Shopping during the Mid-Autumn Festival

Wanted to pen down my thoughts, even as the broader STI makes its rise above the 3200 level. I was relatively active in the last 2 months given that the market took a nose dive due to trade uncertainties, HK protests as well as the shock from inverted yield curve.  

During this period I added the following counters,

Koufu – Averaged down at the resistance line of $0.7. I had initially added at the previous resistance of $0.75. But the bearish sentiments broke the counter further down. I am looking forward to its next quarterly report to see how well its expansion is doing.

CRCT – Subscribed to more than 10x my allocation and was given full allocation. To be honest, if I had known that the upper limit for allocation was higher I would have added more. Not looking to add more at the current valuation. Will wait till next quarter to see the impact of falling RMB on the Reit’s DPU.

OCBC – Added when the price dipped below $10.70. Small position given that I believe that it has the highest potential to run given its small dividend payout ratio and potential acquisitions.

HK land – Added this counter as the final laggard before the STI moved above 3100. I think the risk are overblown considering that it has a diversified portfolio and the fact that the HK protest would not go on indefinitely.

This period was also not without error.

Sembcorp Marine – Added after news broke of its involvement in the ongoing Brazillian corruption probe. Initial gap down was greeted by reversal in the following week, missed a clear sign to exit before the gloom. I guess I got emotional/greedy. While the 10% loss was painful, I still consider myself lucky to cycle out of the stock and rotate to other counters above.

Not looking to add anymore till the next downturn. Just adding to depleted war chest.

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.

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.

Quick and dirty for Keppel KBS Reit

Keppel KBS Reit’s share price has been on a freefall after the announcement of an impending right issue. The question that I wanted answered was, is if this price would be a good time to jump in?

Here are some details of the Issuance

  • West park Portfolio Acquisition Price: USD 93.1mil
  • Loan: USD 80mil, 5year tenure

By book value the Westpark portfolio would be the 5th largest property in the Reit’s portfolio, but due to the small size of the Reits portfolio (<USD 1bn), this relatively sizable issuance is likely to erode the face value of the Reit.

Balance Sheet figures, All Figures in (mil)

StatusAssetsLiabilityA/LSharesNAVLast PriceDisc to Bk
Prior to Acquisition8693192.72x6320.870.71517%
Post Acquisition9623992.41x8180.680.5617%

*Figures taken from presentation of Keppel KBS Reit annual report

Based on a discount to present book value, it does seem that the current price of USD 0.56 is trading at a similar level to the past book.

Income statement figures, All Figures in (mil)

StatusYTD dis Income4Q dis incomeTotal IncomeDPU
Prior to Acquisition33,5389,469143,0076.8%
Post Acquisition33,5389,942243,4805.3%
1 Assume that 4Q distribution of the Reit would remain same as 3Q
2 Assume that the Westpark portfolio would bring about a 5% increase in income per quarter

From the income statement, it is evident that the Reit is facing headwinds. Not only is the revenue falling, it’s 3Q figures are below the mean of the consolidated YTD figures. Which is likely the reason why they need to inject a new building.

The Reit’s management has also guided that for “every +/-50bps in LIBOR translates to -/+ 0.06 US cents in DPU per annum”, which does not bode well considering how interest rates are trending up in the near term.

Given that the annualized distribution yield demanded by investors prior to the acquisition was hovering at 7.5%. I would thus expect the price to continue to correct until the next set of results are unveiled.

Financial Confidence

I came across this term while watching a Youtube video by this person called Dan Lok. He is a Canadian entrepreneur/consultant who specializes on big account closing. While he isn’t a Warren Buffet I thought what he mentioned about financial confidence resonated with me.

Most people are familiar with the words “financial freedom” or “financial security”. Both terms connote having or building a cornerstone of wealth to tide you over bad times. Even though FIRE is all about increasing your value, saving and investing, most conventional blogs focuses more on the “saving and investing” part.

“Financial confidence” is like FIRE’s answer to increasing value. Like its name, “financial confidence” is all about having the skill sets and knowledge to build wealth. So even if the world does come crashing down on you one day, you are still resilient and able to create new value in an ever-changing world.

These themes resonated with me a lot as most conventional financial literature focuses on using the power of compounding to help build wealth over a long period of time. But I realized that if the roof was truly on fire, I don’t have the time or resources to live twice as long.

I am on the wait list for his book F.U. Money and will post a review after I am done with it.

