28th Birthday Edition Post - What's the next target?

This is my 2nd edition birthday post since the inception of this blog.

I turned 28 years old today. Below is a table of my 10 year projection target which I have set at the start of the journey until I turned 35 years old.

I must say things have been going pretty well this year, progressing well ahead of the target which I have set for this year (highlighted in bold). Sadly, it could have been a lot more if not for the market correction we had in these few weeks. Nevertheless, I will need to raise my tempo to reach my next target of $245K which I have planned to reach by the next birthday. With recent market corrections, it also allows me to enter the shares at a much cheaper price which gives me more than  >6% yield on my portfolio cashflow. I hope it doesn't bring my portfolio down to the $100K though!!!

Projection Target

Year	Year	Starting Capital	Cumulative Annual Capital Injection	Dividends on Starting Capital	Total Yearly Dividend Payout	Monthly Passive Income
0	1/9/2012	$100,000.00	$60,000.00	$6,000.00	$6,000.00	$500.00
1	1/9/2013	$166,000.00	$60,000.00	$9,960.00	$13,920.00	$1,160.00
2	1/9/2014	$245,920.00	$60,000.00	$14,755.20	$19,190.40	$1,599.20
3	1/9/2015	$345,030.40	$60,000.00	$20,701.82	$25,453.25	$2,121.10
4	1/9/2016	$469,594.05	$60,000.00	$28,175.64	$33,302.84	$2,775.24
5	1/9/2017	$627,460.53	$60,000.00	$37,647.63	$43,245.80	$3,603.82
6	1/9/2018	$828,572.82	$60,000.00	$49,714.37	$55,909.12	$4,659.09
7	1/9/2019	$1,085,594.23	$60,000.00	$65,135.65	$72,090.20	$6,007.52
8	1/9/2020	$1,414,705.83	$60,000.00	$84,882.35	$92,807.76	$7,733.98

 *Above excel spreadsheet was extracted from www.investmentmoats.com

So now the relaxing part. What did I do on my birthday?

I went to work in the morning, sadly. I wanted to take leave specially for today but thought that maybe I could have utilised my leave better, hence decided to go against my will.

For dinner, I went to eat a korean restaurant called "8" located at the Central. The food was great and the service was excellent. Even some of the waiter and waitresses are Korean themselves. Price is a little steep (I paid $78 for 2 persons) but nevertheless it was still a crowd which shows that something must have attracted them.

I also want to thank my wife for giving me a pencil box as a present. She knew I've always wanted a proper pencil box to put my stationery and she got it just nice for me during my birthday :D Although it was not an expensive gift, I really appreciate what she have done for me.

So that is it. I dream today and wake up tomorrow and when I do so, I live to look forward for the next 365 days to my 29th birthday. Until then, I wish everyone healthy and prosperous.

"Dream as if you'll live forever. Live as if you'll die today"

 ~~

"Aug 13" - SG Transactions & Portfolio Update"

No.	Counters	No. of Lots	Market Price (SGD)	Total Value (SGD) based on market price	Allocation %
1.	FraserCenter Point Trust	26	1.765	45,890.00	24.0%
2.	Vicom	6	4.66	27,960.00	14.0%
3.	SPH	6	3.97	23,820.00	12.0%
4.	FraserCommercial Trust	13	1.215	15,795.00	8.0%
5.	First Reit	13	1.05	13,650.00	7.0%
6.	Ascott Reit	9	1.225	11,025.00	6.0%
7.	Neratel	20	0.76	15,200.00	8.0%
8.	SembCorp Ind	2	4.97	9,940.00	5.0%
9.	Boustead	7	1.325	9,275.00	5.0%
10.	Ascendas Hosp. Trust	7	0.745	5,215.00	3.0%
11.	Second Chance	12	0.455	5,460.00	3.0%
12.	China Merchant Pacific	6	0.845	5,070.00	3.0%
13.	Noble	4	0.83	3,320.00	2.0%
	Total SGD			191,620.00	100.00%

The portfolio has gone down quite a bit from last month due to small market correction we had in the market. The portfolio was down about S$7K this month but I am not overly concerned about it as I am keeping it for income and it has served purposefully the past few years. In fact, I have taken the opportunity during the correction to load a little bit more of these shares. I've also changed the layout for the portfolio to reflect the allocation % so that it will be easier to see how heavy is the portfolio leaned towards a certain industry.

