Monday, August 14, 2017

Comfort Delgro Q2 2017 Financial Results

Comfort Delgro just reported their Q2 financial results last week and this was what I was concerned about as I've invested some money into it. Being affected by Uber and Grab's private hire services, Comfort's taxi business took a hit and sent its share price going down which makes it look like an attractive investment at that point. After I bought, the share price still continue to went down by a little and seems to have stopped at around $2.30.


Anyway, its Q2 financial results still doesn't paint a good picture. Net profit fell by 6.8% mainly contributed by lower revenue of its taxi business and unfavourable FX from the weaker UK Pound and RMB. For its taxi business, there is lower revenue from Singapore, China, Australia and Vietnam. The only increase in revenue was from UK but it was completely eroded by the weaker Pound.

The only saving grace is from the public transportation business where SBS Transit's bus revenue increased due to the transition to the bus contracting model (BCM) and also higher revenue contributed from higher ridership on DTL and NEL/LRT. Australia's public transport business registered an increase in revenue too with  higher charter revenue from rail replacement.

Despite the bad quarter, comfort is giving higher dividends of 4.35 cents for FY17 as compared to 4.25 cents in FY16. Cash generated from operations also registered an increase as compared to last year. It is still a financially stable company with gearing of 12.5%.

Moving forward, I'm still seeing quite a lot of comfort's taxi on the streets but also seeing more people using the grab and uber app all around. However, we have to note that Grab incurred a combined loss of nearly US$40 Million in 2014 and 2015 alone. As for Uber, it said that it lost US$708 Million for its worldwide operations. Grab and Uber are giving discounts to riders so heavily and on top of that giving incentives to drivers too. This doesn't seem to be sustainable. I believe when the discounts end or when the incentives for drivers decreases, the taxi industry will pick up again. I did try to drive for Uber for 2 weeks last year and from my experience, you don't really earn much as a driver if you don't get the driver incentives. This is what is attracting more drivers and even taxi drivers to drive for Uber and Grab instead but it will end when incentives are no longer available.

As for its public transportation business, Revenue is expected to continue to increase as the DTL 3 opens in Oct this year. Rail revenue is expected to double as ridership doubles as well. There is also the new thomson east coast line which has yet to be awarded as well.

Its PE is currently trading at 15.42x with dividend yield of around 4.5%. To me, I still think its a fair valuation and I will continue to hold on to this investment.

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Thursday, August 10, 2017

Far East Hospitality Trust 2Q 2017 Financial Results - Review & Action

Far East Hospitality Trust just released their financial results last Friday and I thought it would be good to do a quick update since I've been writing a lot on the hospitality industry as an investment opportunity.

Net property income still decreased by -6% in 2Q 2017 as compared to 2Q 2016. However, this is a smaller decrease compared to the 1Q decrease of -10.4%. Average hotel occupancy was 87.1% in 2Q as compared to 88.1% in 1Q. Comparing year on year, occupancy increased 1.9%. RevPAR remains stable at $134 which is a good sign that it has bottomed out. Comparing year on year, RevPAR decreased -4.6% in 1Q while it decreased -1.3% in 2Q. This is a smaller decrease which is again a good sign that RevPAR is bottoming.

Credit: http://www.fareasthospitalitytrust.com/rendezvous-hotel-singapore.html

In summary, hotel occupancy has increased by 1% for the 1H of 2017 while serviced residence has decreased by -8.7%. RevPAR still remains low but shows signs of bottoming out. Far East Htrust portfolio consists of 64.8% hotels, 12.9% serviced residences and 22.3% commercial which contributes to its gross revenue. From the time I invested in this stock, the stock price has gone up by 10% and I've divested a portion of my investment in this stock at 0.67. It is still trading at a PB of 0.74 which represents a discount to NAV of 26%. The dividend yield at current price is about 6.24%. The reason for divesting it is to lock in some gains first while monitoring it for any other upside.

I also did a check on one of its competitors, Frasers Hospitality Trust and looked at its Singapore properties portfolio. I noticed that Frasers Htrust Singapore properties registered a higher RevPAR for both its properties. It is an impressive gain of 4.1% Y-Y.  For all its other countries portfolio, the gross operating profit also increased. Frasers Htrust will be the next investment opportunity I'll be looking at. However, it's trading at a PB of 0.99 and dividend yield of 6.53%. It seems to be at a fair price currently so if we want to invest now, there may be limited upside. I shall monitor and keep it in my watchlist for any good entry points.

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Wednesday, August 2, 2017

Outlook for REITs in Singapore and Globally

REITs have been a popular investment choice for many years now. Even for me, REITs constitute about 60% of my portfolio currently in sectors such as retail, hospitality and commercial.

Recently, REITs prices have mostly gone up which is a good time for a review now. I will look into the different sectors and the outlook plus if there's any other opportunities to continue investing in.  It may be time to sell some REITs and invest into other opportunities too.

Retail REITs

Firstly, let's look at retail REITs. In Singapore, we have a few REITs which dominate the retail scene here. Capitaland Mall Trust and Frasers Centrepoint Trust owns most of the shopping malls in Singapore. Collectively, they own 22 of the major shopping malls in Singapore which are mostly near MRT stations.

I have invested in both of the REITs for sometime now. They have provided good dividend income at around 5%-6% pa. However, retail REITs don't really have much capital gains in general as its quite hard to expand and have more shopping malls in an already competitive environment.

