Tuesday, September 30, 2014

Random thoughts: Making the best out of work

About 6 years ago, I went to see a psychiatrist for anger management problem. He couldn't find out what is the cause of my flare-up. He ask me how would I grade my satisfaction or happiness I have with my job. I gave a 7. He told me that is very good.

Fast forward to today, I would still give it a 7- 7.5. How would u grade your job?

In my job, or perhaps in many jobs, passion is important. I remember a trainer telling me his secret to keeping his passion alive. I thought I share his view and my own, since we spend so much time on work, and if we treat work as a blessing, time flies and escapade become less necessary.

1) Mutiple sources of passion 

We all have something that we like about our job. Some specific part of our job, no matter how small that it, work hard and give your best on that, it will automatically recharges. It holds true for me too.

As for areas, where u do not really like, think of the whole purpose and greater " calling " of the job, and Infuse those into the uninteresting part.

Third, bring your interest and hobby into your job. Work and pleasure mix well, since we work long hours and should derive pleasure from our job.

2) Applying the third source of passion

I like investing. I have no idea how to infuse that in my job which is vastly different. 

So, my take for this will be, just be yourself. In my line of work, I do not really have to put on 3 layers of armor. Of course, only stupid or courageous people appear naked in front of others all the time, but u dun have to be inside an amour vechicle all the time.

Be nice to people, and build relationship. The higher you climb, the more difficult it is, but be nice and sincere. People will see it soon. People relations is the core reason or top reason, I heard from my higher boss, why people leave our industry.

3) Cut yourself some slack.

We all want to be the golden boy of the company, the favorite of our bosses, the idol of our subordinates. 

We should strive for that, and give all that we have got. But there is no need to get all ga- ga when things dun turn out too well. In my line of work, I always have second chance, and if my "sales" is not good, we can always try again. 

4) Set your priority 

Is climbing the Coporate leader or getting that pay raise or performance bonus your top priority? I like to have them and will work hard to get them. But my priority is still my customers and my interaction with them. 

Being a perfectionist is the fastest way to burn out, and be overwhelmed with the things that deplete our passion.

5) Embrace changes

Changes are uncomfortable, but if nothing changes, it is boring. Think of new ways to pitch, to plan... And went things go wrong, apply rule 3. Be sad, and demoralized but get on with work the next day. 

Find the next connecting point between you and your customer. Enjoy the Eureka moment. 

6) Low points are inevitable 

Low points can be push forces that tell you it's time to apply point 5. But don't think or start to question yourself like you married the wrong wife and has 2 children and can't wait to get a divorce, but felt so helpless. It will come and go. At the low points, just look forward to the end of day. At the lowest point, there is no point looking far anymore because your view is obstructed by the mountain in front of you. Just focus on surviving and look forward to the night's sleep. 

If the low point doesn't go away, apply point 5. The longest period I had is about 2 months which I hate going to work. But had I allow the 2 months to decide my future, I wouldn't enjoy my years of 7/10 satisfaction in my job.

7) Let go

When you are not afraid to change your job, you will realise how much you like your job truly. You can then better reframe your mind that your job is a painful blessing.


Because your are reading from Silly...


Saturday, September 27, 2014

Random thoughts: A short, temporary change of surroundings

We often heard the saying, we need to change ourselves to adapt to the surroundings. Guess you would have heard the saying, "if you don't change, everyone will be the same"

Of course, such classics sayings have their truth. But I have 2 different experiences to share.

1) I went back to Whampoa to visit my parents with my family. The Whampoa Balestiar Area is where I grow up, besides the good food, which the place is famous for, it also has a very high proportion of elderly in the area. I almost missed one old uncle standing on the middle of the road, with his head twisted and walking slowly and aimlessly across the road. 

When I reach my dad's block, there are many elderly chatting at the coffee shops, I saw one old man half naked trying to cool himself from the heat and another lying in front of a closed shop sleeping...

The point is, it reminded me very clearly that there are poor people, I should be very happy and blessed to be able to report to work every weekdays. It made reframing of our mind from the hustle of workplace so much easier. Of course, I looked at them, and wondered if I will be like that if I am old, then I think prefer to be productive and working at old age, wow, working till I die didn't seem scary and demoralizing immediately. Doesn't matter it is not by choice but forced by circumstances that I need to work. Having a job at old age might be a blessing by itself. I am not speculating they those I saw are unhappy, I am just reframing my mind because of a chane of surrounding make it easier.

2) I always thought everywhere is the same in terms of workplace. I couldn't be more wrong. I don't think I changed much in the short span of 2 months, but I not longer think "everywhere is the same" mantra hold true. 

Maybe we should move ourselves away once in a while

Random thoughts: Chaos at Hong Lim

My view after reading the article "Chaos at Hong Lim  Park Charity Carnival". 

I have this to say to the organizers of the protest and who disrupt the charity event. 

1) You are appalling! I am ashamed of your actions. Have you not heard the phrase, pick on someone your size? I would be less appalled had you protested in front of CPF buildings. You have no balls to do it than sticked to you yard at Hong Lim!

2) You do not represent Singaporean, you do not even represent those disgruntled with the CPF system. You are selfish, self serving people with scant regard of the special needs people. If u can do this to the weaker, less fortunate of our society, how much lower can you get! God knows how long they rehearse for their performance and this might be the first and last time they are performing on stage. Shame on you, leave out flag out of this. 

3) Those bigger masterminds behind all these nonsense, pick your pawns properly. Read the demographic of Singapore properly, we are mostly conservative moderate, and most are kind and compassionate. Before your pawns shame you and dilute your bigger callings and goals. 

4) For the supporters and protesters. I hope your family and children are proud of your actions, I hope they can see your greater cause of returning CPF money, because I can't. I just told my son we should be ashamed of such behavior. You sleep better now everyone is charged up by your appalling actions!! 

Friday, September 26, 2014

Random thoughts: My take in Buy term invest the rest

I need to get this off my chest.

This is my personal view only. Here is my honest view.

BTITR, ( buy term invest the rest) works for some people and will work for almost everyone in the long run. Hence, this is the catch-- long term. I am not talking about ILP here. I seriously can't see much merits in this product. IMO

Why, personally, I think investing is fraught with risks and temptations, especially for beginners

If anyone read about my profile, I blow almost all my savings on CAO, I pick myself and have a go at investing again. You only considered passing PSLE when u have a plan that is tested through bull and bear market. Bull and bear if u are lucky, might be a 7 year period. How long u takes to formulae a core plan, is up to individual, but I can safely say it take years. So perhaps, a decade? 

For my case, my forced savings in terms of endowement plan ensure I do not touch my future money. Of course, if I terminate a endowment policy before 15 years, I get back less than what I bought.

