Property counters - determining future earnings

Most people would have already know about the following, but for someone just beginning looking into property plays, it might be a good idea to calculate future earnings from the various projects.

Quite a number of developers are sitting on various sold-out launches 2-3 years ago. Most will start recording the earnings as their projects TOP in the next 1-2 year, as interest rate is still relatively tame, It is unlikely to see a high number of returns to developers, but you can give a 5-10% discount if you like.

Now the numbers:

1) The price sold and the number of units and whether the project is wholly owned or a JV

e.g. Lee Metals Austville (Data from sq foot, you can use free data from uRA)

 



 

 

I use the conservative average price of $700 psf and multiple it by the number of units and the smaller of unit area range. Since Lee Metals own 35%, I then multiple it by 0.35, that should be the revenue generated from this project.

Want a more accurate figure? If you like, you can do each transaction one at a time and add them all up.



I then use a margin of 20% to calculate net earnings.

Why 20%? That is the conservative estimate that I get from my comparison of projects from CES, and other property counters.

Austville is a EC development, there isn't a lot of comparisons, if you want a more accurate gauge,  look at similar development by the company in the past, look at its margin and then look at land cost.

land cost info is also available

 



 

Square foot only archive info for past 2 years. If you keep tracking for years, this will not be a issue, or you get dig URA figures.

BCA track contruction costs

http://www.bca.gov.sg/keyconstructioninfo/keystats.html

I do not calculate construction costs psf. I simply look at past margin, and the land cost and construction then to achieve that margin of SIMILAR development, then I look at land cost and construction cost now, and if info is available from sqfoot research, what is the break even price. I would then know if the margin is realistic, or conservative. I will estimate the margin and then give a discount of few percent, and then arrive at the figures.

Do it again if the developers have multiple projects.

I only look at data if the project is sold, but I do keep track of developers future development and landbank if any. When they first launch their properties, you can go to the showroom to scuttlebutt the demand or call an agent to sound him out. Similarly, you can just look at the company track records in selling the projects.

Other valuation apply too, such as gearing level, NAV discount, RNAV discount.

Basic info, hope you find it useful

 

Using 300K to buy blue chips is a fool-proof dividend investment plan???

I was talking to a close friend who was a ex-insurance agent.

He told me a potential client told him that he would not buy any Investment Link Product, and that he would use his 300k to buy blue chips, and leave them for his son, the blue-chips like Singtel, Keppel, etc give good dividends. My friend is tongue struck, and agreed.

I told my friend, things are not that simple. Of course, I believe buying in blue chips is still better than buying a nonsensical ILP, but perhaps I will not say its a fool-proof, and if there is a good endowment policy with a decent guaranteed yield (almost non-existence in current market, I had 2 from asialife 6 years back, the guaranteed yield is about 3% ), you might not have to worry about loss of capital or bad timing when liquidation needs arises.

If you buy blue chips at the right price, you are good.

But splurging 300K on blue-chips sound very much like a show-off of wealth rather than a plan, If I were my friend, I would have asked the following:

1) Are you spending the 300K at one go?

2) How long are you holding to your blue-chips?

3) What blue chips actually are you thinking of?

Buying the blue chips now yield 3-5%, take the average of 4%, it is still better than the asialife plan.

But you will be exposed to

1) Market price fluctuation, if you buy at a low price, the plan is fool proof, but some blue chips are hardly doing well. Look at SIA, NOL, golden Agri.

2) During a bear market, price can come down by half, we are not in one now, so there is no margin of safety, but if the investment is purely for dividends, and there is no "maturity", you can ride through the high and lows, then there is no risk. Hence the first and second questions are important.

3) If you buy all the blue chips in the index, you are better off just buying the index, if you are selective, are you aware that Keppel is cyclical, it is doing very well now, and is expected to do well in the foreseeable future, but if oil price collapse due to cheaper alternatives coming online, or extraction of shale oil and gas become so much cheaper, what would happen then, even if price is stable, there could be oversupply. Is dividend the only thing you are looking at? If you bought at a inflated price, you can be sure the first few years of dividends are paying out from your own pockets.

