Recent Action - Ho Bee Land

What a month it has been. Volatility in the market has provided me with significant opportunities to add into the market into some of the great companies I've always wanted to own. This week, I accumulated a position in Ho Bee Land for another 5,000 shares at a price of $1.95. This is on top of the earlier position previously being added last month.

This is a company that has absolutely top grade assets in cities that are booming in real estate. Other than the development properties they owned in the Sentosa island, they have also recently ventured into the UK building up their investment properties portfolio that has now ballooned to over $2.6 billion. 

Earnings

As previously mentioned, in view of the poor market sentiments of their development properties in Singapore, Ho Bee Land has in recent times shifted their strategies into building a solid recurring income from its investment properties. The move started off with the purchase of strategic investment in Metropolis at Buona Vista before further venturing into the other investment properties in the UK, a location familiar to Mr. Chua. Given how the UK pans out differently from the other Euro countries in the region, the UK pound has actually gained momentum and strength which could play in their favor. Time will tell if the investment he made can be as astute as what he did with the Sentosa early in those days.

For the development properties in Sentosa they owned in their books, they will not be subject to the penalty unlike developers who had to clear their inventories within 2 years upon TOP. As market sentiments are currently poor, the company have instead turned these developments into recurring income which will continue to contribute to their bottomline while waiting out for the cycle. The company is also unlikely to take an impairment to their development properties in Sentosa because the management has guided that it is still way above their costs.

Trailing Earnings per share (EPS) from the last year investment properties portfolio stands at 7 cents/share for the full year, and with the other few recent acquisitions made in relation to at least 4 properties in the UK, the forecasted forward EPS coming in from the invesment properties alone is expected to increase to 10 cents/year.

Since this is not a reit in play, investors should not expect significant payout from the earnings. Last year, the company issued a 5 cents/share dividends to the shareholders and I am expecting this year to be a step better at around 7 cents/share. Do note that this is dividends paid out of their cashflow and they have no income support trick used by most reits.

Next year is a big year for them. The company have development properties that will go TOP in countries such as China and Australia, and they will recognize profits which will be booked. Profit margins based on past projects indication are at a high 60%, so we can expect the same contribution this time round.

Recent UK Acquisitions

Balance Sheet

The company has aggressively leveraged to increase their recurring income strategies by buying many investment properties recently. Their gearing, after their last round of acquisitions stands at 0.56, though interest coverage shows that they can easily cover their interest expense for this.

Their cash equivalent in the books remain low so I actually foresee the management to stretch their strategies by recycling capital to an SPC which is an vehicle arm for setting up a Reit. This has never been mentioned from the management itself but I'll be surprised if this is not in their agenda.

The current book value is at $3.90 while the RNAV is at $3.83.

Comparison with Other Developers in Play

Amongst all the property developers under my radar, Bukit Sembawang and Wing Tai have the strongest balance sheet with a net gearing of 0 and 0.10x respectively.

Wingtai offers a compelling play on its discount to their RNAV though earnings are going to be very weak and slow in the upcoming few quarters.

OUE is another developer that offers a compelling exposure into their commercial and hospitality industries by having two vehicle arms in OUEHT and OUE Commercial that they can easily recycle their capital to. They are also the developer that offers the best play for special dividends, especially with the recent ORP assets being injected into OUE Comm.

Final Thoughts

Projecting a 7 cents/share dividends, I am looking this a 3.5% yield return as dividends with a terminal growth of 2% to its NAV every year. The yield may look unenticing to many yield investors out there but this beats many Reits with over valued proposition out there. I am not biased in this statement because I happened to own both CCT and OUE Commercial to know what I am saying and comparing.

This remains a slow ride for those who believes in the astuteness of Mr. Chua in repeating what his feats once again.

"Sep 15" - SG Transactions & Portfolio Update"

No.	Counters	No. of Shares	Market Price (SGD)	Total Value (SGD) based on market price	Allocation %
1.	Vicom	8,000	5.90	47,200.00	14.0%
2.	China Merchant Pacific	45,000	0.91	40,950.00	12.0%
3.	Kingsmen	37,000	0.79	29,230.00	9.0%
4.	Accordia Golf Trust	22,000	0.64	14,080.00	4.0%
5.	Stamford Land	30,000	0.49	14,700.00	4.0%
6.	Ho Bee Land	6,000	1.95	11,700.00	3.0%
7.	Fraser Centerpoint Trust	6,000	1.86	11,160.00	3.0%
8.	CapitaCommercial Trust	8,000	1.33	10,640.00	3.0%
9.	IReit Global	16,000	0.65	10,400.00	3.0%
10.	Nam Lee Metals	35,000	0.28	9,800.00	3.0%
11.	ST Engineering	3,000	2.96	8,880.00	3.0%
12.	Silverlake Axis	14,400	0.54	7,776.00	2.0%
13.	Dairy Farm*	1,000	0.85	8,591.00	2.0%
14.	MTQ	7,000	0.50	3,500.00	1.0%
15.	Warchest*			100,000.00	30.0%
	Total SGD			328,607.00	100.00%

 

 

September continues to be a very adventurous month after a continued run of purchasing that started in early August.

