A query of my post about SGX

Dear readers,

I receive an query email from a reader. I think I need to explain myself. When I write, I am thinking aloud and I do not proof read that many times.

So I might be confusing at times, or it could be due to my command of the language. ( I am better at Chinese than English)

The query go like this:

Actually, i have a quesiton regarding your analysis out of interest sake. I am an investor myself. You calculated SGX intrinsic value to be $4.2 and the current price is $7 (6.8 now) and yet you call for a Buy. Why would you buy when intrinsic value is below market price?

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Of which this is my reply:

Oh no, am I so misleading?

In short, what I am trying to say:

1) intrinsic value of 4.2 is based in very conservative assumption of 9% discount rate and 3% growth.

2) but working backwards for SPH, for its price to hover around $4. It is a trading at discount rate of 6% and 3% growth.

3) if I use such lofty assumption for SGX too, intrinsic value then is $8.4 and applying 20% margin of safety, we get 6.8. So perhaps we have now a fair value of SGX.

4) I question if indeed monopoly business is worth so much, or so high a valuation.

5) in short, I think it might to worth accumulating if SGX start trading between 4.2 and 6.8, especially if market correction allow a good sale, say $6 or less.

Hope that's clarified.

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In short, I dun have a buy call for SGX. I do think it is worthy to take a close look if the price continue to head south.

Personally, I will be very interested to buy if it get closer to $6. I am willing to pay fair price, if it goes lower than that, I accumulate.

Anyone, feel free to pop questions or point out any errors/ or confusing parts in my blog by leaving a comment.

I am no guru, but I give honest answers. If I made an mistake, I will admit it.

I thanks the reader for pointing out the possible misleading part.

Have a good start to the Horse Year, may your shares price gallop north

Happy Lunar New Year

My favorite.. Happy new year, may all your wishes come true

What price monopoly?

Readers would have know I have been practicing DCF model just to get a "gut feel" of the valuation of the price.

SGX caught me attention when it went below $7.

So I took the average of 268 mio of FCF over the past 7 years (any earlier before meager would be meaningless), to work the sum. I thought 9% discount rate and 3% growth would be prudent and reasonable.

Turn out without applying MOS of 20%, its intrinsic value is $4.2.

That would be a yield of 6.7%, PE 15. Any serious investor would know its a screaming BUY!

I though no matter how I play around with the numbers $4.2 is really far from the $6.95 a day ago, although before calculation, I thought I would try my luck at $6.9, but decide against it.

result, it did fall to $6.9 today, but rebounded to close at$7.

Then I remember for SPH to trade at $4, it also commands lofty discount rate of only 6% and growth rate of 3%.

I thought SGX is a better company than SPH, in terms of predictability of business, yes it is cyclical, but trading volume is at the bottom, and the derviatives arm offer some hope of growth, upturn of sentiments offer hope of growth, increase penetration rate of retail participation (most difficult), will also offer some possibility of growth.

I key in 6% discount rate and 3% growth rate, and I got $8.4 intrinsic value and when apply a discount of 20%, it is $6.8.

Apparently the market deem it reasonable valuation.

SGX and SPH are both currently enjoying monopoly status in their respective market.

My doubt is, is a monopoly really worth such high lofty valuation?

I bought SPH at $4, but refused to buy SGX at $6.9, am I mad? Of course there is a 1.5% yield gap.

I will be watching SGX closely, in case Mr Market decide to give a wonderful discount. Although I felt it is highly unlikely.

Random thoughts - feeling nostalgic

The MV images still manage to tug some strings... Which version do you like? i still like the orginal（first）, got 烟酒味，沧桑感。

http://www.youtube.com/watch?v=4A9f54sILHk

http://www.youtube.com/watch?v=AEMfXBZHlio

BO liao? Chill... As the market go down, stay cool. =P

Sabana REIT- misjudgment of management, what to do next

In my earlier posts, I overestimated the management of sabana.