In investing, when we make a wrong call, we could worsen it but average down with whatever we have. Let me say, I done that for a few losing S-chips like Fuxing, foreland and China fibre-tech. I average down to almost the last dollar. Thinking I can recoup my losses. I have not gone into leverage play yet, contra, margins, extended settlement and CFD for shorting.

I had a CFD account for a few months, I closed it down to focus on value investing. I might re open it when I think I am ready, but it will not be anytime soon. Even if I do, it will be part of a broader plan to hedge risk and not a profit spinner tool.

I have 2 endowment policies that are maturing in 7 years and a decade plus time. It could be my war chest now that I have a plan on investing, and it could be rolled over into another 10 year plan and settled the allowance part of my son university.  If he gets there ( sigh...)

In the meantime , whatever money I used for life plan, will be returned by the time I am old and in the meantime, insured against death and CI and the rest. If coverage is not high enough or premium too siong, a mixture of term and life works too.

Of course, there are some, who are savvy and can buy term, h& s and invest the rest at the beginning without giving big sums to Mr Market, but are those in the majority?

In the long run, everyone should get a shot at investing for better returns and will be better off doing BTITR. That is, if you don't get knock out by Mr market in the first 10 years. 

My honest thoughts only. I am not in the insurance line but my sister is, and I have many friends who are not unscrupulous in the insurance line. From what I read in the blog sphere, they are the minority? Most will paddle ILP for the maximum commission, just that I am lucky I did not meet them.

Hence my view might be tainted because I still have a lot of respect for my sister and my friends as well as those in the insurance line, BTITR or use more products of insurance, I believe they all have a place... ILP is the only one I cannot understand till now. Maybe MAS should just allow insurance companies to sell pure investment fund? With track records to see? 

Ok, think I ruffle enough feathers.

Vard falls 23% since profit guidance due to pending tax claim - Is it justifable?

First, I declared no vested interest.

I think there are 2 issues here.

Tax claim of 200 mio NOK.

Assuming provision need to make, and is already made in 2014 1H. 1H will be gone, if 2H is similar to 1H, EPS of 5cents means an PE of 17.

It is not cheap. In fact, if you believe on peer valuation of around 12 for OSV company, it stand to fall further to 60 cents?

I however, still feel that market overreacted.

Why? Lets look at the graph:

The fall in price is almost similar, what happen in July 2013. That is when the troubles at Brazil's Vard Niteró starts, the delays in delivery lead to provisions and collapse of Margins.

Tax claim is one-off.

What happen at Nitero is a operating issue. The tax issue and Nitero should not have the same impact.

How much provision has Vard made in 2103? 1004 mio, with 567 mio still not utilized. In 2012, it made 393 mio provision.

Since 2014, Vard Promar , another Vard in Brazil, become operational, at Q2, only the gantry cranes is left.
Vard Nitero delivered 2 of the 4 delayed vessels. Although the 2 remaining vessels further delayed, the provision provided for in 2013, should cover it, with insignificant provision to be made in 2014.

It is still an issue, and of course, we do not know if the 4 vessels are the last of it. But, there is reduced outsourcing, EP02 is the last of outsourced hull, and they are scaling down activities. In Q1, it is stated " There is still a high workload at the Niterói yard, but reduced from the peak in fourth quarter 2013". In the latest Q2, Brazil has an order book of 14 vessels, 2 of which will be the cursed remaining 2 vessels, 8 will be LPG carriers that are contracted to Promar, anymore vessels orders at Niteroi, is minimum. It seems Niteroi will serve as a support Yard, with Promar employee count ramped up.

So if anyone is thinking of double whammy to justify the lastest fall, it is rather unlikely. The tax claim is pending appeal. The provision is small compared to Niteroi issue, and Niteroi has seem much progress.

Now back to the graph. What happen to the stock from January?

The impressive order wins, which brought orderbook to five year high.

Orderbook is still intact, margins has improved from the 2H of 2013, and provisions were already made.

If we stripped out all the "distractions", Vard is actually trading at 2103 PE of around 7.4

See calculation of 7.4 at valuebuddies. (Look at Clement and GPD comments)

Violia, from overpriced at 16 PE, it became undervalued at sub 8

And the best part, the calculation is made before the "Singapore sale", it is about 6 now.

Valuation is an art, isn't it?

Why I am still not vested then?

1) Conserving cash.

2) Business model of taking loans to build vessels to be repaid by customers after completion is fundamentally risky. When customer refused to pay, the industry is in trouble usually, and the vessel is not easy to find buyer. If all goes well, all is fine, but such loan terms put the risk on Vard.

3) I buy for dividends, assume 2014/2015 will be better with EPS of around 12-14 cents. Dividends will by 4-5 cents (min 30 % payout), decent, but not particularly outstanding, taking into account 2) which dim the longer term picture of the company. e.g. beyond 2016.

4) But if free fall continue, even the dog will have its day...

5) Maybe 70 cents? LOL

Tuesday, September 23, 2014

Random thoughts: After thoughts after moving to blogger

Most readers would know I used to blogged at wordpress

I came over so that I could apply for Adsense, although I need to wait 6 months, I decided against going for other options as I believe "good things are worth waiting for"

I also thought of increasing viewership/ readership for the 6 months would be a good idea. I thought if I do regular company prospecting, my radar expands, my posts frequency increase, my readership increase, and Volia, It is a Win- Win situation.

I am aware the advertisement fees if any, in the end, would most probably in just tens of dollars, perhaps in a year? I simply just like the challenge, and took it up.

I didn't realized it has such a profound impact on me. Blogging has help me internalize and crystallize my thoughts, I am glad I once again face my inner demons:

1) salesman mode
I realized I have been going around blogs to leave a comment, I do not leave comment for comment sake, but I do know I would otherwise not go beyond 3-4 regular blogs and only read blog post that particularly interest me in aggregation sites.

2) Discomfort
I find myself questioning a lot more when I comments, or write a post. When in the past, it is WT......, I just write how I feel. Now I can get this nagging feeling the stupid pursuit of a challenge that is so not monetary rewarding is affecting my "voice". I noticed it, I do not like it.

3) Clinging
Silly it may sound, I actually check my "stat" quite frequently now, and also which are the posts that generated more reads. In a few months, I sort of get a sense of what "posts" are more in demand than others, in the past, I didn't even bother. Commercialization is not a bad thing, but I think I am not managing it properly or internalizing it properly.

I also spend more time facing the wall of glass panel (iphone), checking if someone leave a comment, some bloggers actually replied it, did I write in another way that is offensive.