 

The world seems to be getting gloomy as each day past and we have seen sentiments going the other extreme way to being cautious and nervy. It feels strange that we don’t see these hype of sentiments when the market was charging on and on just the past 2 months or so. These macroeconomic noises are mostly a distraction in my view. I have heard numerous times by now that we will soon be seeing a collapse in the stock market soon due to weakening of the global economy and the tightening of the interest rates. People tend to forget easily that the economic runs in cycle and these are things that should not be a surprise when it comes to you.

 

On a personal note, savings was great in the past month which allows me to have more room for income that can be directed to owning great businesses over the long term. For this month, I have continued my aggressive activities by purchasing (or accumulating) Kingsmen, Dairy Farm, Ireit Global, Ho Bee Land, Stamford Land and FCT. For the details of these purchases, you may refer to “My Recent Transactions”. Some of these purchases remains part of my accumulating strategy over a few batches so the investment thesis remains the same to what I have previously discussed. I have also exited on FEHT and OUE Commercial as part of my short term trading strategy to take advantage of the recent run up, gaining a relatively good 7% and 17% gain but meagre in absolute amount.

The equity networth has gone back up from the previous month low to the current month at $328,607 due to the recent bounce back in the market. It appears that it is still early days so I won’t put too much concentration on where the networth is going to end up at the end of the year but rather focus on where some of the value might be at. In any way, these are investments that are meant to fund my retirement and possibly going into the next generation, so the horizon is much longer than what the economic cycle can threaten. Having said that, it is important to review each investment merits on a constant basis to ensure the thesis does not fade away with the fundamentals.

 

So there it is. They are a step closer to the goal and each month I do look forward to more volatility in the market, especially when people are shunning the market or paying too much attention to the macro news which I deemed as noise, that is when I will continue to look for more value in the market. Janet Yellen having meeting the next 2 days? Really? Do we need to pay too much attention to it? Don't we as investors already know that interest rates can only go up from here?

 

How is September doing for your portfolio? Are you a step closer to your goal?

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Life Events From Surviving The 20s‏

It has been a bittersweet ending approaching the end of my 20s as I look back at the past decade and saw many things in life that made me who I am today and beyond.

 

As I move towards a brand new modern theory age of the 30s, I tried to look back at the things I have done, failed and accomplished in my 20s and the lessons learned on the self-reflection which could help many young readers approaching the 20s in their life journey, if it helps.

 

 

 

 

For the purpose of this self-reflection, I will draw reference to my very own experience, which may or may not be exclusive and/or different from anyone reading this.

 

1.) Time Is Your Best Assets

Time is essence and aplenty when you are in your 20s that at times there could be many dull moments just looking at it going pass you each day.

 

I completed my studies and started working at the age of 22, accumulating savings to pledge them into a system I had in my mind. It was clear right from the start that I needed to build some sort of system that would best maximized my time on a compounding return and the option back then was many, though most didn’t really work out at the end of the day.

 

I started investing properly in the market only at the age of 25 and I can immediately see the benefits of how time plays a big factor when you are in your 20s and there was simply plenty of head start to compound your returns over time.

 

2.) Experimenting Failures

 

On top of experimenting failures in the stock market, I also experienced many job experiences and stretched my human assets potential that best reward me in terms of career progression and enhancement.

 

While some of my colleagues are shying away from asking for raises or trying out other jobs which could lead to a better outcome, I was constantly looking to aggressively move up the ladder and working in a smart manner. While some of the career move did not result in a successful tenure than what I had imagined, it proves to be a fruitful lessons as I attained both experiences and an unexpected pay rise from the company I was at. Again, the idea is to experiment and push yourself to a limit when you are in your 20s because that’s the time you had little commitment on your plate than if you are in your 30s. For example, I would hardly experiment on something like that right now because of my commitment at this stage in life.

 

3.) Upgrading Yourself

 

Even though one may argue that constant upgrading and education is a lifelong learning, but I would prefer if it was done when I am in my 20s, especially when my career is still taking off from the ground approaching the top.

 

I decided to pursue my MBA about 2 years ago when I had to work full time in the day, classes in the evening, and bottle milking in the dawn. I can tell you that those moments were so tiring that for most of the time I had almost given up hope. Thankfully, the energy level was still at the peak when I somehow managed to combine all the activities together and most importantly it was over by now. I wouldn’t be so sure if I would have done the same if I am 35, though some of my classmates were in their 30s.

