Friday, September 19, 2014

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.

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