Finally, I realized I lost the most important ingredient in my writing, the voice is that of "honesty", not that I write about any mistruths or distort any information, but I stop asking "why I feel like this, and what really is my thoughts and feelings" on this matter, in fact, it became, will this post be popular? What classification of post is this? Am I writing about interest, will readers just think that I am pulling a fast one on them. In fact, when I write the "number world" story, I was very excited, I enjoy it. But it is of lowest readership. It affect the writing mode. Sad, isn't it. Not the low numbers, but how my passion is determined by a meaningless numbers. Money is number, although it has more meaning. LOL

Nonsense. I even thought of reviving wordpress. I reminded myself, it is not the platform, I do not need a wordpress to declare I am not doing it for money anymore. I always use my investing experience/ insights in my workplace, for once, my experience in my workplace come to place. It is not the tool, it is the person behind it that make all the difference. The HQ is trying to give us all the tools so that we find the right one and flourish, but many end up using the tool for the sake of using it.

My discomfort, has nothing to do with the tool. Returning to the basic is better. I will not give up on the challenge, I would like to see my blog being approved by Adsense in 6 months, it is also but another tool. Forget numbers, just remember why I write.    

Monday, September 22, 2014

Reflection on my investment journey on Industrial Reit

I would like to summarize my thoughts on my investment journey with Industrial reit, using Sabana and Ascendas as examples. Here are my main points.

1) The pitfalls of 100% occupancy with Master Leases

It is 100% occupied because 1 master Tenant took charge of the whole place, it could be 100% occupied, 50% occupied.  Why does it matter? Because 2 things affect renewal, rental rates and occupancy rates.

When I studied the 4 of Sabana Master leases that are expiring in 2013, a couple of the leases have no rental escalation clause, and during the few years, industrial rents have been on a up trend, so I thought, the negotiation is taking long because Sabana is negotiating hard for a positive rental reversion. It is only when the master tenants got converted, that I got 2 shocks.

a) 3 of the leases has occupancy of less than 70%, and 200 Pandan has occupancy of around 50%. It is little wonder that master Tenant do not want to renew. The sub-tenants numbers are increasing, and hence like I first predict, there is no sharp fall in revenue. But with multi-tenancy, it is very obvious, they could not even do some rental revision.

b) There is financial engineering in the sense of wavier of management fees, that has since expired. That coupled with the poor/negligible rental reversion cause a drop in DPU that cannot be offset by a new acquisition of 508 Chai Chee.

2) The limits of fees structure, whatever form it takes

When I look at Sabana, they have a very harsh criteria for performance fees to be payout. DPU has to increase by 10% before they are eligible for performance fees. I definitely have no problem with that. But they did not collect performance fees, but they keep buying, even a 50% occupied Chai Chee building and collect acquisition fees.

In contrast, Ascendas management are due for performance fees when DPU increased by 2.5% or more. I rather has a win-win situation, they get performance fees and I get higher DPU.

Cambridge has a very different performance benchmark, they get a performance when they outperform the S-reit Benchmark.

At the end of the day, unless the performance fees lead to a lowering of DPU, it doesn't really make sense to go into the nitty gritty of things, Keppel Reit used to get flake due to the performance fees, I dun think there is much complaints in the last 2 years, since they deliver the growth that investors want.

3) Look at the big picture
I tabulate Sabana and Cambridge's every industrial building's rent and purchase price etc. I thought they are comparable. I took a short look at Maple, Cache and Ascenda Reit then too. But their properties are too many to tabulate.

I look at the recent acquisitions and thought Sabana acquistion yield is better, and also command better rent in similar location.

All these research did not bring about better performance of Sabana. In fact, I will be better off investing in Cambridge.

The one on top is Sabana, the second one is cambridge, which I cannot do a screen capture because the list is too long. I did update Sabana 2013 results, but it is in another computer. Nonetheless, the point, don't get lost in the numbers, or over analyse.

4) Think long term, sustainability of yield is more important than yield

Sabana yield almost 9% when I bought it. Even now, It yield 7%. Ascendas Reit yield only 6.5%

How to you gauge sustainbility? Of course past performance is no guarantee to future performance. But I think there are a few things I look out for now:

a) Quality of assets, is there diversification and economies of scale?

Is there a cluster of buildings that is owned by the reit in a particular area, that makes it difficult to opt for competitors?

Are there Business Parks, Science Parks etc, there served as HQ and backroom support and is less affected by poor manufacturing?

Diversity and economic of scale prevent concentration shock of any one building having poor occupancy rate.

b) Is there predictability in fund raising and the discount rate? 

Sabana did a placement at close to 10% discount, which I think is excessive. Rights might yield a lower discount? Is there really a need to rush to buy Chai Chee, an 50% occupied building, like it is the best deal of the Century?

Ascendas Reit did placement every few years, sometime consecutively. But the utilization of proceeds to fund acquisitions lead to higher DPU despite the dilution. The discount rate is always around 5% (3%-7%), so there is some predictability. The only time dilution offset growth is in 2009.

c) Is there good management of capital

I like to see refinancing risk spread out. In ascendas, there is no one year whereby more than 20% of loans are due for refinancing.

Also, given the high credit rating, Ascendas all in interest cost is below 3%, yes it will go up when Fed rise interest rate, but it could be offset by growth.

d) Is there a pipeline of acquisition by sponsor?

I used to think the strength of sponsor only matters in a crisis? In the sense the bank will be more willing to lend, and if worse come to worse, Parent company can mop up the rights to raise funds.

It is still valid, but a strong sponsor goes beyond that.

A-reit can do 2 acquisitions almost very year. It can be due to its own sourcing but also due to the strong pipeline of Ascendas.

In conclusion, under my own wishful thinking, since Ascendas Reit already bought Aperia and Hyflux building this year, I think we can expect similar or better distribution this year, unless they do a very dilutive placement. Assume the growth is offset by the dilution, I think a 6% yield is still sustainable.

6% might not seem a lot, but if it is sustainable for 5-10 years, it is easy to sleep at night, knowing when the blood is out on the street, I will dare to average down on this. Average down on Sabana? No thanks, more Master leases expring this year.

Friday, September 19, 2014

Random thoughts: reflections on buy sell decisions

SMOL ask me if I have a plan. I think he is trying to tell me to find my own style and footing in investing.

The weird thing is: I realised many of the little voices guiding my decisions are in one way of another shared by someone.
Nicknames are mentioned as a mark of respect and acknowledgement of originality of idea. If any of the readers are the people mentioned, just chill if I interpret it differently. In the end, it is my interpretation of what was said

I look at ST and Acendas, and ask myself, If they will be around with similar payout in a decade. Of course, my answer is affirmative. Paullow's advice on  Looking for long term for perpetual dividend payers.

I really like both companies, both in certain ways, are bell-weathers of Singapore economy. Both are not trading at low valuation or attractive valuation. The thoughts ringing in my mind is: better to buy a great company at fair price than a fair company at great price. ( Warren Wisdom)

Ascendas fulfilled my internal set target of a sustainable 6% return annually in terms of dividends. But I will be kind of stretched and I want a small war chest to nibble at stock. Warchest wisdom is common knowledge but emphasized by AK.