 

4.) Embrace Relationship

 

You probably will get to know most of your lifelong friends when you are in your 20s, either through a party night event, evening classes or dinner gathering.

 

You probably will also get to meet your other half during this period, where romance embraces spiciest during these puppy love period.

 

I decided to form a family in my late 20s, ensuring financial and mental stability prior to the decision so that things are better taken care of in the later stage. There are probably some who feel that it's better to form a family as you grow older, but delayed gratification will even out the game for those who started young.

 

It is never the importance of the age in this regards that matters but rather the importance of embracing relationship when the right time arrives.

 

 

Final Thoughts

 

This is probably 4 of my biggest life events that mark the most part of my 20s, which I also thought form the majority part of my entire life events, if any.

 

Looking back, there are plenty of fond memories to be remembered, and mistakes to be learned.

 

Starting a new decade of 30s, this will be an important life events as I will attempt to survive the next decade.

30th Birthday Edition Post - The Big 3 Is Finally Here

Finally, the time for the big 3 is here as I bid farewell to the 20s of my life.

 

I turned 30 years old today and as part of the customary edition of the annual post, I usually tried to review part of my finances as a comparison against the target I have set for reaching financial freedom at the age of 35.

 

For the past couple of years edition, I have provided the short link below:

29th Birthday Edition Post - What's the next target?

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

27th Birthday Edition Post

Financial Freedom 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

For those who are new readers of the blog, the above is a projection target which I have set very much earlier when I started the blog almost 5 years ago. This represents a goal which I am keeping track of myself each year to gauge where I am standing in front of the big target.

 

As you can see from the latest portfolio update I did for the month of Aug (See Here), I am very well behind the target of $345,030.40. I spoke a few times about the difficulty in achieving the target for this year because of more family commitments but I'm not giving up the hope yet. The market for this year is also mostly down which brings about relatively unreasonable assumption that it will go in a straight line upwards. Having said that, I am silently confident that if the market represents some compelling opportunities in the coming months ahead, I might be able to nudge the goal well ahead for next year. I'll be keeping my finger cross for this one.

Birthday Celebration

On a slightly lighter note, I treated myself quite a bit of presents these few days.

 

First off, my Dell 5423 laptop which has served me well throughout my MBA days, has gone shut right on the day of my birthday. Given that some of the components are a little weary after using it for some time, I think it's a good time to have them changed and today I bought a new Acer V3-371 at Best Denki at a price of $1,198 after promotion price, with a very good specs of i7-5500U, 16GB memory drive and 240GB SSD, which compares very well against many others with a higher price.

Second, I also bought myself a new Adidas running shoes after tearing the front for my current one. Having a new shoes definitely pushes the motivation to exercise than having a hole-in-the shoe to run. I spent about $148 for this one at an adidas store after finding the Nike running shoes much more expensive.

Third, I also treated my family to a presumptuous dinner at Tung Lok Private Dining at OUE Tower, which allows diners to enjoy a revolving full panoramic view of the whole Marina Bay Sands and Fullerton area in full sight. Of course, I had to choose the place because I am recently vested in OUE Commercial and had to support them :D (just kidding).

 

The course dining for the weekends was having a promotion at $80++/pack for a 7 course meal, which I thought was well worth the value because of the ingredient of the food used and the private dining experience.

And of course, a fun filled companion with family does complete the celebration, though I do wish my Dad, Sister and Little Kiddo were here to celebrate the event as well.

So that is it. I will be starting my 30s journey from now on and I am exactly 5 years away from the financial freedom target. It'll be a whole new experience and I shall end off with a quote I have always used.

 

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

                                                                                ~~

 

Oh, do you know that my birthday also happens to fall under the same birthday as the great legendary Warren Buffett? Just saying, HAPPY BIRTHDAY Warren too :)

Recent Action - Noel Gifts International

The bloodbath today in the STI market has given everyone plenty of things to think about. However, in the midst of a red market, I managed to divest my holdings in Noel Gifts International at a price of $0.34, a 15% gain from the entry price.

This was on the back of an experiment done when I decided to enter in Mar (see post here) that a dividend yield in excess of 10% would usually trigger a psychological importance to investors, similar to cases seen in Design Studio.

In the post, I highlighted a few catalysts that Noel has won during the year, some of which includes the jubilee year gift which they had won. I had estimated a total dividends of 3.1 cents/share, and the actual dividends came up to 3 cents/share, which translates into a 10% yield based on the last closing price before today.

The company still had major contracts won for FY16, though I suspect earnings will not come in as much as this year. Still, I wasn't much convinced about their core business without these special contracts won.

The divestment has freed up more capital for me which I think will be very useful during these market turbulents.

