Sunday, March 2, 2014

Portfolio update as of 2nd March 2014

19dec 2mar

 

The pictures above show my holding as of 19 December and Today, net profits/ loss including dividends does not include dividends declared but not received.

I accumulated APTT at 78 cents and divested from HPHT at 84.5 cents. Other than that, it is status quo.

I have blogged separately about HPHT, Lippomall, Lee Metals and Yangzijiang.

I believe HPHT can deliver on the 8% yield through capital management, or strong rebound from HOng Kong and Yantian ports. But the bet case scenario would have to pent out for me to have the 8% on a sustainable footing, what comes after 2014 will be a big question mark if the ports do not recover. I decide that the risk reward profile can be more rewarding if I increase holding of APTT instead.

 

APTT

I believe APTT has 3 major risks.

1) The poor settlement of tax provisions with Taiwan Tax Bureau

2) Runaway Capex

3) Runaway interest rate.

4) Regulation risk, mainly through re-zoning or non-issue of licenses

With the latest Quarter Report, I decided to accumulate further, when the price hardly move with the announcement of dividends and results. (Which was a surprise)

They have mentioned they expect a resolution with terms similar to that set out in the prosepctus with the Tax authorities by the end of this quarter, with a written agreement. Although it is not confirmed, I would deem it a balant lie  if events turn otherwise at this stage.

They have more details on capex for the next 2 years. They project capex to be 40-50 million for 2014 and 40-60 million for 2015. This is what I expected when I study the prospectus. With 60 million as capex, they need no further loans for at least 2.5 years. Hence, I say dividend projection is safe for 2014. For 2015, if capex remain high at 60 million, they might need to drawn down loans further or distribute a more sustainable  7.5 cents, which is almost a 10% yield for me, but I believe they would drawn down more loans and keep distributions level.

If you look at the convenants, capex can go above 60 million for expansion into greater Taichung. But, what happen now is the maximum of 60 million is for both digital box upgrades and cable expansion into Greater Taichung. So the risk of runaway capex is low if they stick to what they set out to do.

For number 3, their debts and swap agreement are all now in Taiwan Dollars denomination, so the US dollars loss suffered the other time will not replay. When they used up most of the debt facilities in 2015 or 2016, and they decide to refinance their loans, a 1% increase in finance cost (assuming all loans drawn down), payout will be 6.5 cents, still an attractive 8.8% for 2015-2016, if you ask me.

For 4, the biggest risk is competition from re-zoning. It will affect pricing power and might lose subscribers. It is now the highest risk as compared to the lowest risk a quarter ago. If APTT expansion is a guide for a timeline, with them expecting to get a provisional license by the end of the year, we can expect competition to start this year in APTT home turf.

From the last quarter, operating numbers remain strong for the biggest basic cable TV, since competition is not yet in play. We should watch how their competitors can capture this market over the next few quarters.

As for non-renewal, most licences which are valid for 9 years before they are up for renewal, and the earliest any of their operators need to renew their license will be 2016. Given that the digital penetration rate in their franchise areas are ahead of schedule by that mandated by NCC (Taiwan Regulator), and recent "forced sale" of units of PRC owners by APTT, means they shouldn't step on NCC toes.

Until now, I need to highlight to readers that there is an article on nextinsight that holds a vastly different view from mine. He thinks APTT is for gamblers. Readers have to decide on their own:

http://www.nextinsight.net/index.php/story-archive-mainmenu-60/924-2014/8140-chan-kit-whye-onasian-pay-tv-trust-and-ramba-energy

 

Golden agri

4Q results is much better, with China operations turning a profits for the whole year, and 4Q rev and profits doing better Q0Q. I brought golden agri to wait out the trough in CPO price. CPO price is going up but for the wrong reasons. It is going up because many believe supply will be reducing due to the bad weather. I would rather demand outpaced supply. Palm Oil as a edible oil is fast losing its appeal even for the masses in China, but CPO has many other uses other than end-consumers cooking oil. Anyone can see I hold a very small stake in Golden Agri, I will just wait it out. I believe demand for CPO will grow with higher use of CPO in bio-diesel. If nothing changes fundamentally, I would rather accumulate. What surprised me is that there is no negative revision to bio-assets, but a small positive increase, since CPO price has been on a downtrend for the past 3 years. The only reason that could explained this is the production offset the lower average CPO price. Hence I would rather not CPO price increase due to supply falling. Nonetheless, the last time weather caused Havoc on production, it falls by 10%. Let just hope the impact on CPO price increase is more than 10%.

 

Future Outlook  

I am someone who will not sell at a loss easily especially for income-generating stocks. Lippomall and Sabana has disappointed me. But instead of selling, I would accumulate Sabana if it falls further to$1, I will just treat the half empty AMD building as free AEI pending, (hahaha) and wait for the industry rental market to improve. But I will get rid of these two if I am sitting on profits.

Nam Lee, is another stock i will sell soon. I hope the pending CD will push the price up closer to my purchase price, if not I will collect dividend and wait and see.

I still like YZJ, by will not accumulate as it already formed the biggest part of my portfolio.

I am looking to accumulate cash, and will more properly not add into any position anytime soon, with the exception of  golden agri, perhaps. I would like to add SGX or Singpost when the price is right, if not I will just wait, and let cash increase.

 

 

Final thoughts

I believe I have most misses than hits in my selection. I have not been actively prospecting for companies either. Given that I need to adapt to a new working environment soon, I expect my blogging to be highly irregular. Blogging has enabled me to crystalline my thoughts and meet some really cool and nice bloggers. It has been a great journey, see you readers soon.