I've sold off all QAF shares at the peak of its price at $1.05 before it reported its earnings which I had expected to disappoint. Margins and EBIT were compressed heavily and the price plummeted downwards before hitting stable at ~$0.90.

I have also added more First Reit this month due to the heavy correction it has made in the past few days. I think we'll see $1.00 to be a strong support and the shares seem to be stabilised around that price now. After these additions, my portfolio has now about 48% allocation of Reits and Trusts.

I think there will be much volatility during these and next month so I am keeping more cash on hand to take advantage of any further correction.

SGX to reduce lot size potentially from 1000 to 100 to 1

SGX has announced that they are studying to reduce its lot size from the current 1000 to 100 and eventually to 1. So imagine if that were to happen, I would have owned 260 lots of FCT instead of the 26 lots I owned now :D

I think we might get a general consensus from the retail investors that they are generally favorable to this changes. This is because not only can they average down in lower amounts but for the younger investors who are interested to start in investing, this will be a good learning tools for them as they do not need to put down much capital to start with. For me personally, it will be good as well as it allows me to get access to expensive stocks in the market like the Dairy Farm, HK Land, Jardine and the banks. So instead of having to pay S$49,000 for a single lot for Jardine, I will only need to pay down S$4,900 for it.

However, is there a need to bring the lots to 1 share? I think this will increase market volatility in the market like what we've seen in the HK and US market as we will see a lot of short-term investors now entering the markets. The cost of information for the company will also increase as a result of this move. Imagine a person having to pay S$4 for a single share of Starhub. From the company's point of view, that person with the single share will still be considered a shareholder and will be eligible to vote in the AGM. Hence, from the company's point of view, it is not advantageous for this to happen.

Well, we will never know when will this happens. My view is probably that this will not happen and they are only at the beginning stage of consideration. When it does, I am sure there will be more costs involved that will outweigh the benefits.

Is this the end for REITS?

News of Quantitative Easing (QE) tapering from the FED are getting stronger day by day as we see plenty of retail investors who start to worry about the possible rise in interest rates. Economists and Analysts are cautioning investors to watch out for Sept 17 where more than 65% believe that it will finally be the day the FED is going to reduce its bond buying purchase and increase interest rates. Will this be the start of funds outflow from the traditionally strong equity and property markets into a safe heaven US dollar and Gold? And how will this impact REITS - a market which has enjoyed much capital appreciation for the past couple of years.

Well, the market can be irrational in those moments of madness. And in these moments the likelihood is that the prices for REITS will go south. But does interest rates increase means the end for REITS? I personally don't think so. In fact, I feel it is a good chance, especially for investors who has missed the previous buy-in to go long on REITS cautiously in order to provide a greater yield boost to the portfolio. So in this exercise, I have listed down the REITS - each divided into individual sectors - by a couple of matrix: NAV, Gearing ratio, Effective interest rate (cost of debt), Interest Coverage Ratio and Yield.

Amongst the 5 matrices listed, my favorite when choosing for REITS are the Gearing, Cost of Debt and Yield. I am not a big fan of the NAV and Interest Coverage Ratio as their ways of calculation may differ company to company. For instance, some may calculate the Interest Coverage Ratio by using EBIT/Interest costs while another uses the Net Property Income (NPI)/Interest Costs. Both methods will result in different outcomes which makes it difficult for comparison purpose. Also, some REITS may also include one-off items in its interest costs such as early redemption fees on Notes borrowed etc hence making it unfavorable for comparison. Nevertheless, it is still a good tool as it gives us an overall indicator of the ability of the company to repay its interest costs. The higher the ratio obviously indicates the better they are in paying off their finance related costs.