So I decided to do some switching. A concept I heard from City Farmer of valuebuddies. He do not practice warchest approach but simply switch counters that has already performed to its potential or underperforming to the alternative that is more undervalued. Parkson has given me a good ride and the gestation period will take a year more, although I have no idea if the price will go north or south during the gestation period for future growth. Then Freedom's words from valuebuddies ring: you can never be wrong taking profits off table, don't expect to take the maximum profits all the time.

When I am researching and doing my homework, I read through all the announcements of ascendas REIT and look for milestones and important events,  a method shared by Nick from Valuebuddies. It is then I saw a very clear pattern of placement of shares to fund acquisitions and keep gearing at manageable level. With the exception of 2009, we all know what happen at that year, the placement while causing short term dilution is actually offset by longer term increase in DPU. The constant refinancing to spread out the loans to ensure no more than 20 % of its loans are due to in a particular year is diligently carried out, and the almost 2 acquisitions per year is made possible by the very strong sponsor. The acquisitions pattern is only broken in 2010. With the sponsor possibly merged to become an even bigger entity, the pipeline of acquisitions should remain available for a considerable period of time.

So, at the end of the day, do I have my own style? Hmm...

I think I do. Shameless copying of whatever is useful and connecting the dots. I think I need more dots to be connected before I can find my real style. 

But then again, I am more interested in making money than finding my style. Shameless right? LoL

Before I build up my core portfolio, I think I can have a smaller warchest in the meantime. I do I have a plan afterall. Confused? 

A busy September -Silly's Changes to portfolio

The following changes took place in September.

1) Switch out of Parkson Retail Asia for Ascendas Reit

2) Include ST engineering to the portfolio.

I still believed in Parkson Retail Asia longer term retail story, but I initiate position on Ascendas Reit at $2.24. Given I have also bought ST engineering, I do not want to over-stretched my cash holdings, so I decided to switch out of Parkson, for a higher yield Ascendas and for a nice 15% profit for holding it for less than 2 months.

Hmm... Why would a value investor do such short term flipping? I am a mercenary value trader. LOL

One mental model that convinced me to switch.

1) The dividends I gave up on Parkson will be more than compensated by Ascendas's upcoming distribution in September. The yield of around 6.5 % for a blue-chip industrial player with its quality of assets is just too tempting. Doesn't matter that I am paying a 10% premium for its assets.

2) The merits of Ascendas Reit

a) Its capital structure is prudent. Its Loans are spread out, there is not one year where there is more than 20% of its loans due for refinancing.

b) Good diversification and track records. Ascendas Reit has 105 properties. With the exception of 2009, where placements of shares come fast and furious, resulting in dilution that offset growth of distribution income, Ascendas  has seen its DPU growing yearly, offsetting placements dilution.The growth of DPU is expected to continue in 2014 and 2015 due to its recent acquisitions. 

c) Downside management. Any adverse impact on DPU should happen only from 2015 onwards, but I believed that can be offset by its growth strategy of placements to fund acquisitions for growth and keep gearing at a manageable level.

 d) New rules by JTC regarding anchor tenant requiring to take up 70% of the space will only affect ascendas from 2017 onwards.

e) The merger of 4 subsidiaries by JTC (including the reit parent, Ascendas) and Temasek will create a larger entity with even greater overseas exposure. The Reit is now a instrument for capital recycling of a bigger entity.

As for ST engineering, I have written quite a bit about it. I compare it with SIA engineering, and realized that are only in direct competition in 2 segments, and with rather clear different focus of customers. 

Rather comparable, except that SIA engineering has better margins.

However, I believe ST engineering will be a grower over the longer term. The sub segments of aerospace has increased from 3 segments of Aircraft Maintenance & Modification (AMM), Component Total Support (CTS) and Engine Total Support (ETS) to five segments to include the expanded scope of Aviation & Training Services (ATS) and Aerospace Engineering & 
Manufacturing (AEM). In fact, I think the lower payout of 75% is to fund the growth opportunities in Aerospace and Land Systems rather than the lame reason of overseas witholding tax.

In terms of longer run, I think both of these counters are able to ride out the storms the future might bring.

Less on numbers, more on the promise of sleeping better at night for a better and stronger Ascendas and ST Engineering in the future. 

Silly Investor.

Thursday, September 18, 2014

Random stories: The number world prelude

It is the year 2146. The world economy is in very bad state. The biggest economies have already formed economic groupings. The era of union of biggest economies has brought only revival that lasts less than a decade.

Hunger and survival brought down some of the nationalistic barriers. Both fiscal and monetary tools were used, and the unimaginable political unions that went beyond treaties and allies actually happened. When Taiwan return to China arms and a East Asia Economy bloc consisting of Japan, a unified Korea and China and Taiwan is formed, it was a poster boy to the world. With so much historical conflicts, these countries actually formed a union and created a powerful council to oversee law in the economic bloc. It was the first to reap the benefits, it's economy pull the world out of recessions and the constraints of lack of energy and commodities. Earth is depleted quicker than most would thought. The all mighty answer of technology did not offer a solution this time round. It is the union of countries and the ruthless effecient allocation of resources based in competitive advantage that bring back hope. Economy of scale, zero wastage, renewable cycles of production to consumption are all key themes that he enlarged economic blogs explored. It lifted hundreds of millions lives. 

However, the revival also brought the problem of depleting resources more acute, energy sources while aplenty, could not be harvested at a scale that is economic viable. A number of technological breakthroughs that promise  hope, is just what it is, just hope. 

The drive on efficiency lead to a  productivity revolution. Everyone went on a frenzy to find the most effecient way to utilize resources. How to allocate the least resources to projects of greatest impact. Councils become very powerful. Less productive people are ostracized.

The council decide to not just automated production systems but also humans. Humans are grouped according to their productivity, and the less productive receive less, and were treated with less respect.

Competition was introduced to gauge productivity and people can be promoted or demoted in their various productivity groups.

Productivity took a leap that no one thought possible! It was the ingredient that technology advancement needed. The inflection point that allowed the breakthrough in energy harvestment. Human hunger fuel by fear and ego bruised by competition provide the spark for humans to give all they have got on their assigned tasks. 

The 3 councils in the world, decided then that the world that we once know it, is within reach again. They agree that productivity revolution is the fifth revolution in modern human history, that will solve the ills of human race. They could return to the world of abundance and perhaps even consumerism wastage if they can drive productivity even higher. They insert data chips into humans that could measure their productivity, their man hours. These could be tracked. With zealous and ambitions, the announced a series of new laws and the start of a new Era. The first five years Era,  they promised the human hope and more...and that promise need only 5 years of everyone' productivity... 

To be continued...

Parkson Retail Asia - Odel, to sell or not to sell?

A Sri Lankan Conglomerate has luanched a takeover for Odel, which Parkson Retail Asia has a 47% stake.


Parkson retail bought the stake at Rs 1.4 billion


So if Parkson is to sell the all the stake, it will make Rs 2.8 billion

A 100% gain for 2 years.

