APTT -- Is distribution sustainable?

APTT is a much disliked counter going by what forummers/ bloggers said about it during its IPO, but it has fallen 23% from its IPO price with a yield of above 10%. It is still a bargain now?

As with HPHT, the sustainability or the doubts of its sustainability of payout is the main reason for its under performance. Lets us look at APTT and the various threats and see if they are justifiable.

First, earning power.



If we go earlier, a similar picture emerges.



The good operating numbers correspond to the increasing basic TV RGUs and the increasing prenium TV customers.

Is such operating numbers sustainable? Competition within franchise area is currently non existence but with the rezoning of franchise areas, competition might increase, and "On 8 May 2013, the NCC approved preliminary permits for Vastar and TOP for franchise area extensions into Taichung City, which will allow them to begin the required construction according to the business plans they submitted to the NCC", Taichung CIty has the highest per capital income, and that properly explained why the competitors are keen to move in. That TV penetration rate of approximately 67.8% across its franchise areas might mean untapped market. However, given thatThe NCC only issues licenses to applicants that have built and deployed 100% of their network, and that TBC own expansion in its own Taichung City (Greater Taichung) is reported to take years,the threat while real, is not imminent. The fact that the penetration is not high would mean that its doesn't have to be a zero sum game. (Subscribers have to leave TBC). IMHO, competition is also mainly in the premium digital TV channels since there is no cap in the fees operators can charged customers and TBC has higher ARPU in the prenium digital market compared to CNS and Kbro, and the penetration rate for prenium digital TV is low. (Pie enough for everyone). I doubt the new competitors will want to compete in the price on the basic TV since the cap rate is already regulated by NCC.

As for competition by substitutes, such as IPTV. The biggest player CHT, has several disadvantages. 1st, is platform disadvantage. about 80% of the viewers in Taiwan use cable TV while broadband penetration is nowhere near, and since CHT has government stake, it cannot access certain local content such as news programme, such the competition is not a apple to apple type of competition.

The cap rate for basic TV can be lowered by the local government during poor economic times and it has been lowered by $10 in 2011 and $15 in 2013. But looking at the operational numbers,TBC is hardly affected by it, registering revenue growth in 2011. Cap rate can also be lowered as a "penality" for poor quality of service, or inability to meet digital penetration target of 50% in 2015. TBC respond to this by offering free digital boxes (capex risk, which will be explained later), and is expected to reach 50% in 2014. As for content, TBC do not make content but source for content from aggregator MCI, if there is a complaint from local government, I think they can always go for another content aggregator (There are 4 in Taiwan).

Hence basic TV cable are defensive, and make up of mostly local content, with the lack of killer content (think starhub and singtel for EPL), and that is one of the biggest generator of revenue, and a platform for bundling and cross selling.

So, barring a earthquake/typhoon knocking out infrastructure, I think we can establish the earning power is more or less "safe", given that the broader industry is also sound. (from prospectus: MPA forecasts indicate that total premium digital cable TV RGUs will grow at a CAGR of 15.2% between 2012 and 2017. Premium digital cable TV ARPUs averaged NT$188 per month as of 31 December 2012, having grown 5.6% year-on-year. MPA expects that by 2017, premium digital cable TV ARPUs are expected to reach NT$229 at a CAGR of 4.0%.)

Next, capex and finance costs 

Capex will affect distribution. To sustain distribution of 8.25 cents, they need to pay out 118 million from EBITDA of 200 million. So they have to keep to about 80 million of net costs (capex, financing costs, etc). They forecast capex of 49 million and 40 million for 2013 and 2014. This capex of 49 million include the completion of the upgrade of the HFC network to 870 MHZ and is inclusive of the free digital boxes given out.

Also, from the covenant of debt, they cannot exceed 120% of capex of a proposed year (excluding expansion into new franchise area), assume the projected year is 2013, so the ceiling (before including rollover of excess money in the preceeding year) is 60 million. The trust has incurred capex of 20 million thus far, but has not drawn down the revolving facility (only 10 million NT dollars) to fund capex.