My Thoughts On The Silverlake Case

I received a lot of email request asking me on my thoughts about the recent short seller reports that plunged Silverlake to 26% down a single day before it was halted.

I spent the whole weekend reading the 42-page report and it was very comprehensive. To be fair, some of the allegations made was not new and we've seen it before. But this report made it very comprehensive. And I was convinced.

Before I gave my thoughts, I need to state that most of these are beyond the understanding of most fundamental analysts and accountants, even for myself, and a fraud auditor working in the industry would probably know better about this.

Many people have this misconception that once the financial statements are audited and if the auditor's opinion are unqualified, then everything we read in the financial reports must be holy true. That is not the case apparently. It is the management responsibility to ensure that the financial statements are true to the best of their knowledge and it usually depends very much on their integrity to disclose more or less information to the public which was not so apparent. A good example would be off balance sheet disclosure items.

I'll just cover a bit here and there about my thoughts on the allegations matter concerned:

Related Party Transactions Red Flag

This is the main allegations amongst all that is being highlighted.

The report outlines that Silverlake has used extensively in the reporting of its revenue and expenses for the over reliance on its related party transactions, some of whom belongs to the private equity holdings of Mr. Goh himself which can be very difficult to judge once the books gone into consolidation mode, which is what most investors read when they analyze.

The report also stressed that there are some irregularities about the revenue of the private holdings before they are being injected into the group level. It is as if the financial statements are being manipulated in order to account for the higher price sold to the group. In one of the example, it even shows that though the company is making consecutively larger losses over the years, employee numbers have increased substantially, which causes a red flag. The report extensively provided case study on at least 4 of the transactions.

The point on using related party transactions extensively is this. If you are going to use them extensively, then make sure they are being reported extensively in the annual report too. This can be difficult because this is usually the grey area of accounting aspects that isn't made mandatory to report these items in the group level. The reason for this is because each individual entity is supposed to have been audited before they are grouped into consolidation mode.

For auditors who are auditing the book for the group, it is also not easy to ascertain every single related party transactions. The idea is that any transactions made within related party transactions need to be made within an arm length's decision and they are not easy to ascertain for the auditors. For example, when my auditors ask me about the proof on the related party transactions on my company, I usually tell them that it is difficult to get the quotation from the competitors if we are not the customer. At the end of the day, it is the responsibility of the management and their integrity to ensure that their reporting are not a misrepresentation and they are in accordance to the accounting standards.

It also doesn't help when they had changed 12 different auditors in the span of past 10 years. In other words, there could be a case where they may be trying to hide certain things from the auditors who obviously doesn't understand the business well enough.

Chairman's History of Cashing Out At Expense Of Minority Shareholders

The reports stated that historically Mr Goh has been cashing out his stake over the span of 10 years, amounting to RM500M alone. Including the amount of dividends received, this totaled up to RM1B.

On the other hand, you can see how minority shareholders are disadvantaged because the net cash outlay at the end of the 10 years are actually in negative territory. This includes the placement or equity issued to fund the related party transactions, which was thought to be over-priced.

This negative yield ideas are getting more popular these days and you can see how Reits often extensively used this to the benefits of increasing the AUM higher and higher each year.

Over-Valuation

The report made a claim about the over-valuation of Silverlake when comparing them against near competitors and they appear to be overvalued in terms of the price to sales. The report also mentioned that the revenue per employees is unusually high and this is done to inflate the revenue figures so that it looks impressive on the books.

For us investors when we are analyzing, we get attracted to Silverlake mainly because of its great CAGR on their revenue and profit margin, without actually thinking whether these numbers could be manipulated or not. In other words, we usually take the numbers as face value and we think they are a representative of what it should be. The report obviously stated otherwise.

Final Thoughts

When I made a decision to purchase this counter, I admit that I didn't think the figures could be manipulated at all. I take these figures as face value and was impressed by it. There were previously a report on its related party transactions, but it wasn't extensive enough to convince. This report has somewhat convinced.

The company would most probably issued a rebuttal to deny the allegations and I would be very much interested to read the case from their point of view. This would also most likely caused a rebound once the halt is being lifted.

Unless the counter-argument is convincing enough, I would most likely divest my stake in Silverlake when the market opens. I think given that they are operating in such a complex manner, it will be a matter of time before another short seller produces report similar to this to attack the company again. In view of this, I think it is better to stay clear about this stock until things are a lot more clearer. Fortunately for me, my average price for the stock was somewhere at around 72 cents because of the 5-for-1 bonus shares issued, so divesting them right now would not result in a substantial loss for me.

For investors who are thinking of going long because the share price looks much "cheaper" now than before, I would advise that you BUY only when you truly understand the allegations being made and you are truly convinced that those were not true.

Until then, let's see how they are going to respond when market reopens on Monday.