Updates on my counters- A reflection

Yangzijiang's main suppliers are steel suppliers and the engine parts supplier. Steel prices has been favorable for YZJ, although the fat margins orders of 2008 will not be back anytime soon, YZJ do not have to deal with the high steel price of 2008, maybe that partly explained why its shipbuilding margin can be still maintained at a decent 20%.

Shipbuilding orders are still aplenty, many China yards have been winning orders. I am not actually in a rush for YZJ to fill order book. I think the quality of the contracts are important as well. For example, the recent 10000 TEUs order from seaspan is of lower value than its first contract with Seaspan. Given the slots for shipbuilding is used till 2016, I believe Yangzijiang can afford to be a little more choosy.

Lippomalls next quarter report will be closely watched for currency weakness's impact on its operational numbers. If my analysis of the company is right, it should not affect the cashflow of the business, or the top and bottom line. Indonesia's import is growing faster than its exports, while the bunk of it is  due to import of energy needs, it also point to the fact that the consumerism in Indonesia is still very much alive. I read from lippo malls latest happenings (http://lippomalls.com/main/pages/about-us.html), there are new openings at Plaza Medan Fair, and there are not shortage of events at the malls, so I do hope the operational numbers bear this out. The refinancing of loan is also done at lower interest rate (too insignificant to contribute to DPU), but taken together, if DPU can improve by 10%, yield will be almost 8.8%. (Dreaming, because vested... )

One reason I bought into Lee metals is due to the big pie of construction till 2016 and the one-off Austville earnings. I believe market has not taken into account both events, but of course, there is competition risk. Steel demand is in doldrums since 2009, is 5 years now, if a turnaround is to occur, 2014 or 2015 may be a golden year where Lee metals can fire on both cylinders.

As for Sabana, sigh... Management competence is  a disappointment, but the yield is still supporting the price somewhat, lets hope they deliver on the 508 Chai Chee and fill up the spaces vacant due to the expiry of master leases. Next 2 quarters numbers will tell if the business story holds.

Namlee is another company whereby the business story has sour quite badly since I bought into it. Will wait for the full year report before deciding if I should sell.

Golden agri, I have been waiting to accumulate at weaknesses, but so far has no luck, (or should I say lucky), I will stick to my plan, since the outlook and story generally remain the same, I have no needs to accumulate at higher or same price.

 

 

Random thoughts: My unhappy experience with UOB one card

I have been using the UOB one card for about 1 year already.

I focus all my purchases on one card, to get maximum benefits. Prior to my UOB card, I have OCBC Titanium, and I spend about $900-$1000 a month, for that I usually get around $280 amount of rewards in terms of redeemed gift-vouchers.

For UOB one card, I should get $80 cash rebate per quarter, and with that about $320 cash rebate, I thought cash is more useful than vouchers and given the quantum of reward is higher, I should go for that.

Problem is, I only got $80 rebate for the first quarter, thereafter $30. 

Here is how it works, spend minimum of $300 per month with at least 3 transactions for 3 months, you get $30 rebate, if you spend $800 per month, for 3 months, you get $80, with $1500 every month, you get $150

When the telemarketer call me, touting rebate return of about 3%, I thought it is quite decent. I ask him what happens if there is a particular month I spend a lot, maybe more than $1500, but there is a month, I fall below $800, will I get the lowest $30 rebate. He says the bank calculate the average. Hmm.. fair enough for me.

Turns out, it was not true. They will take the lowest tier to determine their rebate, you can spend 1 million for 2 months, as long as you spend less than $800 in the third month, you will be entitled to only $30 rebate.

I have been getting $30 rebate for 2 quarters, I did not calculate if I hit $2400 in a quarter for the first quarter, so I let it go.

This time round, I check my accounts, I paid $1517 in July, $1058 in August and $790 in September, so I spend more than $3300 dollars, and was only $10 short of the $790 quantum, and I get back $30, my rebate is less than 1%, significantly worse off then holding on and spending on my OCBC card. 