2H 18 Targets

Here are a list of targets for SGX 2H 18. The counters were selected based on several ongoing themes in 1H 17. Right now, the STI is on jitters due to the impending trade tariffs to be implemented tomorrow as well as rising interest rates which has meant lower interest in Asian stocks.

Wilmar – I believe the near-term trade war hype has undervalued this giant  agribusiness player. A recent report by greenpeace on how Wilmar has been aiding the deforestation of forest for new palm oil plantations has added to the negative spotlight on this counter. The last time the prices fell to S$3, was when trump tweeted on trade, that time I rued not picking up the stock. I did not let this opportunity slip by again. While I am unsure how badly this trade war will blow over, I am certain that even the American’s know that it is not in their interest either.

Singpost – Poor governance and execution eroded a lot of shareholder value in 2016 after the saga over poor acquisitions of Tradeglobal and Jagged peaks. However, prices seem to have retraced back to the same level ignoring the increased dividend payout of S$0.2. It seems like investors are not convinced that the counter is able to fulfil its promise to deliver on ecommerce and logistics.

Raffles Medical – With the Chongqing hospital opening in phases from year 2H 18, we can expect profits to slide yet further before operations there start to stabilize. having said that, this is still very much a solid counter that has a trend of increasing its dividends. Having seen my position decline by more than 30%, I am not too incline to fire too early for this counter. Hoping Q4 would shed some light on its viability in China.

Singtel – Yet another quality stock that has been let down by its competitive environment. Prices have recently rebounded from its 8year low of S$3.02 to S$3.15. But like comfort delgro recently, I would not be surprised if the prices retrace to S$3.

Another sector I am keeping an eye out for are the S-Reits, especially retail reits both local and abroad, which I feel offer the best proxy to rising interest rates. In the near term however, the interest rate hikes are likely to depress Reit prices further.

For now, my main holdings is ESR, which I feel has the highest possibility of renegotiating their interest rates downwards among all the listed Reits. Let’s continue to monitor the situation moving forward.

Portfolio Updates: June 2018

I wanted to change the way I manage my portfolio updates by giving them at the end of the month. I think it makes tracking changes much easier now that I am getting busier at work. Thus here are my portfolio movements for the month of June.

Sold: Comfortdelgro
Divested this counter in June as it was approaching the upper bound of the RSI. On hindsight this was a good move as the news of the trade war between Trump and China seemed to turn the entire market downwards. I will be monitoring the news for this counter and would be happy to add again if prices comedown to S$2.2.

Sold: RE&S
Should have divested this counter on the first day of IPO when it was red hot. However, as I was away on holiday and dallied. Even when the price neared its breakeven I was still wondering. It was only after the 2nd poor result did I realize that this counter was going to be a stone in a bear market. Selling it meant a realized S$100 loss, but I guess the market has proven the move right already.

With the market in bear territory, I will be keeping cash close and my favourite counters closer (Singtel, Raffles Medical, Straits Trading, Wilmar and Singpost)

That’s all and let’s hope for a more cheery July 2018!

Investment thoughts: Singtel

I can understand the IDA’s need to allow a fourth vendor into the Mobile Network Operator MNO scene. As a country committed to the interconnected internet of things future, Singapore can ill afford to allow incumbent infrastructure service providers dictate the level of service or pricing for wireless internet. Lower pricing will increase the level of adoption of future tech, which is what the IDA needs to drive its vision.

This sets the stage for the current telco environment, how does a change in government policy lead to competitive disruption? Who will be the ultimate winners?

Technology as a differentiator

Mobile networks have always offered MNOs a profit in the mid-teens. There was no reason to change the pricing structure, even if some segments were underutilizing it. The advent of MVNOs who developed technology to track data usage and tap into consumer buying patterns to cater to the different segments, changed the game fundamentally.

Right now, MNOs are struggling to keep their existing users while avoiding offering wholesale discounts. I think that the market needs more time to stabilize, as more customers try out the different offerings.

Dwindling sources of revenue for MNOs

MNOs are also struggling as their traditional revenue sources are being rendered obsolete. Non-renewal of landlines and cable TV subscriptions are increasing and it’s not hard to foresee the day where customers would be willing to forgo caller ID, phone calls and SMS for a larger data bundles. That said, MNOs are still able to provide a wider range of solutions to consumers compared to pure mobile only MVNOs, the enterprise solutions market is also likely to remain stable or grow as companies require higher data speeds due to adoption of more cloud computing solutions.