They had make acquisitions that are yield accretive with decent yield of 6-7%.

They have a performance fees structure that will only payout performance when DPU increase by 10%. If DPU increase 10%, I seriously do not have problem with them claiming their due rewards.

But alas, it's quite obvious the management interest are not aligned with the minority shareholders and the capability is questionable too.

First, a placement that dilute existing shareholders holding, to buy a half vacant AMD building.

The results:

Pathetic increase of about 3 million gross revenue income that is matched by 3 million increase in property expenses, due mainly to the fact that Chai Chee property is a multi-tenant lease and 5 other become multi-tenant when the master lease didn't renew master lease.

So it is very obvious that sabana is not able to exact good rental revisions even when it now operate a multi-tenant lease.

Also base management fees an trust fees will increase, due to the increase of asset valuation under management.

"Good job", doing nothing would be far better than doing a expensive placement to buy an half vacant AMD when the industry space will see more supply over the next few years. Again it is quite clear that management would muddle along to squeeze more fees out of these value destroying exercise. They also also immediately cash out on their units in lieu of payment. Not interested in holding longer term.

So, what should I do?

It is definitely not a buy. It is a sell? Well, if u bought at 80 cents and is sitting on nice profits, it might be good to lock in profits and search for better options too.

It is sell even if its at a loss? Can they further destroy within the next year?

Well, I just need to collect this dividend and the next to break even if the price can be kept at 1.065.

Logically, I should hold. But the price might tumble even more. They have refinancing this year, and over the next 3 years. Would they do something stupid again?

To be fair, they did managed to increase the sub tenants by 5 over the last 3 months.

I think barring a increase in vacancy rate, the current yield of 8% is safe for the year.

I will hold for the time being. There is no attractive alternative that I can buy anyway either for yield or capital gains, at least not now.

Random thoughts- why are the young competing with the old for units at retirement village

I read with bewilderment that there are those in 20s and 30s buying units at the retirement village, the first in Singapore. All the 281 units were sold out within hours.

I am not sure if those 20s and 30s are shopping for a unit for their elderly. If they are shopping on behalf of their elderly. I would say they are quite sweet in providing lodging for their old.

I am not sure if there are rules to check the age of occupants.

My logical thoughts are: maybe there should be a minimum age of at least 45 of 1 occupant. 60 years lease, so they will be 105 years, possible but unlikely. Anyone younger might outlived it.

Second, the brisk demand will push up prices, is there resale restriction? It will be indeed very sad and unethical if a young flip the property for a profit at the expense of a old, regardless how rich they are. The real rich won't buy a unit there anyway, it's meant for the well-off but not filthy rich. Why would a young need those medical services at their doorstep?

Developer should not worried as the underlying motive is profits, but if the rules are not robust enough, shouldn't the regulator, MND be concerned?

Random thoughts- strange how my preferences change so much with age?

I just realized my taste and preferences change a lot.

I listen to FM 88.3 now, and pay a lot of attention to the lyrics and the instruments behind the music. I used to just like the rhythm and the "feeling" behind it.

I loved to go KTV and sing, now I just like listening to oldies. Would u believe if I tell u I actually went youtube to listen to Michael's smooth criminal again just last month.

I used to find music boring, I needed pop songs. I like the sing of flute and string instruments now. ( I dun even know what it is called, nope it's not violin, it is bigger, Chairlo??). I say I listen and enjoy it, I didn't say I know how to appreciate it.

During my university days, there is a module on Chinese philosophy, I really enjoy that, It broaden my perspectives. I however really read it to ace my exam, I didn't touch them after the exams. Now, I actually google dao de Jin to refresh my memory a few days ago. Some phrases which didn't make sense suddenly make some sense to me. I even read in details one chapter today, but I realized my understanding differ that of the translation and explanation quite a bit.

Hmm.. It is my age or the investment journey?

What is the most precious commodity after kinship and health? Time.

Live and appreciate the present now.