Tuesday, January 29, 2019

My Capitamall Trust Ideas

It has been a bullish market so far where there has not been much buying opportunities in my opinion. SIA is the nearest to its 52-week low at 9.64.

Even so, I am quite amazed at the bullish streak so far. Capitamall Trust is now trading at 2.4, a 52-week high and a whopping 38 cents premium over its NAV of 2.02. It is on my radar but I will be waiting to drop back. A 52-week high is definitely not the best time to go in but still, it will be good for me to document my rough analysis here.

So a quick glance here tells us that the DPU has increased from last year, which is a pretty good sign with all the rejuvenation and asset enhancement works in FY18, which we can superficially infer that there is some correlation. Dividend yield is 5.22% at the time of the report, and probably lower now when Capitamall Trust is trading higher now.

Source: Capitamall Trust Full Year 2018 Financial Results

What I also like here is the general increase of distribution income (DI) over its 2003 inception with a 13.1% CAGR. But a observation I would like to point out here: we can see that the rate of growth of DI was generally much higher during the 2003-2008 periods where DI increased by roughly 20-30% yearly as opposed to recent periods where increase year to year was slightly less than 10%. This may suggest a slowdown as we are approaching a saturated market in Singapore where future growth might be inhibited.
Source: Capitamall Trust Full Year 2018 Financial Results

At an individual property basis, net property income is generally increasing by 3.2%, where we can see that redevelopment and selling of Sembawang Shopping Centre did not adversely affect the whole portfolio.

Source: Capitamall Trust Full Year 2018 Financial Results

Other important information include a gearing of 34.2%, interest coverage of 5.2 and a 3.1% average cost of debt.

Lastly about the debt undertaken by the reit: 

Source: Capitamall Trust Full Year 2018 Financial Results

We can see here that the reit has averagely S$400-500 million worth of debt from 2019 to 2024, which accounts to a rough gauge of S$12.4-15.5 million of interest coverage assuming a 3.1% cost of debt. This is still pretty manageable by the reit for this period if they can maintain their net profit.

Talking from a macro point of view now: Capitamall Trust is easier for me to evaluate as it is local and in Singapore. Although the threat of e-commerce is still there, it is not as prominent as in other countries like China. Consumers still like the brick and mortar feel where they can enjoy the love of shopping. I am also inclined to believe that the shopping malls here cater to families who just want to enjoy a lovely weekend night out, so e-commerce should not too much of a threat here.

However, if the slowdown from China persists and there is a macro recession, Capitamall Trust may not be spared too. Nevertheless, it should be less affected by the other reits who derive overseas income so it is a good bet if we are banking on the Singapore consumer industry. 

2.4 is too expensive for me and I will be looking at a price of 2 which represents a comfortable margin of safety for me. Once again, the only cost I am going to incur here is opportunity cost but I will like it over an unrealized loss so we will see how it goes with the Singapore Budget 2019 coming next week. Cheers!

Sunday, January 27, 2019

Thoughts about the US government shutdown

Courtesy of pexels.com

Our market has been rather bullish so far, where I think the amount of buying opportunities is rather scarce. Therefore, I have just been reading financial news and reports to keep myself abreast of the current financial situation. One of the highlights from my reading has been the US government shutdown initiated by Trump. Although this is happening thousands of miles away from me, I still thought it was rather relevant in my context.

It was reported that the shutdown has been the most detrimental for US workers living paycheck to paycheck, where they could not pay their bills on time and some had to even resort to taking loans. Some workers did not report to work because they could not even afford the fuel needed for transport.

Now to bring it to my context: imagine if there was a government shutdown in Singapore, or even a shutdown in my company, how long would I last without my salary being credited every month?

I remember reading about how we should allocate 6 months worth of expenses in a contingency situation where we can react to any situations. But I think building up this fund might pose a challenge especially for people like me who are just starting work soon.

I have some thoughts about this:

1) I have not been really enforcing this on myself because I am not employed yet, but I strive to at least maintain my account balance every month. So if my balance of my bank account is $1,000 on 1 January, I will try my best to make sure that it will be at least $1,000.01 on 1 February, and of course if it is $1,100, it is a little bonus for me.