Looking at Odel AR, it has super high advertisement and marketing costs, and the latest quarter is loss-making, it has heavy debt liabilities too.

(AR source: http://www.cse.lk/cmt/upload_report_file/960_1406712191419.pdf)


Wonder if Parkson Retail Asia will sell?

I hope they will.

Wednesday, September 17, 2014

Random stories: The number world

Year 2194 F6, mankind lived in a very different world. It is the 6th Five-year Era. Man and machine has blurred. Everyone has a wearable glasses that is embedded with a micro-processor and is a face- features reader.

With a look, everyone is identified. Unless done by sophisticated surgeons, one need not bother to disguise oneself, the technology can pick up the nuances. Anyway, it is already the sixth cycle, anyone who disguised themselves successfully and let themselves appear as "errors", or "No available data" fared far worse than the "Decimals"

"Decimals" are the lowest social class. They have low productivity rate, or due to the fact that they were in jails or jobless for a considerable period of time, their "F" value as measured in the 5 year time cycle, will be very low. In fact, these Decimals, would often mocked as Zeros Heros, but as with every hypocritical society, no one is worthless, hence, the word decimal. The F value is a complicated calculation, it is not just based on productivity level, but also salary earned, sales made, margins levels of sales, KPIs achieved by bosses. Hours of community service and money raised for worthy cases are also calculated, but has very little weight age and is only included in the 4th Five-Year Era. In the first Five year ERA, there are 29 versions of such calculations, and second Five year Era, only 2 versions. They have perfected it since the third Five year Era, and allow only slight modifications or additions to the formula.

Decimals can only hoped to move up to the "factors" class, when the 7th Five Year Era came. Most do not stand a chance, before data are officially archived at the end of the Five Year Era, and loaded into the central system, most people from the "Prime" class will saved it to save themselves from choosing a wrong employee, and struck with it for the next 5 years. Although they are prohibited by law to use past data, no one can really do anything to them. Primes are people who will never need to reset their numbers since their numbers are expected to only keep growing and they as the word, prime, imply, are unique in their own field with no real replacement or alternatives. Primes are the equivalents of today government leaders, big and wealthy businessmen and top bosses of the respective fields.  

"Factors" are employees. The majority of the masses are factors. Like the word imply, there are a factor in the success of their organization. If they do really well, they have a chance to move up to the "multiples", successful middle managers.

The union formed mainly by Factors has fought hard to ensure no one keep past data of previous 5 year Era, but because factors come and go, and can be easily tempted to switch sides by promises by Primes to become Multiples, it is a losing battle.

Some of the Primes wanted more social justice, but ironically, because they emphasizes on doing good, which can be difficult to measure beyond money raised and hours of service rendered to the community, they are also considered the Odds Primes. Odd Primes knew they are fighting a losing battle. The victory they had, was to include social hours into the calculation of F. But many virtues has no number values.


To be continued...

Tuesday, September 16, 2014

Growth - Not all are equal

We know we all look to a company to grow its top line and bottom line to create shareholder value. Growth is a very subjective yet important factor when analyzing a company. Growth can make a fairly priced company cheap and the lack of, can make a cheap company even cheaper. Based on my primitive observation, I felt not all growth are equal, and in my feeble attempt, try to rank what kind of growth seem to be of higher value then others.

First tier Growth - High probability, low stress on balance sheet and certainty of  flow to shareholder in terms of dividends.

What determined probability of a growth indeed materializing? The easiest in acquisition of a profit making company/ business at a reasonable price. If the acquisition is made with internal resources, and no or little debt, the more attractive it is. If management has a fix dividend/ distribution policy of say certain percentage of earnings, you can be sure that the growth will be shared by all shareholders. The only pitfall is be wary of acquisitions used to mask the negative growth of existing units. Raffles education, anyone?

I can't think of any examples, if you have one, then the only catch is current valuation. Please let me know the counter too. LOL

Second tier Growth 1: Medium probability, low stress on balance sheet and certainty of flow to shareholder.

I do have an example, CM pacific. Yes, I know, there is dilution and Jiurui expressway is loss-making, but that is due to high interest costs, also loss is narrowing. Also, the interest cost by CM pacific, a vehicle identified by SOE China Merchant to grow as an asset play, is lower than other SMEs in Singapore. The automobile is growing, and the projection to growth is rather clear. So I think probability of profitability in 2 years is quite high, and since it bought a loss-making road, if they can turn the expressway around, the price paid is very reasonable. CM pacific has a dividend policy to pay at least 50% of the income.

It is important that when we look at probability of growth, we should look at it in the long run, a minimum of 3-5 years. Sometimes, with order book visibility, and the right reading of capex cycle, we can be confident of growth in the next 2 to 3 years. However, that will not be classify as a medium probability in my eyes. In my very small universal of Sillyinvestor's investment radar world, Venture has high probability of growth to 2015, but that is too short and and Venture's track records is mixed as compared to its peers. It is in a highly competitive and cyclical industry where M&A can be frequent or order of the day. Also, given Venture deals mainly in the high mix, low volume of EMS projects, it tends to be lumpy as the revenue is less recurring but of higher margin. Why did would I buy Venture? Well, growth is important, but it is not the only factor we should look at. Compare it with the CM pacific example given above, as long as there is no change in China toll regulation, once the expressway is up and running, it will be there, collecting tolls and raking in revenues for CM Pacific, after costs considerations

Second tier Growth 2: High probability, medium stress on balance sheet and certainty of flow to shareholder.

Example? Singapore Shipping Corp (SSC). Singapore Shipping Corp has recently announced the acquisition of a third PCTC, with this order, SSC has now more or less assured of 3 years of rather significant growth. Think of SSC as a shipping trust without the financial engineering. 

The ships are chartered to blue-chip charterers of long term charters, eg. the earlier 2 ships will be chartered for 15 years. Also, SSC loans are amortized over the lifespan over the ships.That means, when the ships are due for the scrapyard, the loans will be completely paid. 

The only bug is gearing, its gearing to equity ratio will be above 1 after this third acquisitions. However, since the ships are already on long term charters with blue-chip companies and their loans are amortized,  unlike trust structure, I see it as medium stress on balance sheet rather than high stress. You can disagree with me on this. 

Ow, the "Captain" of SSC, has been fair to shareholders, and has proven to be a shrew businessman. Dividend records is good, the big fall in dividends is due to the 1- off selling of vessels during the peak of the shipping cycle (talk about shrew), and he returned the profits of the selling to shareholders. Unfortunately, I know of people who got sucked in purely by numbers when he declared bumper dividends and thought they will continue. 

Third tier Growth:  Any other less favorable combination

That is perhaps what Paullow said about "flipping" or Warren say about cigarette butt. Does that mean we should not look at such companies? I think I still look at them, for reasons like valuation or flipping.