Loans available for capex expansion = about 110 million

since out of 198 million of revolving facility, 50.2 million is earmarked for tax settlement, 56.5 million is earmarked for new zone expansion.

Assume they use 20 million from cash flow and another 20-40 million from loans to fund capex, we can assume it will take about 2.5 years to 5.5 years before they need new loans, and assume also 4% from revolving facility, there will be a further increase in Fiance cost of about 5 million

They have a all-in rate of 4% for their term loan. That works out to be 45.8 million a year, plus the additional 5 million interest for capex and 2 million interest for tax settlement, total foreseeable fiance cost for the next few years will be about 53 million.

Taken with 20 million capex, they willl be left with 7 million to pay taxes. But the forecast income tax to be paid is 20 and 16 million. So there is a shortfall of 9 to 13 million. so the more sustainable payout seem to be 7.5 cents instead, still above 10%

If interest cost increase by 1 %,  payout become 6.5 cents, yield is still respectable at 8.8%.

So, in conclusion, high dividend seem unsustainable and the fall of 8.5 cents to 6.5 cents is more than 20%, which is what is happening to HPHT now.

But wait, HPHT did not have the 1% increase in interest cost factored into yet, and APTT 2014 distribution seem possible if you work the sums between loans and cash flow for capex.

But, there is another 2 more caveats.

1) They expect tax settlement to be 46 million and has set aside loans of 50.2 million for it. Although they claim negotiation is going on well, but the actual claim is 122.4 million, a whopping 74 million shortfall.

So this is the biggest risk to distribution. If this tax issue don't work out well, kiss your distribution goodbye.

2) Macquarie has rather a bad records running MIIF.  Will they embarked on new zone expansion although it is highly capex intensive? Or will they do badly at the hedging?

So is the above 10% yield worth it???? Is your call.

Your emergency funds - How much is enough? (Warning: Dark content)

There is a general guideline of 6 months - 12 months.

I think that is arbitrary. First, 6 months of $2000 is rather different from 6 months of $10K

We need to understand the nature of our job, how easy is it to lose our job, or is it a iron rice bowl.

I consider my job an iron rice bowl job. (I traded high pay for security if you like)

Next, how cover are you and your family when accident or illness strike?

Is there any existing illness that are excluded in your H&S plans for you and your immediate family. My wife is diabetic, so there is plenty of problems getting H&S, so we need to have good shield plans as alternative.

So, if you also have an iron rice bowl, and all your immediate family are covered, does it mean you can have a lower emergency fund of 1-2 months?

I think I miss out a very important equation in my calculation until it dawns on me very strongly.

Aging parents.

With parents, I mean both your in-laws and your biological parents.

They are from the generation, whereby insurance is a dirty word, most of them, except the savvy ones will not have accident plans or H&S, when you are aware, their age is most probably too old to get H&S plans anymore(Not economic with too many exclusions)

I am young, but I am at the stage whereby I attend my friends' elders wakes and funerals rather often, some are down with chronic illness that wiped out their child savings.

Also, what about the aftermath? Even if the elders are financially independent, you couldn't be asking the windowed for money to settle the funeral or pay the hospital bills first isn't it?

Money, when it is available, is last of thing you want to worry about when tragedy struck, but is the first thing you worry about if you do not have enough of it. And trust me, when you do not have enough of it, there will be quarrels and finger pointing, shirking of responsibilities.

I know when my time comes, I want to go in a dignified manner, not with my kid/s quarreling and my wife weeping at my deathbed. I also told me wife straight in the face when she asked if I would prefer she goes first or I go first... I said:" she, because I know I can settle everything nicely for her, and I can take all the stress and emotional onslaught, whereas if I were to go first, she will have a lot of trouble, and I will have a lot of worries." She agreed.

Although both my parents and in-laws do not need intimate care now for their daily needs, we must prepare for the eventuality that the time will come, it would be good if we are able to get a domestic helper or our job allow us some time to shuttle between home and hospitals. Such is life.

Of course, we can never have enough, and soft emotional support is more important and warmth than cold hard cash. That's why we need to build our emotional wealth too, able to take each day as a blessing and all misfortune in its stride, there is only that much cash can help. But the lack of cash, complicate matters.