MVNOs are fast replacing MNOs

MVNOs are not new (remember Virgin mobile?) and are unlikely to replace MNOs as they merely borrow infrastructure. The difference lies in the service differentiation and giving customers more choice. MNOs are still needed as they are the ones paying for and upgrading the underlying systems. If anything, this slugfest is only going to weaken all other MNOs other than Singtel, who is not as dependent on sg mobile subscription for revenue. I really can’t see how M1 or Starhub is going to pay full dividends while rolling out the next 5G network.

Too many players?

Despite the rapid growth of MVNOs their ARPU is actually very low. Probably lower than MNOs who sell them their networks, this situation is unhealthy and more important to investors likely temporary. At some point they will start tinkering to see what features they can start charging customers more for without increasing customer turnover.


The elephant in the room is this, data consumption is going up, but the average price of data is also going down rapidly. Who is going to pay for it? I think it’s inevitable that MNOs will one day raise underlying prices for MVNOs and that prices converge more rationally.

ESR merges with Viva

I feel somewhat mixed at this outcome, positive as I knew that this was inevitable for both Reits. However, I thought that the ESR management should have held out more for a better deal for unitholders. The deal would have been much more accretive for the ESR unit holders, if it had been done more swiftly. The positivity at the beginning of the year has started give way to fear of rising interest rates.Overall, the street does not seem to be favoring companies with high debt levels (Reits, Thai Bev, etc).

Once the news was out, I spent the weekend thinking how the street would price both shares. My initial thoughts were that both would race towards the offer price of S$0.96 for Viva and S$0.54 for ESR. However this has not played out, with both ranging near pre-merger prices.

For Viva Unitholders, this would seem like a good conclusion for them. At an offer price of $0.96, it means that most can easily let go of their shares, which I suspect they are doing with glee. Though not exactly a windfall, at least they would not have to worry about the stop of the income stabilization or short land leases anymore.

For existing ESR unitholders, there is not have much to be happy about considering how DPU is likely to continue sliding in 2018. I feel that the management really does have a lot to prove, with this deal being at best, a status quo for the Reit. While I continue to believe in the general strategy, I feel that the earliest we can see it bear fruit is in 2019. The income visibility till that date is hazy at best. I do hope the management will continue to divest non-core assets and leverage on AEI’s to improve investor returns.

ESR+Viva Portfolio
Enlarged Reit Portfolio

As interest rates continue to go up, leveraged income stocks like Reits will continue to trail the street. Only a those of an appreciable size and solid credit rating will be able to command lower interest premiums. I’m keeping my bets on ESR intact and hope to accumulate more if price weakens below S$0.5.

Investment thoughts: April

AIMS AMP industrial Reit and ESR Reit have both released their results this week, and I am beginning to feel like I have swung a little too early, as the recovery for the industrial Reit sector is unlikely to materialize before the start of 2019.


AIMS has completed its BTS at 30 Marsiling, with committed leasing for 10 years. It has also completed the redevelopment of 30 Tuas West. The manager is now also embarking on a new redevelopment of its Tuas Ave 3 property into a ramp up warehouse. The property is located near Tuas Cresent MRT and the redevelopment would increase existing the plot ratio to 1.4.

ESR has competed its own AEI of 120 Pioneer, which is near the Tuas West MRT. The manager has since embarked on a new AEI to upgrade 30 Marsiling into a High-Spec building, with committed lease for 5 years. The Manager also proposed to purchase 13 Greenwich drive, which is located in the Eastern part of Singapore. The property comes with 2 existing tenants, and it remains to be seen if the manager can improve the yields on this property considering that they are paying a premium valuation for it.

Yield & income

Gross revenue has fallen for both Reits, which is understandable considering that they have been facing considerable negative rental reversions for the last few years. While AIMS has done admirably in maintaining its DPU even after its preferential offering. ESR on the other hand has seen its DPU fall by 15%.


I think investors looking at Industrial Reits have mostly gone with the larger named players due to their better located properties and diversified investment mandates (data centers, integrated biz parks etc..). This has lifted their prices and most are trading above NAV.

Currently, industrial plots in semi-urban areas command a steep rental premium over those in D22. With that much oversupply in Tuas, its no wonder how AIMS only managed to lease out 85% of 30 Tuas West, despite it having recently undergone redevelopment and being next to the MRT.

As both Reits are heavily laden with properties in Tuas, they have definitely borne the brunt of the last 4 years of overwhelming industrial supply. Despite the weak demand in D22, I still believe that these Reits are well managed and by being at the end of their single tenanted leases, this puts them in a good position to ride on the potential uplift in rates.