APTT, can I be sure about certainty of flow of dividends? Yes, because of its trust structure, growth? Low, but they have the Taichung Story, the Broadband story and the organic growth through cross-selling Premium content and broadband. But leverage? OMG, it is high, to the extend that if growth does not panned out, dividends will not be sustainable. But, for a yield of 10% and ability to pay out the next 2 years hardly a question, is it worth a bet? I think so.

In fact, there are a few companies in the cleaning/ repair/ maintenance sector that I feel have medium to high probability of growth, like ISO team and 800 super. But for super800, I can concerned about the debt level and not sure if dividends will grow with better earnings, and current dividends is too low for my liking. ISO team track record is too short. Although both appear in my radar. I might look at them further.


My universal of companies is small, what I said here might not be applicable to everyone. I would like to think most of my counters are in third tier growth segment, I just hope they can limb along, most of the time, it is strong balance sheet plus certainty of payment, like SPH, ST engineering (Yes, I added it with the fall in price yesterday), as for Lee metals and Parkson, I hope to catch the right cycle, or not too far off to benefit from the cycle as I wait safely with their strong balance sheet and payout. I have difficulty finding 2nd tier growth company at fair valuation, so I will keep expanding my radar.

Do however understand that concept of growth and promise of growth are not equal to high probability of growth. Some common pitfalls, expanding capacity, will it actually be utilized? Of course, the expansion of capacity show that the management think there will be growth to be captured, but that is a concept unless, the orders is already fulfilled before they expand, like leasing of space for shipyard expansion or like SSC, the ship is already chartered before they are bought. Even order book does not equate to growth, this is especially true if you look beyond 2 years. Are the terms of contract fixed? Most of the time, retail investors will not know the details of contract, cost of production of delivery of service could be quite different in 2 years time, will the order book continue to have good margins? So a 2 years worth of orderbook that is constantly updated is better than a feast and famine kind of order wins. IMHO 

Also, growth due to financial engineering is really a short puff. As I defined 3 years as the minimum period of growth to consider a company as having medium probability of growth, I am not interested in financial engineering to achieve growth. I want operating numbers to show growth. Financial engineering include shares buyback, wavier of rights to distributions, spin off of subsidiaries. Financial engineering is not a hindrance to growth, but we should look beyond that.

Reits and business trusts offer certainty of payout, but the bugbear will be its balance sheet. Its loans are bullet loans, and hence exposed shareholders to re-financing risks. So, the probability of growth and valuation must be able to compensate that when we invest.

Monday, September 15, 2014

A quick look at LMIR's new deal. Is it a good deal?

Some numbers first.

Total dilution assuming 40.5 cents for consideration shares and after placement of new shares (EFR shares)
= 16.7%

Improvement in NPI using 2013 numbers:
33.6 mio / 143.3 mio =  23.4%

Improvement in Distributable Income using 2013 numbers:
19 mio / 73 mio =  26%

Occupancy rate = 92.8%
Note: It is high enough number with room for improvement. It is newly opened in 2012 and if you compare this with Pluit Village record, it is being filled up quite quickly.

It is part of a integrated development by lippo, with hotels, Spa and hospitals. I think an eco-system concept is important, it is the only mall in the integrated development. Competition should be manageable since it is located in South Jakarta, which the Jakarta Mall Moratorium covers. The Infinity (Kemang Village)  and 
The Intercon (Kemang Village) were just completed in Q1 2014, yet the mall is already 92.8% filled, i believed when more residents move into the development, the mall attractiveness will improve.

Seems like a no-brainer good deal, since it improved it yield will improve despite dilution.
Pg 16 of announcement:

However, can we trust their calculation?

Not withstanding further weakness of currency, which is no fault of management, LMRT has put up a pro forma illustration that did not meet expectations in the past.

Next, I am trying to figure if they calculate the increase in finance cost in the projection of increase of distributable income. 

Otherwise, 5% on 140 mio new loan to be taken will result in finance cost of 7 million.

Take away 7 million from 19 million, you will be left with 12 million.

Improvement in distributable income will be only 16.4% instead.

However, in conclusion, I still view this deal positive.

1) It did not seem to look like it is a dumping asset. The mall is quite attractive qualitatively f you ask me. 

2) Dilution is manageable 

3) It is a new management under Alvin (Very obvious dumping is taking place by past management), so perhaps we should give him a chance.

There are also 2 spanners:

1) Actual price of the placement shares. It will be at a 10 day average price prior to the completion of the deal. I hope the management keep the price stable through shares buyback and there is no black swan lurking in the corner.

2)  I calculate 5% for 140 mio debt. If it is higher than that, it will be tough for the deal to be positive.

Saturday, September 13, 2014

Paullow's different financial journey

I first got to know Paullow at valuebuddies, when he wrote deep analysis on Hupsteel.

He commented on my post about my delusional financial journey and is very encouraging.
We interacted and his views are rather thought provoking. I am not going to summarized our conversation, you can read the comments yourself. I think he gave me a few insights which I will share here.

Insight 1: Simple concept works

He told me not to spend too much time crunching numbers, but spot perpetual dividend payers. He mentioned Colgate, and when I ask about Hupsteel, he told me that counts too. 

The all important question: can the earning be repeated and dividend paid over and over again.

ST engineering come to my mind, but for him, it does not have to be blue chips. While his list include ST, he also mentioned TCIL ( no idea what that is) SATs and Noel. 

Insight 2: Invest regularly, no need to time the market

I know of many people who take advantage of bear market by keeping a big warchest. CW, AK took this approach. This approach looks easier than it really is, as Munger said:" it takes a lot of character to be sitting on money", and the truth is, we will never know the bottom or peak until we passed it. 

He invest a lot on his counters, he just reinvest his dividends, he never bother about the direction of the market, he just make sure he did the homework before he buy and leave it for the long term. His golden words: in the long run, the downside will take care of itself, and whatever is left is the upside. So, I finally find a third real flesh and blood in Singapore that actually practiced Peterlynch's approach and succeeded. I know Kopikat and Cityfarmer also practice this, but I do not have a chance to interact with them this closely. He is already in semi-retirement 5 years into his investment journey. He started 8 years ago. He is only 40. 

Insight 3: It is possible.

The few excuses I had for myself: Family committment, children expenses, etc, are no hindrance to him. He has 2 children too. So I should stop deluding myself and making my family the scapegoat. Not withstanding the size of capital, his lifestyle is still the same at semi-retirement. He enjoyed his hawker fare.

Insight 4: Enjoy the present.

He advised against mixing the active and passive income. Let the passive compounded and use the active money to enjoy, he mentioned he still drive his Mercedez. Don't think too much, we never know what the future holds for us and our plans might go wrong.

Final thoughts:

The above are my own interpretation of our conversation, Paullow, if you don't agree, my apologies, you can leave a comment.