HPHT- Betting on Yantian to deliver

Readers would know that I have accumulate HPHT, when the price is beaten down recently. Let us look at the numbers again.

Capex

Capex for 2012 and 2013 thus far.

~598 mio HKD and 584 mio HKD

From prospectus,

"West Port Phase II has incurred approximately HK$0.2 billion in construction costs, with approximately HK$3
billion more required to complete construction., to be completed by 2015", and

"The Trustee-Manager anticipates that the total capital expenditure of HPH Trust in 2011 and 2012
will be approximately HK$1,986.9 million and HK$1,172.1 million"

Given Yantian phase 3 is completed by mid-2011, we can assume development capex is for West Port Phase 2 and they are still about 1.8 billion HKD short to complete it in 2015. (Maintenance capex is in the low of 150 million only )

At such, my preliminary estimate of 1.3 billion of capex every year is rather high. We can assume 1 billion capex barring cost overrun and HPHT can still complete the project in 2015.

Thereafter, 2015, there is East Port phase1, but there is no confirmation and HPHT has no stake in it as of yet, just general agreement to the rights to development, and not concession yet.

Capex is not such a big monster afterall.

Labor costs

I wrongly assume labor costs to = staff costs

My mistake, according to prospectus, the contract workers costs is under direct costs of costs of services rendered. Now lets work the numbers a bit.

From prospectus:

"Direct charges amounted to 50.5%, 45.1% and 50.4% of the cost of services rendered of HIT in
2008, 2009 and 2010, respectively. Staff costs for operational staff amounted to 26.8%, 34.0% and
28.8%, respectively, of the cost of services rendered of HIT for the same periods"

Assume 30% of cost rendered is staff cost, and this will face a 9.8% increase due to workers strike demand

And for Yantian, 25% of cost rendered is staff cost, and this will face a 30% increase (From figure from news)

Annualised 2013 figures, cost of service rendered is 4.4 billion, est 230 million mio increase in costs. There is about 5% increase in overall costs.

Expiry of TAX holiday- insignificant

FCF =OCF *0.65 - 1

= 3.1 billion -1

=  2.1 billion

Sustainability of good distribution is still dismayed.

The only hope is that Yantian which generates more revenue from moving O&D containers will be well-placed to take advantage in any US economic recovery, the recent PMI figure of 51.4 in china and trade figures in China for Dec also show both Imports and Exports to be improving.

In fact, due to the above mentioned better figures and the development of free trade zones(speculate to be either in Guangzhou or Tianjin) in China "Share prices of Chinese operators witnessed a sharp rebound in 2H 13. For instance, Cosco Pacific (1199 HK), CMHI (144 HK) and Tianjin Port Dev. (3382 HK) rose by 20%, 19% and 38% respectively, compared to drops of 9%, 3% and 8% in 1H 13. The Chinese economy has reacted well to the stimulus announced by the Government at the end 1H 13, which focuses on improving small businesses, exporters and railway development plans.  China’s official Purchasing Managers Index (PMI) recovered from a low of 50.1 in June to 51.4 in November, and monthly import growth has also gathered pace since its low in the middle of this year." (source: http://www.hellenicshippingnews.com/News.aspx?ElementId=f5cddf2d-26fa-4a94-a64c-3b1e29f8413b)

Yet, HPHT has fallen 14%. Although HPHT might be more expensive than its HK peers in terms of PER, the performance is too drastic, it is not just stagnant, it is falling by a Hugh percentage of 14% when its HK peers race ahead due to better numbers from China, it is as if, HPHT ports will not benefit from the better numbers. I do not think that is justifiable.  In fact, the report mention strong optimism for Tianjin Port due to the possibility of free trade zone in that area, when the guangzhou area is the forerunning to be the next free-trade zone after Shanghai, why is the optimism only absent in HPHT? I felt there is just too much pessimism in HPHT. The article always felt Yantian will benefit from better trading in US and Europe.