10 comments:

  1. Thank you for the great articles that u have published.

    I would like to take this opportunity to link up with you.

    My site is www.smartpassivecashflow.com

    As a gesture of good faith, i have added your site to mine. Hope that u will also do the same.

    ReplyDelete
  2. HI David,

    Thank you for your interest in my articles. Done.

    regards,
    Sillyinvestor

    ReplyDelete
  3. Prudential Eastspring has continue to sell off APTT, it is not longer a substantial investor. I wonder why? Buyers beware.

    ReplyDelete
  4. Hi, chance upon your blog and very great information you provided. I have also GAR, HPH and Sabana same as yours but they all failed. In fact I intend to let go GAR and HPH if the prices are rights and would not want to add on to Sabana (or any other industrial reit) as I foresee increases in supplies and possible rising interest costs. For GAR, may I know why would you want to add more to your portfolio and why you favour it more than Wilmar which has greater diversification (sugars, oilseeds, soybean etc)?

    ReplyDelete
  5. Hi Ping,

    Thank you for your interest. I prefer golden Agri over the rest because it is easier to understand as it is a CPO purist. It is not a stamp of approval over wilmar, or other agriculture commodity plays. Wilmar or Olam or Noble has a diverse production base, such as sugar, and others etc, I find it hard to track all these products.

    For CPO, I know Indonesia and Malaysia are the biggest players of which golden Agri is the second biggest , after Malaysia sime Darby, so it will be a natural beneficiary with the upswing of CPO price.

    Why golden Agri and not other CPO plays, it is big, it is vertically integrated, has profit resilence, is a first mover in sustainable CPO production (whether for publicity or for the real altruistic reason of sustainability )

    It is also fairly valued. CPO is a raw commodity, there is no differentiation, so it's assets should be priced rightly according to CPO prices, it is one of the few palm play trading at a significant discount to NAV. NAV might not be a good gauge for other company, but for commodity play, it is one of the fair valuation to use together with others.

    As with all other CPO plays, golden Agri Q4 is strong, and will rebound with Ye generally market, but it will not grow as fast as the smaller and newer players with young plantation. I am fine with that.

    I will not accumulate at current prices. I will only accumulate if it is nearer 50 cents.

    Demand for palm is mainly from edible oil, it has a significant cost gap over alternatives. So I guess as with cheap oil, the demand will still be there, although the years of strong growth of demand might be over. Bio-Disesel might provide the small growth in demand. With sustainability call growing in Malaysia and Indonesia, there is also a limit how much these 2 countries can increase supply. It will be a long time before northern African countries become key players.

    Lastly, CPO had fallen more than 40% from last peak when I bought it at 52.5 cents. That is the heaviest fall from previous peak ever recorded in 30 years, how much lower can it get?

    Anyway, that last time I come close to buying it was 50 cents when market correct. I was hoping for 48 cents or lowers it never get that.

    Ok! Hehe hope my explanation helps

    ReplyDelete
  6. Prudential has ceased to be a substantial shareholder for APTT, which is regularly paring down its stake, whereas Temasek Holdings through its subsidiary has become a substantial shareholder, almost doubling its stake from 3.71% to 7.59%

    I wonder who is the "greater fool"?

    ReplyDelete
  7. Second update: For info,

    There is also a response from NICK and aplhaquant from valuebuddies (http://www.valuebuddies.com/thread-3256-post-75919.html#pid75919)

    They make very valid agruments, personally, I will still like to see how this pans out.

    Right now, I am assuming 0% growth till 2015, and refinancing takes place in 2015/6.

    But they only need to refinance their loans in 2020.

    Capex is reasonable, 2015 capex could be much lower, so might need to refinance loans much later.

    That distribution is higher than FCF in 2014 due to higher cpaex is a valid concern, but if we look at FCF at a sustainable basis, the shortfall is not actually that scary, it is just 20-40 million, assuming capex is 60 million. They already reaffirmed DPU for 2014 anyway.

    As for interest risk, if growth do happen in 2015, it might just net off each other. If not, the FCF should sustain 6 cents DPU.

    ReplyDelete
  8. It seems that Temasek has stepped in where Eastspring has left off, for APTT, perhaps reducing some of the concerns.

    I'd note as well that the competition in Taichung is likely to be assymetric in favor of APTT. The two smaller competitors who have applied to enter their district will have to put in far more capex, especially against their own base, than APTT.

    Also, some operational comfort can be obtained from two ex Starhub professionals in senior positions in the opco.

    Singaporean investors have a huge distrust for Business Trusts and I think that causes the depressed valuations. Hopefully APTT can be prove that otherwise!

    ReplyDelete
  9. Hi objective,

    Thank you for your insight, I didn't APTT has 2 personnel from star-hub previously. Well, it's good that u share, and readers can see things from more than one angle.

    Personally, I think in the short term, APTT might weaken, especially after they go XD. I believe prudential will continue to offload whenever price is decent. Unless, Temasek decided to go to open market to buy more, there is hardly any catalyst in the near term.

    APTT is one trust that after factoring all the discounts, higher interest rate, zero growth, lower fcf etc, u still get a decent > 7% yield. If many things go wrong and I get 7%, but if things goes well, I keep my >10%. If things happen somewhere between worse case and best case, I will have a yield of 7.5 to 10%. How many reits or trusts can have this?

    ReplyDelete
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