2) Ideally, I am targeting to save at least 10% of my remaining salary (after CPF and tax) so that I can build up my contingency fund as soon as possible. This might be tough with any additional commitments, but this is my goal for now.

And lastly, in times like a shutdown, alternative sources of income are the most important. I will continue to build my portfolio which can generate healthy sources of income in the long run and decrease my dependency on that monthly paycheck. A high bar but a necessary goal!

Please comment if you have any suggestions or feedback too!

Monday, January 21, 2019

Current Market Report- Staying on the sidelines

There has been a slight rebound in global markets with STI at 3,220.56, which is a decent distance from its 52-week low of 2,955.68, a 264.88 point difference (8.22%). The same holds for true, where we can see from our STI list here. As you can see here, I revamped the table to include more details of the STI stocks. Last prices are closing prices as of Monday 21 January 2019.

The stock which is closest to its 52-week low is SIA at 5.09%. SATS is the second closest, where it is 5.6% away. You may recall my previous idea of buying at a price of 4.5 but SATS recently ran up and I will be waiting to see if it will fall. Possible reasons for the rebound might include borrowed confidence from the US market, which has seen an impressive rebound itself to 24,706.35 currently.

Major risks entailing this rebound will include:

1) China's slowdown in its economy
Slower growth does mean that China will be able to buy less stuff from the rest of the world. We note that China is the number 1 country where Singapore exports to, so a slowdown here will inevitably spread to our economy.

2) Federal Interest Rate Hikes
I think I said this in previous posts, but this is always worth a mention as interest rates are one of the central elements in an economy. Hikes in interest rates should affect an economy in theory.

Other intermittent risks will be the political instability in US and UK due to the uncertainty respectively arising from Trump and Brexit.

Singapore reits are also pretty overvalued as it seems, and there will definitely be room to fall if major risk 1 and 2 comes into fruition.

As of now, I do not have any ideas of anything to buy, so I will be happy to hear your lovely ideas. Please share and/or comment!

Tuesday, January 15, 2019

My Reading List- Mapletree Industrial Circular

So this came in my mail. My dad is an unitholder of Mapletree Industrial so I thought this would be something interesting to read and look up. (finally a nicely printed color book instead of reading online presentations!)

In a nutshell, Mapletree Industrial is proposing to buy 18 Tai Seng Singapore and adding it into its portfolio. A quick overview here from their website.

Source: MIT Investor Presentation Slides

So firstly, MIT is exploring a variety of options to come out with the cash, either by equity or debt or both.

Source: MIT Investor Presentation Slides

LTV, meaning loan-to-value represents the amount of money being loaned with respect to the total acquisition cost. Conventional wisdom does tell us that issuing equity to fund the acquisition will cost a dilution in current unitholders' holdings as the number of outstanding shares increases and each share is worth less prior to the issuance with a lower net asset value (NAV). Similarly, issuing debt will mean that gearing will increase, while NAV might also drop due to an increase in liabilities. From a macro point of view, if interest rates do rise as projected, perhaps it would be better for the reit to go for the equity option, or a 40% LTV option as illustrated above. This can allow them to service their debt more easily. As you can see, a 100% LTV (pure debt no equity option) drives gearing up to 38.7% from 35.1% as opposed to a 40% LTV. There is no 0% LTV here (no debt pure equity option) but it seems that the idea of dilution might not be popular with the unitholders.

The second observation was that 18 Tai Seng is dependent on Sivantos Pte Ltd which makes up 36.6% of its gross rental income. Sivantos is a manufacturer of hearing aids and the income from Sivantos will have the most impact on this new property's income.

Source: MIT Investor Presentation Slides

Although that being said, Sivantos only makes up 1.9% of the entire MIT portfolio. Additional benefit includes reducing the reliance on the other properties in the portfolio, where the top tenant HP drops from 10% to 9.4%.

Source: MIT Investor Presentation Slides

Of course this is a double-edged sword, if Sivantos fails to perform, reducing the reliance on other properties won't really matter too. This is my assumption here, but I will be inclined to think that income from Sivantos will be stable and not volatile, as demand for hearing aids is price inelastic as it is a pretty specialized good.