This is not a buy call, but a writing to crystallise my thoughts why I am still buying:

In conclusion:

1) Capex is not such a big monster since they need only 1.8 billion to finish West Port Phase 2 by 2015

2) Labor cost increase in manageable

3) Expiry of tax holiday is insignificant

4) Positive development of the broader market (Free trade zone, and improving trade numbers and manufacturing numbers)

5) Relative shares' performance compared to other china port plays. (Time for catching up after capital group finish their sell-down?)

6) Management short but 2 years record of keeping to their projected distributions. They need to distribute 22 HKD cents for 2H.

I believe 4) and 5) to be the short term catalysts.

P.S. (I am still waiting for IR reply regarding some questions on APTT, when I received it, I will blog in details about it.The second of trusts that I bought recently)

Market in correction mode- silly investor making silly purchases

The market has bee in correction mode despite the general more upbeat macro numbers both in US and Singapore. Again tapering is quoted as a result. To me, even if tapering do start in dec, it is not a bad thing if u buy sound companies.

In fact, I feel that market is just going thro a correction and tapering is just a excuse.

The recent correction have trigger several accumulation of counters.

I bought more of HPHT, and did the CD and XD thing to stretch my dividend yield for SPH. Buying back at $4 and selling at 4.24 sure beat the dividend of 15 cents. My initial purchase price is at 4.03. Haha for details,refer to valuebuddies.

I am still on holiday with family at Vietnam so will be rather slow with blog posts, I can't do serious research here too, it's tiring traveling with young kids.

But I thought I will blog about my silly impulse and the various riggers points I will be looking at should market decline further.

SPH at 3.6
Lippomall at 0.36
Golden Agri at 48c
Hpht at 70c
Nam lee at 28c
APPT 68 c

I will not accumulate sabana although it has fallen about 10% which will usually put in on my alert list. Frankly I am very disappointed with management

I might also buy more of YZJ if it goes to a dollar, but I think that will be unlikely. Lee metals is stable, dun think there is much chance for accumulation.

Do note that the above stated price is for consideration I might buy at higher or lower price or might not buy at all, if. All counters hit accumulation price at same time. I do not have unlimited ammo, although my stable job and income help beef up my war chest.

Hoping silly investor get his silly tactics right. I will blog about why I have faith in my counters when I get back Singapore

Random thoughts: Financial Freedom is a means to an end, not the end itself

(Random thoughts series have nothing to do with analysis of companies, skip it if you like)

Hmm...

What I am going to say will most properly pissed a lot of savvy investors off.

What I am going to say here is run counter to many wealth accumulation rules.

1) Delayed gratification.

Yes, I agree, but we need to make sure our love ones enjoy life if we could afford it. Loans for holidays is a NO-NO, left hand in and right hand out every month? No- No! But we do not have to maximize savings like it is a trophy to be carried home. I consider myself frugal as compare to my in-laws family who is wealthy in my definition. I consider a car a luxury and they a necessity.  I still consider a car a luxury, and have been cajoling my wife to give up the car since our son is already 4 years old. $1000 a month is too much for convenience, I always say.

Now, I have a different thought. My family deserve the luxury of a car, if I can afford it, I should continue with it. I need not worry about the rain, and we could get around places fast and comfortably. Why did I want to accumulate wealth? I want to give my family a good life. Why not do it after 10 years, when my wealth can compounded my quickly. I do not know what will happen tomorrow, I want my loved ones to live reasonably well, since I can afford it and I love them. I do not think I am irresponsible here, since I already various insurance and endowment plans to cover my death, sickness and my son university fees. It is not a lot of money, we still need to work, but I do not foresee unreasonable hardship.

2) Budgeting, track your every expenses.

I used to do that zealously  when I am a single, when I get married, I realized my money belong to my family, I can't really say no to a weekend meal out. The tracking of every expense just make me very unhappy. Now, I told my wife, calmly that I think certain expenses is unnecessary. She usually respect that. When we went out for dinner with our family, or buy something luxury in my eyes, instead of sulking about the money that could have gone into which undervalued company instead, I count my blessing that I am able to afford the small luxury for my loved ones, and be content with whatever I have. If I have to work longer, or work till the day I drop dead, I am ready, life is just too boring without work.

