Far East Hospitality Trust Latest DPU up 3.1%

Far East Hospitality Trust should not be new to readers here as I've blogged about this stock on several occasions. I first wrote about investing in the hospitality industry back in April 2017 in this post. I went on to invest in CDL Htrust and Far East Htrust thereafter. Both have been performing well since then and providing good and stable dividends for the past few years.

Let's focus on Far East Htrust. This company has done well in its latest results which prompted CIMB, OCBC and DBS to write and cover the stock the past few days. Net property income went up 13.9% Q on Q with DPU up 3.1%. With this good set of DPU, dividend yield is now about 6.5% for this stock.

For hospitality stocks, it is important to look at the RevPAR which is the revenue per available room. For Far East Htrust hotels segment, this has gone up 7.5% due to an uptick in overall market demand, the positive impact from the addition of Oasia Hotel Downtown to the portfolio and the recent renovation of Orchard Rendezvous Hotel (formerly known as Orchard Parade Hotel). Average occupancy has also increased from 85.4% to 86.2%.

For its serviced residences segment which has not been performing that well previously, there are also signs of improvements where Revenue Per Available Unit (RevPAU) also increased 7.5% and average occupancy increased from 78.2% to 84.3%. This increase was driven by online bookings from the leisure segment.

Far East Htrust has enjoyed 4 quarters of consecutive DPU growth. It is trading at 0.8x price to book value which represents a discount of 20% to book value. I've invested additional 7000 shares in this hospitality trust at $0.61 back in December 2018. Besides the newly acquired Oasia Hotel Downtown, they also just newly opened Outpost hotel at Sentosa which will further strengthen the DPU growth in the future.

Newly opened outpost hotel Sentosa

I believe Far East Htrust will continue to do well moving forward. In fact, this is just the beginning of its growth story which I've waited 2 years for it to materialise. This stock is now the 2nd largest in my portfolio which is paying good dividends with potential for growth in the near term. Singapore Tourism board also recently released its tourism statistics which shows that visitor arrivals to Singapore has hit an all time high due to the Trump Kim Summit and the release of Hollywood movie, Crazy Rich Asians which was filmed in Singapore. This has put Singapore in a good light and attracted many tourists to come to Singapore for holidays.

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Is Comfort Delgro Still A Good Investment? - FY17 Full Year Financial Results and Thoughts

Comfort Delgro recently just released their FY2017  full year financial results. Previously, I did an estimation on how its results will look like in this post. The good news is the results came in better than what I had expected.

Actual results vs what I estimated

In my previous post, I painted a very bleak picture of its business especially its taxi business. I estimated that the revenue of the taxi business will be at $1270.8 Million. Indeed, the taxi business continued to suffer and came in lower than what I had expected at $1208.7 Million.

This was offset by the rise in its public transport business which is the core of Comfort Delgro's business. I estimated the revenue of its public transport business to come in at $2302.2 Million but this came in much higher at $2392.8 Million. This came in higher due to the bus contracting model and also higher revenue for its rail business when DTL-3 started in Oct 2017.

In summary, full year operating profit came in at $409.2 Million, higher than my initial estimate of $379.4 Million. Actual EPS for FY 2017 is 13.95 cents, higher than my estimate of 11.40 cents. With this, the PE ratio is about 14x at current price of $2.05 which is better than what I estimated the PE to be 17.37x at $1.98.

Moving Forward plans of Comfort Delgro

I can sense the management of Comfort Delgro trying as much as they can to get other sources of income and also prevent its taxi business from getting worse. They have formed an alliance with Uber where all Comfort Delgro taxis are under the Uber app now. It is unknown whether this will stop its current taxi drivers from going over to the competitors but seems like it is getting stable as of now. This deal is still pending regulatory approval in Singapore.

Elsewhere in the world, they have made the following merger and acquisition:

1. Acquired remaining 49% of shares in ComfortDelGro Corporation Australia Pty Ltd
2. Acquired remaining 49% of shares in CityFleet Networks Limited in United Kingdom
3. Acquired business assets of Metro Taxi with a fleet of 170 taxis in Perth, Australia
4. Acquisition of 217 Taxi Licences and Vehicles in Shenyang, China
5. Acquisition of 100% of shares in New Adventure Travel Group with a fleet of 117 buses and coaches in Wales, United Kingdom
6. Acquired remaining 51% shares in ComfortDelGro Insurance Brokers in Singapore

Despite all the acquisitions, its financial position is still stable with gearing of 10.6% and cash of $596.2 Million. At current price of $2.05, the valuation is actually quite decent if we expect its business to remain constant. Hopefully, the acquisitions is favourable for the company and they are able to generate more profits from all these. If that happens, then really the stock price of Comfort Delgro will go up. 

If business gets worse, then all these might change and stock price can go south again. I am of the opinion that the worse is over for Comfort Delgro at least in the near term. There is still a lot of monitoring to do for this stock and it is still a high risk one. As of now, I am still vested in this stock and will continue to monitor the developments.  

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Earnings Season - CMT and FCT Financial Results

Its earnings season again which means time for more dividends. I've owned Reits for a long time now where I can get stable and recurring income from these investments. Shopping mall Reits are attractive in Singapore and 2 of the most popular ones are Capitaland Mall Trust (CMT) and Frasers Centrepoint Trust (FCT).

CMT and FCT both reported their financial results just a few days ago and I must say shopping malls in Singapore are still quite resilient. The management of the malls is quite important as I personally saw a few malls become dead because of incompetent management. CMT and FCT are not the incompetent ones.