I call the bank, told them about my experience, the customer service guy was quite polite, told me about the tier system, which I said I understand, but was told the bank take into account the spending of the quarter as an Average. He ask for name of telemarketer, I said I didn't ask. He told me he would put up an appeal for me, after I used the word "misrepresentation". 

Don't get me wrong, I appreciate the customer service man efforts to resolve my problems, and I don't really care for the additional $50 in rebate!!! I am upset because I felt CHEATED.

I have decided to cancel the card regardless of the result of the appeal. At least I can use my OCBC rewards to exchange for mooncakes to make my mum-in-law happy.

 

My stock portfolio as of 24 oct

Was wondering if I should let readers know my stock selection, and I realized many bloggers have it, so here goes.

I invest mainly for yield, and is willing to hold for the long term. I do not consider an investment a bad investment simply because the current price is lower than my average purchase price. I consider it a bad investment if the "story" I have about the company changes for the worse and I made a judgement mistake either in the business assumptions or valuations.

 

Lee metals is a small company that give higher yield, but also come with higher risk, since it's business is cyclical and it balance sheet is not actually rock solid. I expect at least 7% yield till 2014.

Nam Lee is in net cash position with projected yield of 5.8%, I will review this counter and might sell this if the next quarter confirms that it is still burning cash, and is earnings deteriorates further.

SPH is a stalwart with dividend yield of around 5%

If lippo-malls and Sabana fundamentals do not change, it should yield  above 8% till 2015 at least.

Yangzijiang would probably yield 4-5%, but with golden agri, I invested in them more for capital gain. YZJ is one of my favorite, both a yield and growth play, but not a long term counter due to the cyclical business.

Noticed I mentioned that I invest for yield, I deliberately left out the word "passive income". This is because with the exception of SPH, I do not intent to hold any of the counters for the long run, e.g. more than 5 years. I have a horizon of 2-3 years for most counters. I will review them as and when the "story" changes, if the story is getting better, it might be longer than 3 years, if not, it might be less than that. I am not dogmatic in my approach.

Do note that this is not a buy or sell call, you need to do your own research. 

I have money set aside for investing in bear market, I have several insurance; H&S, life, endowment plans, Critical illness term plan for myself and my family before I invest in the stock market. I have a stable job, and has also set aside money for my kid school needs, and other expenses before I invest. Prudence is encouraged. Take care of risk, before taking care of rewards.

I do not use my CPF for investment, I treat them as compounding bonds purchases, although I do transfer money from OA to SA. I might use it for investment only during ultra-bear market. (e.g. more than 50% fall in market, and will most probably do it tranches, even then)

Comments are welcomed. 

Random thoughts: Broadening the definition of success

Some readers might know I am in the line of education.

I make no apologies in pushing those under my charge to get the 1 mark more, the do well in exams, but most of the time, I see the process as equally important as the products. A person willing to persevere, fight against all odds, will succeeded in life even if he is not brilliant academically.

Recently, in order to take away more gadget time from my 4 year old kid, I decided to enroll him in some enrichment classes, we ask for his opinion and he agreed to go for a Art class. My wife asked her cousin kids along, to see if they are interested in enrolling their kids together. Her cousin wife agreed, but suggested another center that has exams that certified Art skills. "Please, the poor kid is just 4 years old, what art skills can you possibly hope to attain?" was my immediate reaction.

Many of my concerned colleagues and friends always have suggestions for enrichment, Sheshida (NOt sure if I got the name right), Kumon, and for older kids, learning labs, etc. I always brush them aside, I just want him to develop as and when he is ready. I might sigh him up for swimming, and Taekwondo, but not cognitive development, there will be plenty of that and rat race when he goes P1

I felt the stress at times, wondering if I am shortchanging my kid when the whole world is going for enrichment. Looking back at my life, I think the answer is a "No"

I want my kid to succeed if possible, but I want him to be contented about life and be happy more than anything else. I want him to be able to feed himself and shoulder the responsibilities of being the bread winner of a household, able to hold a job well, if that means being a doctor, lawyer or the likes, fine, but if becomes the common engineer, teacher or even a soldier, I am fine with that too.