Retail Sector

Retail Sector	Current Price	NAV	Gearing (Debt/Assets)	Effective Int. Rate	Int. Cov Ratio	Current yield	Fwd yield
CapitaMall	$2.00	$1.68	34.9%	3.40%	4.2x	5.07%	5.45%
CapitaRChina	$1.42	$1.42	23.5%	2.58%	9.1x	6.70%	7.04%
FrasersCT	$1.87	$1.54	30.4%	2.72%	6.3x	5.88%	6.00%
LippoMalls	$0.48	$0.57	24.2%	4.93%	4.1x	7.50%	7.91%
MapletreeGCC	$0.92	$0.95	41.5%	2.00%	4.2x	5.87%	6.40%
Starhill	$0.81	$0.88	30.3%	3.03%	5.3x	6.17%	6.17%
SPH Reit	$0.98	$0.89	27.3%	2.20%	-	5.12%	5.32%

Retail sector is one of the most resilient sectors in the Singapore REITS market. Most of the retail REITS are backed by strong sponsors who managed to obtain low costs of financing for its REITS. Recent IPOs REITS - MapletreeGCC and SPH Reits stand out for me in terms of their extremely low costs of financing, at 2% and 2.2% respectively. CapitaRChina numbers looks very even in terms of the gearing, costs of debts and yields. This could be the dark horse which I might add to my portfolio should retail REITS plummet downwards.

My Pick: CapitaRChina

Industrial Sector

Industrial Sector	Current Price	NAV	Gearing (Debt/Assets)	Effective Int. Rate	Int. Cov Ratio	Current yield	Fwd yield
AimsAmp	$1.45	$1.50	25.4%	2.80%	4.9x	7.58%	8.27%
Ascendas	$2.28	$1.94	28.6%	3.09%	5.7x	6.32%	6.67%
Cache	$1.15	$0.96	29.2%	3.48%	6.3x	7.57%	7.83%
Cambridge	$0.66	$0.67	35.8%	4.01%	4.6x	7.88%	8.48%
MapletreeLog	$1.09	$0.92	34.0%	2.40%	6.6x	6.42%	6.60%
MapletreeInd	$1.36	$1.11	35.8%	2.40%	7.0x	6.84%	7.13%
Sabana	$1.15	$1.06	37.1%	-	4.2x	8.35%	8.26%

The Industrial sector's trend looks to be going downwards as probably seen from the relatively higher yield compared to other sectors. I have been contemplating about getting Cache and Ascendas but their costs of debts look to be on the higher side as compared to the MapletreeLog and MapletreeInd. In addition, most of them are on the relatively higher side of the gearing. Since this industry is facing some headwinds, the probability of prices falling is greater than other sectors. I will be picking up counters when the yield become enticing to my portfolio cashflow.

My pick: Cache

Commercial Sector

Commercial Sector	Current Price	NAV	Gearing (Debt/Assets)	Effective Int. Rate	Int. Cov Ratio	Current yield	Fwd yield
CapitaComm	$1.40	$1.65	28.9%	2.80%	5.1x	6.45%	6.45%
FraserComm	$1.24	$1.45	39.5%	2.80%	4.2x	7.13%	7.37%
Keppel Reit	$1.23	$1.27	44.2%	2.16%	4.8x	6.37%	6.45%
MapletreeComm	$1.16	$1.07	40.8%	2.22%	4.8x	6.03%	6.17%
Suntec	$1.57	$2.04	36.5%	2.68%	3.4x	5.80%	6.11%

The Commercial sector is on the trend up. I am liking this sector due to the recent economic pick up which translates into higher rental yield for these REITS. The gearing is certainly on the higher side for the commercial sector but forward dpu looks to be the most potential in increasing its payout. With revising rentals to come in 2014, I don't think they will proceed with any acquisitions just yet and hopefully that means no raising of equity in the near term.