While it might not be new knowledge, knowing how someone has really done it and living by the 4 insights is quite inspiring for me. 

This is really what enjoyed about blogging. I really gained new insights by connecting dots when interacting with people. 

I think I just clear another dilemma regarding core and diversified portfolio. There is no contradiction. I enjoy number crunching and it is, it is a hobby, so when I have the time, I am going to read up on SIA engineering to size up ST. 

The final words: To break the rules, you need to master the rules. I think Paullow has mastered the rules and can afford to front load his research and let it roll, for me, I am still building my circle of competence. Luckily I am enjoying it. 

Last warning and parting words from Paullow, don't follow his choices and expect only way is up. He insist he has no idea how his stocks will perform in days, and months. It does not bother him, if volality bothers u like it still bother me now, you have not reached his Zen level, be warned.


Friday, September 12, 2014

Random Thoughts: The effective way of learning

Went for a course, was shown a learning triangle which show the average student's retention rate.

Before we were shown the pyramid, we were asked to guess the order by sequencing the different learning methods ourselves.

I got the first and last correct. Least effective in terms of retention rate is Lecture and most effective is teaching others.

I thought Reading should do better. I know I learn about investment theories through reading,

When I think about my learning of investment, a lot of it doesn't make sense until I think further. Read the questions first, and see if you have the same conclusion as me.

1) If Lecture is least effective, when are people paying good money to go for them?

2) What is the easiest way to apply "Teach Others" without flouting the law and break relationships when what you teach turn out wrong or they applied it wrongly.

3) Who are the strongest advocate of practice by doing?


Now for the answers.

1) They provide the fish. The counter you can buy at the end of the session.

2) Blog about it. Just like me LOL. But we always have disclaimer that we are not giving advice. Teaching is not giving advice

3) Day traders. They buy, sell almost every day. Long term investors? Oh no, how to frequently invest long term? It is a inherent conflicting term. Although we can practice researching and scuttle butting.

So if you read a company AR,researched about it, you should followed it up by discussing it at forum, summarized it at your blog.

As for audio-visual, can't seem to find a parallel in investment learning journey.

As for demonstration, you can always see bloggers and forumers track records.

Problem is, investment has no right answers!

LOL !!!

So even if your retention rate is 100%, you may still fail your exams!

Sorry, a bit bonkers today. excuse my nonsensical post.

Chill, its Friday!

ST engineering Part 2 - The more I read, the more confused I get

I have wanted to write about the electronics sector.

I ended up reading all 4 sectors, I even read the earliest AR available, AR 2000.

Looking ST engineering, my thoughts go through a state of flux. (Blogging about it, I hope helps)

1) Why not do some financial engineering, and spin off 1 or 2 sectors?

Now, I realized the amalgamation of the 4 sectors since 1997 is a strategy to gain Snergy and Mass to expand and gain foothold into new market. For example, the aerospace sector bought training school, electronics sector develop the software.They are successful in US, they have a foothold and subsidiaries in many countries, but I am still unsure if China and Europe can be the next "US".

2) It is not a stalwart, it is a grower.

Looking at the last 15 years, it is a multi-baggers in both top line and bottom line, too bad I can't say the same about the DPS.

3) I stop tracking its execution record or milestone.

I was working backwards from 2010, looking at the electronics sector, and realized that LSG is going places. From Bangkok Metro Lines in 2010, to Wuxi and Taiwan, and recently to Canada and San Francisco, ST seem able to make inroads to different cities with ease. Product on offer? From AFCS (Automated Fare), MMS (Maintenance), PIS (Passenger Info System), they do seem able to customized products for customers. When I read the 2000 AR, they are already doing that. Its capability seem intact.

4) Management and my limited understanding of future growth areas.

Reading about financial news, we know China and Asia excluding Japan is going through rapid urbanization. Trains and transport system demand will increase. What is surprising, is that they are not just winning contracts from China, but also US and developed cities.

I have an opportunity to talk a successful businessman involved in investment for British Telcom, I ask about his opinion/ thoughts on what are some of the value-adding and successful exports Singapore do. His answer: Eco city, it is still small, but the potential is there, with environmental awareness of populace in many countries rising.

Tianjin Eco City is hardly a success if you ask me. But, in SIngapore, I know we are building MRT until 2030, I know Jurong lakeside area and the future 3 HDB towns, Tampines North, Biadarri and Punggol West will be test bed for SMART city living. ST engineering will have no lack of local contracts.

In marine, they have the capabilities to build a range of ships, from OSV to APHT etc.

When I research on Venture, I ask myself if the capabilities are intact and if they are still competitive. When I read ST engineering, trying to pinpoint its capabilities is taunting as there are just too many, until I came to the conclusion that innovation and customization are not just slogans chanted but are indeed the capability of the company.

The company also managed to get very big names for directors. The more recent one include Olivia Lum from Hyflux as a non-executive director. Enviromental Engineering and Services is still a small and young (unveiled in 2008) business under the Marine Sector(I wonder why? I thought LSG would be more appropriate ), but I believe the room for growth is there.

ST engineering reason for 75% payout for dividend over the next few years due to expansion needs and withholding tax issues fall rather flat on me. It made me, who go after dividends, less enthusiastic.

No doubt a good company, but I think I need to read some other GLCs like Keppel or Sembcorp or even SIA engineering for comparison with the aerospace sector, before I clear my mind of further questions. Applying porter's five forces, I would like to know more about their competitors.

Anyone confused after reading this post, my apologies, I myself is rather confused.

Saturday, September 6, 2014

Random thoughts: A delusional financial journey

There is not an inspiration post, rather it is more of an negative example. My journey thus far, the highs or lack of, and the lows.

When I was doing my National service, I seldom go out with my platoon mates during nights off. I simply enjoyed a meal at Changi Village, and took a slow walk back to camp, usually alone.

I managed to save almost 10k after the 2 years.

I signed a contract with my employer when I am still studying at university. I was given allowance when I study. I managed to save more than 20 k during my university years. I played with shares. I know nuts about financial numbers. What is ROE, what is equity, receivable. I know nothing. When September 11 happen, I bought SIA. It is a 100% gain. This embolden me to buy more blue chips. It was the turning of bear to bull years, I made more than 5k. Then I took all profits and ploughed it into CAO which wiped out almost all of my savings!

I still have savings. I was so happy to get back 4k when they managed to restructure. I remembered the money coming in very handy when I pay for my marriage expenses. Furniture, property, honey moon etc.

My first 2 years of working savings were gone in a snap of an eye when I get married.

Then we welcomed our first car, followed very shortly by our first baby. Savings was wipe out again. In fact, there were months I survived by past savings and needed my bonuses to clear my expenses.

It was a very different lifestyle I was used to. My wife was not as frugal as me. I felt highly insecure without monthly savings. I quarrel with her over money. 