The final part of interest is of course the effects on distribution per unit (DPU) and NAV.
Source: MIT Investor Presentation Slides

In theory, DPU will be the maximum at 12.11 cents if you use purely debt to fund it (same number of outstanding shares) and the least at 11.83 cents if there is some equity issuance. We note that the predicted number is higher than the current DPU of 11.75 cents. Given the closing price of 1.97 on Tuesday 15 January 2019, the previous DPU translates into 5.96%, the LTV 40% option translates into 6.01% while the LTV 100% option translates into 6.15%.  NAV will remain the same at 1.47 if it is 100% debt and increase slightly to 1.49 if there is some equity issuance.

Of course, this probability of the predicted scenario is not guaranteed. Whenever I look at a decision-making process, what I like to look first is the entailing risks which the decision carries.

From my own experience, Tai Seng is not really popular for me and I recall the last time being there was taking driving lessons at Comfort Driving Centre (CDC). So the 'proximity to mature housing estates like Hougang, Bedok and Toa Payoh' point might not draw maximum benefit for the reit and retail elements in the reit may have a risk of not outperforming.

Secondly, the current market price is 1.97 and NAV is 1.47, where you are paying a whopping 50 cents extra for a unit. Although the yield is still pretty acceptable at 5.9-6.0% levels, this is a point of consideration for me. Because assuming they go for the LTV 40% option which is a mixture of equity and debt for a 6% yield, waiting for the price to drop is also a good way to increase dividend yield.

Thirdly, the risk of ecommerce is still there. This might not be very pertinent in the current market but I am going to include it here for my reference (I have written a little about ecommerce in my previous post).

52-week low for MIT is 1.84 which is still a distance away from 1.97.

Technical-wise, price is currently above the 200 exponential moving average which signals a uptrend for now.

Personally, no matter the acquisition, I will not be looking to buy the stock at its current price due to the 50 cent premium over its NAV. I think even the 52-week low of 1.84 is too high for my taste and I am looking at 1.60 levels which was a support in early 2017. The probability of this price happening is pretty low but I will prefer a higher margin of safety at a 13 cent premium.

What are your ideas on this? Looking forward to a constructive discussion.

Thursday, January 10, 2019

Current Market Idea- Mapletree NAC Trust

There has been a recent market rebound and this is rather evident from the 52-week low table we have here (prices are as of Thursday 10 January 2019 closing prices)

All the highlighted stocks from my previous post have rebounded and none are near their 52-week low as of now (the nearest being Singtel which is 6.91% away from its low). My buy call on SATS at 4.5 has to wait unfortunately, but nevertheless it never does harm to do more market analysis on stocks of interest. My previous stock of interest Parkwaylife Reit also rebounded to 2.71, well I suppose in a bullish market, it is tough to buy stuff so I'll have to wait and see!

One stock which I am currently interested in Mapletree NAC which is currently trading at 1.18 at this point of writing. My analysis might not be really accurate as I am using the 26 October 2018 financial presentation which is fairly outdated information.

So a quick look will tell us that the reit has been increasing the money rolling in, with gross revenue and NPI increasing by 12%, which is pretty good. Distribution income and DPU has also been increasing, which should be our utmost concern as unit holders.