My Picks: CapitaComm/FraserComm

Hospitality Sector

Hospitality Sector	Current Price	NAV	Gearing (Debt/Assets)	Effective Int. Rate	Int. Cov Ratio	Current yield	Fwd yield
AscendasHT	$0.80	$0.77	35.4%	2.90%	-	6.75%	7.00%
Ascott	$1.25	$1.36	40.2%	3.10%	4.2x	7.15%	7.28%
CDL Trust	$1.58	$1.60	29.7%	-	9.0x	6.90%	7.03%
FarEastHT	$0.87	$0.96	29.3%	2.20%	9.1x	6.61%	7.12%
OUEHT	$0.88	$0.90	33.2%	2.80%	-	7.30%	7.40%

The hospitality sector is currently on a falling knife trend. It is falling so fast that the yield is almost all back to 7%. This is a cyclical industry and when the right time comes, this would be a great place to put your money in. I like the low gearing and low costs of financing for FEHT as compared to others. It is definitely in my radar right now.

My pick: FEHT

Healthcare Sector

Healthcare Sector	Current Price	NAV	Gearing (Debt/Assets)	Effective Int. Rate	Int. Cov Ratio	Current yield	Fwd yield
First Reit	$1.18	$0.90	33.4%	-	7.0x	6.40%	6.80%
ParkwayLife	$2.32	$1.55	31.2%	1.52%	10.2x	4.75%	4.75%

The healthcare sector is the most defensive of all sectors, given their nature of business. Plife has the lowest costs of financing and highest interest coverage ratio and it can be seen from its lowest yield payout amongst all other REITS. If Plife can yield above 5%, I would not hesitate to pick it up.

My pick: Plife

What about you?

What do you think will happen to REITS when interest goes up?

Dividends for Aug - Reaping the fruits from the golden tree

It has been an overall fantastic month for Aug for me as I continue to reap the benefits from my golden tree - DIVIDENDS. For the month of Aug alone, I will be receiving an amount of S$3,919.50. I think this is by far the biggest contributions from dividends I have received in any single month.

 

 

 

I'm extremely pleased to say that the rewards have certainly paid off though slowly but not the least after couple of years of hard work and perseverance.  This is the best form of passive income with me doing very little work but achieving big results. 

 

Even though the journey has started for me, it is the daily habits in my everyday life that has brought out the positives in me. I hope this will continue to be a form of motivations for investors who are seeking to start on earning passive income :)

Counter	Dividend (S$)
SPH	1,080.00
Fraser Centerpoint Trust (FCT)	712.50
Vicom	480.00
Neratel	400.00
Ascott	367.00
Boustead	350.00
Fraser Commercial Trust (FCOT)	240.00
2nd Chance	204.00
First Reit	86.00
Total	3,919.50

Ascendas Hospitality Trust (AHT) - A Bad start to the new FY2013/2014

I was tempted to originally do a write-up on Vicom after it releases its Q2 results today, but upon looking at AHT Q1 results, I have decided to pen my thoughts on this instead.

There is only one word to conclude the Q1 results: BAD. AHT has actually registered a S$7.5M loss for the quarter compared to the forecast of $1.1M profit it has on its prospectus. The majority of the losses was due to the foreign exchange loss related to the revaluation on its AUD and JPY which contributed almost $15M on the negative. As a result of the loss on the revaluation, NAV has dropped from $0.83 to $0.77. In my opinion, I find it surprising that for a company's earnings that is so dependent on its overseas business, it does not hedge its currency against AUD and JPY. 

Excluding the foreign exchange effects, Gross revenue and Net property Income (NPI) were $48M and $17.1M respectively and they were still somewhat 7% lower than the IPO forecast it has in its prospectus. The lower reported figure was due to increasing competition and rising supply, leading to a lower rev/par for the sectors in general. Looking at the recent fellow hospitality sectors like Ascott, CDL Trust, FEHT and now AHT, it looks like the hospitality sectors are facing headwinds and it is not the sector you would want to be at the moment.

Another worry which I had for AHT was that the current yield of 8.6% was due to the 100% distribution the management had promised to give out until Mar 2014. After that, the company is only needed to give out at least 90% distribution which I think they will. This means that the yield will drop to 7.7%, a level which is uncomfortable for me being a highly concentrated "overseas" business.

If there are any comfort for AHT, it is that the new acquisition Park Hotel will contribute massively (almost 23% of earnings) into AHT earnings for the next quarter. This will help to mitigate the lower earnings it receives from its overseas business.

