realized that in 2018, I was too concerned with how the stock market was doing on a week-week, month-month basis. It didn’t help that I have a contrarian investing style and like to buy oversold stocks on trending bad news. Well 2018 was full of bad news.

It thus came as a good reminder when I read this article by Brad Thomas at Seeking Alpha about his SWAN stocks. He mentioned that in 2018, his selection of SWANS “beat ALL Seeking Alpha’s model portfolios as well as the DAVOS Index (+9.3% YTD).” It was no surprise that for last year the FTSE S-Reit index beat the STI too.

Brad also goes on to talk about how dividends forces management to be accountable to unit holders, you can read that here. While I never buy anything that doesn’t pay a dividend i realized that dividend investing forces me to look at the dividends received as part of my return. This also makes me more zen in the face of market volatility.

In 2018 other than hitting my savings and allocation target, It has otherwise been a flat year for me, especially in the areas of work and relationships. Thus, my hope is that in 2019 I would become positive which means worrying less and concentrating to achieve more at work.

One of the things that I wanted to do this year was to re balance my portfolio to include more SWAN stocks and REITs. Having said that I also know that it is possible to buy a SWAN at the wrong price!

For now my plan is just to continue to save and wait for the correction. Same as last year I am still looking to add more CRCT and MNACT at the right price. With Trump still at the helm, this looks to be a real possibility that chances might come again soon.

Final Year Thoughts

This is the second year into my financial investing journey and I think this blog has taken more of a financial planning tone rather than a purist investment blog. I also think that my blog can take on a more structured format, though I will be thinking about how to improve on this

Investment Income for 2018

  • Portfolio dividend income: SGD 1,793
  • Fixed income coupon: SGD 87

Savings Allocation

  • Equities: SGD 14,578
  • Bonds: SGD 5,500
  • CPF-MA: SGD 7,000
  • House: SGD 15,000

For this year, I decided to park a proportion of money into fixed income as a form of diversification. I subscribed to some Astrea IV bonds as well as SSB totaling about 5.5k with a blended yield of 3.86%. My intention for the SSB portfolio is to save towards a wedding and renovation related payments. My target for this fund is 30K come end 2020. Hopefully the government will come up with more similar volatility free instruments in 2019. 🙂

For fixed assets, I repaid part of the loan from the CPF board for the house. I still have another half remaining to be cleared. I am dragging my feet on this, as contributions to this fund is a diversion from the equity portfolio. At the same time, I have blogged about how we bought an expensive house and how I intend to reduce the mortgage to 80% of OA contribution. I guess this will be an ongoing work in progress.

Equities have had a rather lukewarm year. Other than Comfortdelgro which returned 30%, the other stocks were all caught in the minor bear that happened towards the end of the year. I took the opportunity during the dip to divest the smaller positions and focused on large cap contrarian plays such as Wilmar, Singtel and Keppel. I had intended to add more REITs during the dip, however none of the orders were fulfilled.

On the CPF side, For the first time I contributed 7k to CPF-MA instead of CPF-SA to reduce taxes payable. I decided to contribute to the MA instead as it has the same benefits of the SA (ie 4-5% interest and tax deductible) while having the added benefit of being used for medical emergencies.

I don’t think more could be done for this year, though I wished I could have increased my passive income streams. I had set out to increase my active income this year but 3 interviews later I am still at the same job. Sighs.

In the next year, I hope that I can increase my network and perhaps make a move in the right direction.

CPF Overview 2018

As someone who likes the idea of having multiple streams of income, I view the CPF system as the “bond” component of my portfolio with a 30-year maturity date.

The CPF system is my insurance should I choose to venture into business or early retirement. Knowing that the CPF funds are protected from creditors and continue to compound till the withdrawal age of 55 gives me priceless peace of mind.

For 2018, I am pleased to say that the CPF board has paid me a total of SGD 2,710 in interest payments across all 3 accounts. If not for the deductions made for housing, the curve would have been steeper.

Combined CPF Received
CPF interest received since starting work.

Invisible Poor

There has been a recent article highlighted the demographic split of smartphone users in China. You can read the article here as well as the more balanced report here.

In a nutshell, the article postulated that the primary users of Apple smartphones are users between the ages of 18-34, single and low salaried. I found this information quite close to my understanding of life in modern China.

In the last 4 years, I have traveled to China at least once a year, either on my own capacity or for work. Anyone that has been to China will be awed by the immense number of skyscrapers and high-rise buildings constructed even in tier 3 cities. But few know the harsh economic realities for the “invisible poor” powering this economic giant.

Even in the large tier 1 cities, there are many workers that are paid a monthly wage of below RMB 5k or about SGD 1k. This is way below the average required to maintain a normal standard of living in a tier 1 city where expenses can be very high.

These “invisible poor” work in typical office jobs either customer service or back office ops. Most of them start off as fresh graduates and typically do not have a very strong undergraduate degree (三本). They are seen working in offices located along the CBD fringe. These offices look very much like any other modern skyscraper in the CBD. However, most are cramped open offices where employees are expected to complete repetitive tasks that for the moment can’t seem to be automated.

The competition in China is intense and without financial assistance from their families, these workers would not be able to afford the lodgings that put them within 1 hour from their workplace, much less their source of weekend entertainment. Rental can cost close to 30% – 50% of their monthly salary.

Despite this, I couldn’t help but notice that many of them, at least in the company that I visited, were carrying the latest model of iPhones. For this demographic, it seems like trying to “strike it out” and being seen as successful is the most important indicator to others of their ability.

Understandably, due to the low pay, most just do their job and are gone as soon as they can clock out. Job hopping is also extremely prevalent among this demographic with people switching jobs for a pay rise anywhere between RMB 200-300. This is really workplace suicide, as without a long-term goal to strive for and putting in the extra effort, these people would still be in the same place many years from now.

With the gap between the larger cities and smaller cities growing ever smaller, one will wonder for how long more this source of labor will continue to power the chinese economy. For the foreseeable future at least, there will be more not less “invisible poor” people.

ESR Reit

It’s been awhile since I blogged about my big conviction stock for 2018. Since the beginning of 2018, I have seen the price fall by 16% from my buy in price. Understandably, the dilutive rights issue and overpriced acquisition of Viva industrial trust has not been kind to the stock price.

My lesson from this episode is that Reits need to be of a certain size to be able to take on acquisitions that would allow them to grow. we have seen this happen with Manulife and the recent Keppel-KBS Reit. When the Reit is small, a sizable acquisition would erode prices significantly. I certainly wished I had waited till after the merger to buy the combined entity.

From a Reit manager’s perspective, I can also understand why they needed to do the acquisition and bring in a new growth engine. If left alone, ESR would be like Cache or AIMS, slowly decaying with very little leeway to improve returns.

The big unknown is how the combined entity will perform in future. Obviously, the rosy picture painted by many analysts about the industrial leasing landscape has not panned out as expected. The weak rental reversions of the “old” ESR portfolio and the loss of rental support for UE bizhub has also not helped sentiments.

However, there are several things going for “new” ESR in the next few quarters. Other than the completion of the AEI at Marsiling and acquisition of Greenwich Drive facility we can also look forward to rental renewals for Viva’s business park portfolio which are likely to trend up.

On the debt side the Reit has done well to lower its blended cost of debt to 3.7% while extending the debt tenor to 2.4 years. The recent cancellation of the S$155m 3.5% notes also signals that the Reit is optimistic in sourcing for cheaper sources of debt.

While I am not sure what the future holds, I can say that I don’t foresee any further downside to the Reit and only with more visibility over forward income levels of the combined entity can we possibly a rerating and institutional buying.