The retail sector will be faced with competition moving forward. The rise of online shopping means fewer people will be shopping at the stores itself. I like that the REITs have reinvented themselves where we can see most of the stores in shopping malls now are F&B. Singaporeans still like to eat outside a lot.


Capitaland mall trust recently reported their 1H financial results and one highlight is that shoppers traffic has declined -0.5% in 1Q 2017 as compared to 1Q 2016. This may also be linked to the weak employment data as released by MOM. Unemployment has gone up particularly for Singapore citizens while total employment has decreased for 2 consecutively quarters this year as seen from the preliminary figures released by MOM.

Apart from the poor outlook, we are also seeing some developments in the retail scene. For Capitaland mall, they are redeveloping Funan, which was the popular IT mall in the past. It will reopen again in 2019 with new experiences for shoppers. This will boost the dividend income from the REIT moving forward. For Frasers centrepoint trust, they are doing AEI for northpoint which is a popular shopping mall in Yishun. This is expected to be completed in end September 2017 and they aim to improve the average gross rental rate of Northpoint by approximately 9% upon the completion of the AEI.

Both REITs are trading at prices above book value now with CMT at 1.03x PB and FCT at 1.13x PB.

Commercial REITs

There are many commercial REITs in Singapore. I shall not go into the details of each REIT but focus more on the general trend of the office market in Singapore. As we see previously, total employment in Singapore has decreased but if we dive deeper into the MOM numbers, the decline is mainly due to lesser work permit workers in the construction and manufacturing sectors. This does not really affect the commercial REITs in Singapore.

CCT's One George street office tower
Image credit: http://www.cct.com.sg/our-properties/singapore/one-george-street/

I have invested in Capitaland Commercial trust (CCT) and also Suntec REIT. Both own office buildings in Singapore with commercial as their main portfolio. Suntec REIT does have Suntec City, which is the shopping mall in their portfolio but that only accounts for 7% of their overall portfolio. Office portfolio accounts for 69% of their income.

In CCT's latest 2Q financial results, I saw a distinct trend in the occupancy rate chart which they have. If we look carefully at the below chart, the CBRE's core CBD occupancy rate has declined in 2Q 2017. This covers offices in Raffles Place, Marina Centre, Shenton Way and Marina Bay. It is not looking too good for CBD offices. On the other hand, CCT and Suntec's committed occupancy rate remains quite stable.

Image adapted from CCT's 2Q 2017 Financial results
Moving on to office rents, grade A office market rent has remained unchanged Q-on-Q after seeing consecutive decline from 2015. It may signal that the grade A office market rent decline has bottomed out. Supply of office spaces is expected to continue to increase in 2017 so there should still be some pressure on the office rents moving forward.

The stock price of CCT and Suntec REIT has risen by quite a bit these few months. However, both are still trading below their book value. In terms of dividends, base on the current price, the dividend yield is around 5.2%-5.3%.

Hospitality REITs

Lastly, let's move on to hospitality REITs. A few months back, I wrote about an investment opportunity in the hospitality sector. You can read it here. There have been many articles on how this industry will do well and also coverage by various research houses and analyst. This will be an update based on the latest financial results from some of the hospitality REITs. At this point, I'm invested in CDL Htrust, Ascendas Htrust and Far East Htrust.

CDL Htrust Studio M hotel
Image credit: http://www.cdlht.com/studio-m-hotel.html

CDL Htrust just released their financial results last week with higher NPI and DPS (excluding effects of rights issue). They recently just did a rights issue at an attractive price and I went ahead to subscribe to the rights issue including trying my luck for some excess rights. Its portfolio is doing relatively well with the biggest gain from its New Zealand hotel at 91.9% increased in net property income (NPI) for 1H 2017 as compared to 1H 2016. This is really an impressive gain. The main reason is because its revenue per available room (RevPAR) for the New Zealand market surge 49% year on year.

CDL Htrust Singapore hotel market RevPAR is still declining at -1.1% year on year. As mentioned in previous articles, we should see RevPAR bottom out and start rising as hotel supplies taper off in 2018. As we can see from the case of the New Zealand hotel market, a surge in RevPAR can really improve the NPI by quite a lot.

Visitors arrival to Singapore remains high with 4.4% increase YoY. STB, SIA and Changi Airport Group (CAG) recently launched the second edition of the Singapore MICE Advantage Programme to draw more business events to Singapore as well as a S$34 million investment to strengthen Singapore’s destination appeal and drive visitor traffic.

Elsewhere around the world, Japan hotels are not doing so well as RevPAR has declined due to price competition from increase in new hotel rooms supply. We should see better performance moving ahead to the olympics games in Tokyo.

Far East Htrust and Ascendas Htrust have not reported their results yet though. In terms of valuation, CDL Htrust is already trading above book value at PB of 1.07x. Far East Htrust on the other hand is still trading below book value at 0.73x. It has gone up the past few months and my investment in this is sitting on a 10% return. Hospitality Reits have a dividend yield of around 6.2% currently. It can be a good dividend investment buying at the right price with attractive dividend yield. I'm looking to accumulate further into this sector.

Will REITs continue to perform?

I've touched on 3 different sectors namely the retail, commercial and hospitality REITs listed in Singapore. REITs present a good opportunity for those who buy at the right valuation. For me, I look at the outlook, the valuation, its financial stability, dividend yield and management strategy. Where possible, its good to check out the properties of the REITs wherever possible. Seeing crowds at a mall and all the shops having business is a good sign as oppose to an empty mall with no business.

I would look closely and monitor the developments of the retail and commercial sector while continue investing in the hospitality sector moving forward.

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