As I climbed the Coporate ladder, my pay increased, so is my expenses. My maid came along, things like taxes, year end holiday etc, made me hardly able to save the bulk of my bonuses. 

I learn to invest, but there are many a times I need to liquid my counter to pay for some expenses. 

It was painful, demoralizing. Especially when I read about blogger x who is y years old and amassed a portfolio of z value.

Given my character, when I can't beat them, I start to delude myself. I tell myself a lot of joy I had with my family cannot be measured with money. A lot of time spent, a lot of luxury activities should be enjoyed and let it be. I am a generous husband and father and perhaps also son and son-in-law.

Deep down inside, I know I want some financial muscle. I know there are other with debts issues. But most of the peers I know have more than 1 property. Ouchx1

I remember a blagandesh at a ATM in front of me. When it's my turn, I saw the ATM receipt, while I am not sure if the receipt belong to him, I saw cash balance of 100k. Wow, I tell the story to my friends. They reacted in amazement: huh? You mean you do not even have 100k after working for so many years? Ouch ouch. 

I still aim for financial freedom, but deep down inside, I know in reality, I am just working for stability in semi-retirement.

The one solution I had, work till I dropped . No need for retirement fund. LOL.
To self-delude myself further, I tell myself if  I do have the second property, or when I have the half a million investable fund, I will have other problems, I might be missing on other finer things. It made the"ouch" moments bearable.

To self-delude myself further, I even appeal to the rational thinking part. Hey, if my 50K portfolio can be defended, with 6% annual return plough back to work, compounding magic will make it a cost value 200k portfolio in 25 years. I will get 1 k return every month if I can still manage 6% return. I would be 60 then. My CPF should have no problem hitting the minimum sum. 

I would have to survived with 2 plus K a month 25 years later. With inflation eating away purchasing power, it is a highly depressing number isn't it? I should have some spare cash from my 2 endowement policies for some little pleasures for the first 10 years.

So how to bridge the gap? Drive taxi or work as security guard perhaps? 

Of course, the above projection assumed zero cash savings and capital injection into investment fund in the next 25 years, which is almost impossible unless I lose my job. 

So I just described a worst case screnario, my days in monetary sense should be much better. Delusion in process 1. 

Anyway, even if monetary less well off, it could be make up by a fulfilling emotional and social or perhaps even spiritual life, isn't it? Delusion in process 2

Anyway, will Singapore still be around in 25 years? Will its economy still be as vibrant? Will I stop be healthy? Appreciate the present! Delusion in process 3

There are plenty of opportunities that can be opened with money, I am not taking about just pleasure seeking ones but also  in terms of security. But perhaps, options or Too many of them bring more anguish. Delusion in process 4

Grasshopper or the ant, A story I fondly remembered from SMOL. I think I am the hardworking grasshopper, working hard, enjoying hard. 

Until the next ant or grasshopper passed by, and amazed at my not ant nor grasshopper life. Ouch. I know it will hurt, comparison is inevitable but I know it will just hurt a while until I jump off to immerse myself in the next playground or workplace. 

When asked what is my greatest asset, I always say:

1) contentment ( for my lecturer and academic friends). 

2) Shameless ( for my ah beng friends )

3) delusional ability ( for my blogging friends)

But effectively, the three assets are the same thing. Just different packaging LOL

I just hope old age don't make my greatest asset disappear.

Friday, September 5, 2014

My thoughts on ST Engineering Part 1

I did some more preliminary reading on ST engineering. Here are some of my thoughts:

First criteria of cash generating business is fulfilled. WIth the exception of 1 year, every year it generated FCF. Next, it is sustainable. The payout in terms of earnings is usually 0.9 to 1, but for 2013, it is 0.8 What attracted me is the FCF to payout ratio for the last 2 years are low, at 0.65 and 0.72. It seems to me that from 2009 onwards, ST has been able to sustain its growth and dividend payout through its FCF. As for ROE numbers and etc, you can see for yourself that it is high and consistent

I then again run a few combinations of DCF calculations based on the very conservative av. FCF of 420 mio for the past 12 years. (exclude the one-off negative FCF year.) For it to be trading at 3% growth and 6% discount rate with MOS of 20%, the price is $3.8 I would think the 6% discount is rather liberal, unless I can ascertain it can continue to grow above 3%. I decided to go deeper into the aerospace segment:

1)  Durable Goods Orders Surge 22.6% in July

This is the news that spur me to read further. The highlight of that article is "Transportation orders jumped 74.2 percent, the highest increase ever, boosted by a surge in bookings for civilian aircraft, which soared 318 percent, the largest increase since January 2011."

2) Worldwide number of aircraft orders* from Airbus and Boeing between 2003 and 2013

From the chart,

Since the last 3 year period is the strongest in a decade, and looking at 8 months order of both Boeing and Airbus, after adjusting for cancellation, total orders is 1633.

(Source: http://www.reuters.com/article/2014/09/04/us-airbus-group-orders-idUSKBN0GZ0VX20140904)

Seem to follow the trend of 3 good years followed by a dip.

Nonetheless ST Engineering 2013 AR has the to say:

"According to consultancy ICF SH&E, the global aircraft fleet is expected to grow by 950 aircraft a year, from 27,000 aircraft in 2013 to about 35,600 aircraft in 2022. The MRO market is expected to grow at a compounded annual growth rate of 4.1% from US$59.2b in 2013 to US$84.7b in 2022."

The bigger picture seems mildly positive.

Then I track the operation review of the sector from 2010. They have a good execution record. The only delay in estimated execution is the Aerospace Guangzhou, which they announced in 2011 that it will commence operation in late 2013. But in the announcement in 14 July 2014, Guangzhou Aerospace is in operation.

As for other executions, they bought AERIA in 2011, which retrofit the interior of aircraft for VIP cabins and provide customised service. It won contracts both in 2012 and 2013.

The flight school is Australia is also expanding since 2011. The Rotatable Leasing arm set up in 2012 are expanding offices in 2013

IN 2013, they announced a JV dealing with the leasing of aircraft. Could it be another growth area together with the now operational Guangzhou Hanger? 

In short, they seem to be able to execute what they set out to do.

A quick look at the various financial review of the various sectors, it seems land system is the only one with weak numbers. e.g. volatile ROE etc, but the worst in the last 5 years is still a decent 22.2% IMHO


I will be reading on the other sectors as and when I can find the time. If I cannot be confident of a higher growth prospect in the longer term, current valuation seem fair, with its 4% yield.

Tuesday, September 2, 2014

Random thoughts: Coming over to blogspot

Here I am, I am still sillyinvestor. I will stop wordpress from next week onwards. Anyone else wondering how I import blog posts and comments from wordpress to blogspot can see this link http://google.about.com/od/googleblogger/a/How-To-Move-Your-Blog-From-Wordpress-To-Blogger.htm Reason? Money! Money! Money! Even I get few cents a year I also happy. LOL