OK, enough bad habits from me, I am a self-delusive person, I always look on the bright side. Please, do not let me hinder your progress to financial freedom, do 1) and 2) judiciously if you can, I am content with my life and count my blessings everyday.

The difference management makes to malls

It is the school holiday season again.



I have been very fortunate enough to be spending more time with my family. But when my family enjoy their dose of food, shopping and sight-seeing, I actually see the shops and foods through an investor lens. (quite fun actually, since I previously detest shopping)

I am always amazed at how crowded the suburban capital land malls are, so I was really surprised to see the shops at SIngapore Flyer almost empty. Singapore Flyer is located at an iconic place, is an integrated part of the skyline of Singapore river, but the traffic and that area is really ... hmm.. dismal. Not that it is a ghost town, but given how densely populated SIngapore is and Singaporeans national pastime of shopping and eating, the Singapore Flyer is really under performing, and is little wonder it is on receivership.

I went on a weekend, and there is Uncle Ringo Theme rides to attract kids and family, a child ticket will entitle you to 3 free rides. I am quite excited, but when I reach there, I find the theme rides very messily placed around the lobby area of the SIngapore Flyer, the bumper cars rides are not properly set up, although the guy at the bumper car rides are attentive, the rest of the part time girls are downright rude, one did not notice my son already went into the playground, and I have to pass the ticket to her; the other rudely ask for my ticket as if I am trying to cheat on them.

I like the food court there, but the rest of the F&B restaurants really have no theme, there is paradise restaurant which is rather well-known, the rest of the restaurants are unheard of. There is an arcade, a handbag accessories shop, the place is poorly lit.

I wonder aloud, what not use the river view to set up coffee houses and bars, it should be very popular. The idea of attracting family is good, but they need more than Uncle Ringo, and please, Uncle Ringo did not even send in his main troops. Given the main attraction is not actually an attraction that will attract return customers, the side attractions become really important then. The route from the carpark to the Flyer is now a ghost town, a performing theatre can be build there, invite performers, especially those that kids like to perform there.

You need more than ad-hoc shops there to attract shoppers, I know competition is stiff in the area, but the area is actually very strategic. They should be some cross selling of  tickets or joint promotion with the hotels around the area. Beside families, the Flyer should be popular with young couples, have the highest floor for Atas dinning and prenium access to Flyer.

    

I also went orchard for my in-laws and wife to get their retail therapy. We went paragon and then Takashemaya. Paragon basement is crowded with people looking for food, and there is a good mix of F&B choices. The second level and third level are the atas shopping, with branded boutique shops and the third level is occupy by achor tenants like marks and spencer and metro. But as I go further up, the crowd really thin, in fact, there isn't much crowd in mark and spencer and there is really any customers' service experience to blog about. After I get a book from the times bookshop, I am really surprise to see "mum and pop" shops at the fourth level of Paragon. The interior design of some shops make them look like mom and pop shops and the display of goods are also cramped and haphzard. I thought:" hmm... they cater to the budget-minded too, well, the rents are expensive, how do they compete", as these thoughts were running through my mind, I pick up an Adidas polo jersey and was shocked to see the price tag of $120. Er... you want me to part with $120 for a shirt, I think the shop seriously need to do better than that. Some of the shops did not seem to have gone through screening, given the "atas" reputation of Paragon.

But when we went over to taka, it is world apart, the place is packed with shoppers, and I remark to my wife: "angry, the more expensive the good is, the more crowded the shop is", and my wife replied, "Singaporeans are rich". Well, I definitely do not belong to the rich category. There are promoters at almost every corners, every time my mum-in-law picks up a handbag, they will appear within minutes, offering suggestions, talking about the available of colors and the discount they are offering now, although I have seen more skillful promoters, I guess you have to give very high marks for attentiveness.

When we went to the basement, there are various unqiue F&B options that wet my appetite, too bad I am vegetarian today. Just when I thought it is just Taka that is gearing itself up for the festive season, I find attentive promoters at watson too, and all the casher counters are opened, and its a tuesday afternoon.