The academic path is the mainstream path with the clearest route to success (monetary-wise ), but it does not mean other paths are doom to failures. I know of many friends who didn't do well in studies but are doing very well as salesmen, hairstylists or make up artistes.  I do know, however, other paths are much tougher in the initial years.

I study hard, and do academically well enough to go through university, but when I am out working, I suddenly realized what really differentiated the able workers from the mediocre ones are their experinces, their CCAs experiences of "fighting spirit", the volunteers work that spark the human spirit, and etc, no one ask about their grades, except me, and it proved that point that straight 'As' in work has no correlation with work competence, some with poor grades are great, of course they are great workers with straights 'As" too.

I also felt that how well one do in the future depends no less on the stake of the economy, as the more vibrant the economy, the wider the spectrum of jobs. For my kid, I am willing to accept or even tolerate FTs, over-crowding. It is a trade-off I take for my kid. For that, I am grateful that our government while far from perfect, is generally competence when economic policies are concerned.

 I want my kid to be able to take stress, and I want the current system to remain status quo, competition is there, whether or not you like it or not, I want him to embrace competition, fight hard to win, win fair, or lose gracefully. I want him to stare at competition in the eyes and fight, but if the results are unfavorable, I want him to pick himself up. Failures are just stepping stones to a more complete life. 

I do not want to give him all the head starts in life, I hope he can find his own tempo and overcome his own handicaps, if he can't, then I will help him. I won't be around all the time. 

Sound a lot like preaching? Sorry, occupation hazard. 

 

Lee metals group- more findings.

Lee metals is really getting interesting.

Here is a few more updates.

Preliminary calculations of the Austville EC contribution to EPS will be 5.2 cents, almost the whole of 2012 EPS. 

They are buying 1 Tuas Ave 8 and 3 Tuas Ave 8 and also a unit01-10 from E-center,  from NH ceramics. The purchases are pending JTC approval, and will be known by the end of this month.  The purchase price will be about $15 million. The leases of the 2 properties will end in 2027, so depreciation will be about 500k per building annually 

Lee metals intend to use the Tuas properties for the expansion of its fabrication and manufacturing segment, which is doing brisk business due to the construction boom. Its fabrication and manufacturing turnover has been increasing for years, so there might be reasons to believe that they are operating at near capacity.

If they do expect, they will also need to increase capex for machinery. They already have loans of about 193 million. They have mentioned they will use internal resources and external borrowings to fiance these acquisitions.  

So assume interest rate at the normalized 4% and increased gearing to $200 million for easy calculation, they are rolling over short term debts, so interest rate should be much lower, but that is also more risky, depending on the sources of loans (Not disclosed in AR), there is recall risk, although highly unlikely barring an heavy inventory write down due to a collapse of steel price.

4% will lead to higher interest cost of 6 million, shaving off 1.3 cents in earnings.

Accounting for the higher costs, and the increase in NP from manufacturing segment over the next 2 years, and the sector outlook, I think we can get 3 cents, 4 cents, 2 cents, and thereafter at least 1 cents of dividends in 2013, 2014, 2015 and thereafter.

China will be tacking the Steel Mills for oversupply, Singapore Land Use plan intend to add 700,000 housings by 2030, after the downtown line, there is the thomas line, the MRT lines will keep the industry busy till 2020. 

Barring the risk of economic melt down of the scale of 2009, leading to freefall in steel demand and hence prices, the downside risk in this counter seem contained.

What about entry price?

Assume the weaker mean years earning of 4 cents, and dividends of 1.5 cents, I would think 30 cents will offer good margin of safety.

Current price is also very attractive to me, as there are the Austvillve catalyst next year and earning visibility till 2015, and earning viability till 2020 perhaps. 

Excited, but will find out more before I take the plunge...