Market has entered into a long weekend so investors can take a breather for now. I do foresee a massive dropdown in AHT come next Monday when market re-opens. With NAV at $0.77, I will not be surprised if it drops to that level. For me, I will evaluate my options on this within the near future.

Neratel - "Solid" Q2 2013 Results

As expected, Neratel delivered a strong set of Q2 results, mainly due to the negative goodwill arising from the acquisition of the remaining 70% equity interest in associate.

 

 

On the operating segment, the "Telecommunication" business delivered strong results with a 75.5% increase yoy in the turnover due to higher sales of the microwave radio equipment in the Wireless infrastructure network in the MENA (Middle East and North Africa) market. The "Infocom" segment disappointed in the quarter due to lower sales in its network infrastructure and Payment Solutions (POS). The overall operating business segment remains stable year on year and I just had a feeling that they have yet to deliver the growth investors are expecting in Neratel.

 

Management has indicated that the outlook remains stable but with keen competition along its main core business. OSK has published a report earlier stating that the management has expected the group to increase its profits by 3-fold within the next couple of years. The expectations for Neratel are certainly going to be up there with a new management in charge and they will need to deliver especially given the strong run-up in its share price in recent months.

 

Neratel has issued a 2 cents/share dividend for the year ended 30 Jun 2013 and will certainly provide the support it needed in the next couple of weeks. Strong balance sheet, strong cash flow and a good management. But the question remains on whether the company can evolve to make a breakthrough in its core business.

Experience vs Intelligence

I came upon this diagram on the net and was discussing with my wife. Which of the two is more important: Experience or Intelligence.

 

Based on the diagram, intelligence without experience equals to "knowledge". This is a typical student traits. A student who learns and knows the theory on the back of the head but have no experience in real life situation.

 

On the other hand, experience without intelligence equals to "information". This is similar to a typical information center we find in shopping center. They would know if you ask them questions within the boundary of the information they know. Beyond that, they would be unable to think out of the box and give you a satisfactory answer.

 

Ideally, it should be a balance between the two. Experience combined with Intelligence equals to "Wisdom" - a comprehension of an optimum judgment of action coupled with insight. This is where everyone should aim for.

Is this new investing strategy worth the effort?

I'm just thinking aloud of the recent patterns I've noticed in the pre and post Ex-dividend strategy for the past couple of months. I've personally known of people who trade shares just before a company announces its results. While the results may go either way, a certain level of predictability is required to mobilize its randomness.

 

 

 

What I think is more predictable is not trading shares before a company announces its results but rather trading shares before a company goes ex-dividend. As we might already know in a perfect market theory, the share price of a company will usually drop in price by the amount of the dividends paid on the day it goes ex-dividend. For instance, SPH closing price on the 31st Jul 2013 (a day before the company goes ex-dividend) was S$4.40. When it goes ex-dividend the next day paying out investors the special 18 cents dividends in the process, the share price should theoretically fall to S$4.22 (S$4.40 - S$0.18). But SPH price fell to close at S$4.17 on the day it goes ex-dividend. That is a difference of the extra 5 cents per share.

 

SPH is of course not the only case which reacts that way. Other stocks in my portfolio such as Ascott, FCT and FCOT and almost many many others all had the same "fall more than dividends paid" syndrome which makes me thinking aloud whether its worth the effort to sell on the last day before it goes ex-dividend and buying it again on the very next day when the stock has gone ex-dividend. Note that this practice will need to be consistent on whether the stock price has ended up lower or higher the very day it has gone ex-dividend. So regardless of the situation, you will still go ahead to buy the shares. The only consideration is whether you are taking the dividend early (capital gain) or dividend later . In a country like Singapore where capital gain is not taxable (unlike US), this strategy might make sense after all.

 

Another advantage I can think of is the idea of time value of money. Dividends are usually paid to investors a few weeks later after it goes ex-dividend. By using the above strategy, you will reap the "dividends" earlier by that few weeks.

 

The only disadvantage is probably the commission you will need to pay to your broker by trading in and out. But if you are trading in large lots or via SCB, then this will almost be a negligible cost factor to consider.

 

I'm just thinking aloud to see if anyone has done this strategy before and it is more beneficial to do it this way. If you do, please share aloud.