I went away with convictions that when we talk about malls business, apparently it matters to retailers who the management is. If the rent is not too much of a difference, I would set up shop at Ngee Ann City than paragon, and think thrice before I will do it at Flyer. I am not bias, because I would rather paragon do well since SPH indirectly own it.

I am looking at the retail and F&B experience through the lens of a investor, as a consumer, I am not that critical, just give me a book and a place to sit with coffee, and I will be satisfied.

GRP- one of the weirdest company I have seen

I saw a link from another blogger for GRP.

It has zero debt, and pay dividends of 2 cents since 2008, at current price of 10.4cents, dividends yield is close to 20%

What is most amazing is it generates FCF since 2008

Well, there shouldn't be FREE LUNCH, isn't it?

I decided to find out more, and I realized the reason, they have a rights cum warrant issue.

(source: http://infopub.sgx.com/FileOpen/Announcement_Rights_cum_Warrants_Issue_060913.ashx?App=Announcement&FileID=255553)



 

That they have a highly dilutive rights and warrants issue is not surprising, assuming all rights and warrants are exercised, which is very likely since the warrant has a low exercise price of 8 cents, the number of shares will increase from 139,407,200  to 975,850,400. A massive 7 times increase!

Then came then next surprise, the rights were issued at a whopping " approximately 73.3% to the closing price of S$0.300 per Share on the Official List of the Singapore Exchange Securities Trading Limited (the “SGX-ST”) on 6 September 2013  (being the date of this announcement)"

I am still sour about the 10% discount sabana offer to placement of shares, and I thought LMIR 50% discount of rights 3 years ago is historical. I think this must hold the record of highest discount offer.

They will receive about 33 mio from the rights and another 33 mio if the warrants are fully exercised. The rationale of this fund raising is due to a collaboration agreement with "MGS Resort & Entertainment Co., Ltd (“MGS”) for the purposes of developing and managing properties in Myanmar."

The details of the agreement is seriously lacking, I am a not shareholder and did not receive the circular which supposedly contain more information about the business. (any shareholder can share?) But what is the share of injection of funds? What is the share of profits? I seriously do not think GRP can get a wonderful deal, since 28 mio is not actually a very big sum, they might not be able to build any mega-projects.

But what really turn surprise to bewilderment is this chart:



 

On the day of 6 September, instead of the price falling to account for the dilution, the price actually went up from 30 cents to 43.5 cents in 9 September, with almost 48 million shares traded.

WOW! the charm of Myammar!! But on the same day of 9 September, Zhao Bingli, one of the substantial shareholder of GRP offload 5 million shares at 36.7 cents. Well it doesn't really affect the price going by the price movement over the next 2 months.

Then suddenly, as if awaken from the sleep, the stock went from 35 cents to 12.7 cents in a day, but only on volume of 9 million shares.

This company reinforced the importance of justifying quantitative data with qualitative understanding of the business.

The fabric of the company has changed. It is no longer a yield play, or no longer attractive as a yield play due to the massive dilution and pending business diversification or diworsification.

If you like a Myanmar theme play,  You have a counter with no previous track record at PE of 26 (full exercise of warrants) or 13 (No exercise of warrant), well doesn't seem too demanding if you look at Yoma and the likes. Assume distribution of 2.7 million is sustained, you will get 0.27 cents DPS.

However, it will no longer fit into my risk profile, and my goal for stable dividends. As for capital appreciation, the Hugh warrants will provide the overhang for the next 1-2 years, depending on the pace it is exercised. I will have to pass...

Sigh.... just when I thought I found a gem, when I realized there is no free lunch.

Also, even if i am indeed looking for a Myanmar play, I will most probably search further. I placed quite a high premium on  management attitude toward shareholders. I feel they are pushing the existing shareholders to a corner with their highly dilutive and aggressive discount. Also, their track records, IMO does not speak well of themselves, especially investment in the Australian gold penny stock named Aphrodite. (There is quite some discussion on value-buddies on its track record. )