Source: MNACT 2Q 2018 Results Presentation

We also note that debt which has fixed interest rates stands at 78%, annual effective interest rate for its debt stands at 2.48% and 80% of distribution income hedged against the Singapore Dollar. Let's look at these three points: for the first, the Federal Reserve is projected to have 2 rate hikes this year (this might change if Trump does pressure it politically) so our risk here is the 22% of debt which might incur higher interest costs. Secondly, the annual interest rate is 2.48% which is pretty ok and I am using the 10 year treasury yield of 2.725% as my basis for comparison. Lastly, we note that the currencies that we are concerned about is the Hong Kong Dollar, Renminbi and the Japanese Yen. Since HKD is pegged against the US Dollar, we can just directly use the USD for our analysis. My take is this: if the rate hikes do happen, more investors will be inclined to buy USD for its higher yield, which will cause an appreciation, which means the USD aka HKD will appreciate against the SGD. This might be already on the way to being true, where the USD rebounded from its 1.30-1.31 lows to its current price of 1.35-1.36 following the rate hikes. Renminbi might continue to depreciate where China faces the pressure of its mounting US debt and dwindling financial reserves. I particularly like this article which clearly depicts the risk it is facing, and if that holds true, the Renminbi should continue to depreciate in value. The Japanese Yen might continue to appreciate as it is a safe haven currency which investors will want to hold in volatile markets. But overall, I believe that currency risks will not have an adverse effect on the reit's earnings.

NAV of the reit stands at 1.325 as opposed to the market price of 1.18, where we are paying 89% of its NAV for a unit. This does signify some sort of undervaluation as opposed to the other S-reits which are trading above their NAV. Gearing is at 39% which is below Singapore's regulation of 45% which looks decent. 2018 dividend yield is at 6.45% which is pretty good as it is 4+% over the current SSB which yields 2.2%. Mapletree NAC's low was at 1.07 which I was contemplating to buy but it rebounded rather quickly.

The risks here would be e-commerce which will erode profits especially in China where e-commerce is so prominent. A recession might also cause a drop in household income and people are less inclined to spend and leading to lower profits for the reit. During my Hong Kong trip, I had the chance to visit Festival Walk on a weekday and I noticed that although the traffic for the mall was good (Festival Walk is on Kowloon Tong interchange and there are many universities in the vicinity), the actual number of people buying stuff wasn't that many. Food court and restaurants were very packed though during lunch hour so the shopping mall might just be a place for people to pass through to their destination (although I may be wrong as weekends might save the day!).

Since I am in view of a bearish market, I will not be buying at its current price and I will be looking at a higher margin of safety at a price of 1, where yield is 7.5%. This will be a long term price that I am comfortable with holding, as a recession does not last forever (so do bullish markets).

Any interesting ideas here? Please share!

Wednesday, January 9, 2019

Welcoming 2019!

Happy belated new year to everybody! I haven't been posting much recently because I am in Hong Kong now.

Recently Apple made the news by dropping a 10% due to a lower revenue forecast, which led to a -660.02 (2.83%) point drop to 22,686.22 for the Dow Jones on 3 January Thursday. I was also surprised that our local STI did not catch the bearish sentiment and instead ended at 3,059.23 with a +46.35 point (1.54%) increase the following day. However, I still maintain my bearish stance on our STI.

So what's my rationale? Firstly, this year will see a projection of two rate hikes by the Federal Reserve. My belief is that rate hikes do cause a drop in the stock market (by theory) and I am quite bearish in the overall financial markets (check my previous blogpost for a detailed explanation). Other accompanying reasons include the risks arising from detriments of inflation, military conflicts and trade wars.

The chief difficulty I am pretty sure we all share is when exactly to go in. No one knows when the market is perceived to be at a 'bottom'. I mean, no one exactly knows, because we don't know whether something will go up or down (unless insider trading but still not 100% confidence). Personally, I think the best way to handle this is to identify certain stocks you want to hold in the long term and try to go in as low as possible, or even buy more when it drops from our purchase price. This is my current plan and I am glad to hear any improvements or feedback on this.

One observation I would like to state is that our reits have not been dropping and at lower prices, which is to my surprise, because I think reits would be most affected by interest rate hikes since it affects their cost of debt. But well, we will see again for the year.

Recently, MAS announced the increase of the personal limit for the Singapore Savings Bonds to be raised from $100,000 to $200,000 starting from February 1. I will be more inclined to increase my stake in SSB while waiting for a market correction. As it seems now though, everything seems to be going for slight rebounds with STI at 3,158.07 after a 1.12% gain today.

It also seems that I have to wait longer for my SATS call as it rebounded to 4.9 today (short of 4.5 buy call) which in my opinion is a little tad overvalued. I will be talking about other stocks of interest when I am back from Hong Kong this week. Hoping the new year will be well for everybody.


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