CMT financial results

For CMT, its 3Q financial results is nothing spectacular. DPU came in flat at only +0.3% year on year. The closure of Funan for redevelopment has affected its DPU as rental income decreased without Funan in its portfolio. Fo other malls, net property income remain largely unchanged.

Its NAV is currently at $1.95 and share price trading at $2.03. Its still a stable Reit to hold for the long term where I bought it back at $1.88-$1.90. I will still be holding this stock for its dividends. Dividend yield is about 5.5% base on current price.


FCT financial results

Frasers centrepoint trust is another resilient shopping mall reit which I have in my portfolio. It reported strong 4Q17 results where DPU rose 5.5% as compared to last FY quarter. Its portfolio occupancy rose to 92% from 89.4% and rental reversion was +8.3%. FCT has delivered 11 years of consecutive DPU growth. It is quite impressive to be so resilient and still has some steady growth.

Artist impression of the new Northpoint city.
Adapted from http://www.fraserscentrepoint.com.sg/mega-development-northpoint-city-set-welcome-shoppers-q4-mall-track-soft-opening-close-90-leased/

For its portfolio, the higher income came mainly from the following:

Causeway Point
This is the shopping mall at Woodlands. There were renewed and new leases signed which contributed to a 2.5% increase in rental rate.

Northpoint City
The shopping mall at Yishun has been going through AEI works for quite some time now. The enhancements are progressively completed so there is higher occupancy and rent from the new tenants. There is also additional revenue from Yishun 10 retail podium which was acquired on 16 November 2016. This improved the revenue by 27.4% year on year

Changi City Point
The shopping mall right beside Expo MRT is doing well too. Higher rental rate from renewed and new leases signed, and improved occupancy contributed to an increase of 13.6% in revenue.


The only lagging mall in FCT portfolio is Bedok point which saw a drop of 26.4% in revenue. However, it is only 2.8% of all of FCT's NPI so it isn't much of a concern. The largest contributor comes from causeway point at 50.6% of FCT's NPI. Causeway point occupancy rate is still impressive at 99.5%. Northpoint city will be the next major contributor as AEI works are progressively completed. Occupancy rate stands at 81.6% currently so there is lots of room to continue growing.

FCT has provided me dividend income of about 6% p.a. Dividend yield is about 5.4% at current prices. It is trading at a price to book ratio of 1.08x which is slightly above its net asset value. I wouldn't consider accumulating more at this point but will continue to hold this for dividend income.

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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.

Image Credit: http://www.cmt.com.sg/funan.html

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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ComfortDelgro Stock Analysis- Will It Survive the Uber & Grab competition?

Recently, a stock familiar to most of us caught my attention. I've been wanting to write on ComfortDelgro but did not do so until now as I had to read and dive in deeper on the company. ComfortDelgro is known to us as a taxi company where Comfort's taxi ply the roads of Singapore day in and day out. However, its business is more than the taxi business itself which makes it harder to analyse. Their annual report also didn't really break down the information I needed so I had to go to different sources just to find the info I wanted.

What got me interested in ComfortDelgro's business is that its stock price have fallen significantly after a bad financial result in Q1 FY2017. The stock price is at a 3 year low now and its quite fairly valued in my opinion.

Here's the share price of ComfortDelgro for the past 3 years:

Let's get deeper into ComfortDelgro's business to understand more about whether this would be a good investment?

Dissecting ComfortDelgro's business 

ComfortDelgro's business is not just in Singapore. They have businesses in 35 cities and 7 countries. The countries are Singapore, China, Australia, UK, Ireland, Vietnam and Malaysia. 64% of its revenue comes from Singapore and 36% from the overseas markets.

ComfortDelgro breaks its business into the following segments:

1. Public Transport Service Business
2. Taxi Business
3. Bus Station Business
4. Automotive Engineering Business
5. Inspection and Testing services Business
6. Driving Centre Business
7. Car Rental and Leasing Business

As we can see, their business is all in the transport industry. Close to 90% of its revenue comes from the public transport service and taxi business so I will focus more on these areas in this article. 

For the public transport service business, it is further broken down into the bus (scheduled & unscheduled) and rail business. For bus, it is operated under the subsidiary of SBS transit which we are all familiar with. ComfortDelgro also have their own bus chartering service with a total fleet of 348 buses. For rail, it is also operated under SBS transit which runs the North East Line (NEL), Punggol and Sengkang LRT as well as the new Downtown line (DTL). 

Latest Q1 FY17 Financial result of ComfortDelgro

Public Transport service business

For FY2016, SBS transit's revenue was $1098 Million. Base on its latest Q1 FY17 results, SBS transit contributes about 50% to ComfortDelgro's public transport service segment with about 75% from bus and 25% from rail business. In Q1 FY17, revenue for the public transport business segment was up about +0.75%. This was mainly from the increase in SBS transit's bus revenue after the transition to the bus contracting model (BCM) effective 1 September 2016. It seems like under the BCM, it benefits the operator more. Another increase was due to higher rail revenue from higher ridership from the DTL and NEL/LRT. DTL ridership grew by 19.1% while NEL and LRT ridership is still growing as well. This was offset by the lower fares which was implemented in 2016. 

For Australia business, revenue increased due to favourable currency of a stronger AUD while for UK, revenue decreased due to unfavourable currency of a weaker pound. 

Taxi Business

For the taxi business, revenue decreased by about 5.7% due to lower rental income in Singapore. Elsewhere in UK, China, Australia and Vietnam, revenue from its taxi business decreased as well. For UK, the decrease is due to an unfavourable currency from a weaker pound while in other countries, it is due to lesser rental fees and also a smaller fleet. This reflects a challenging environment for the taxi business due to the rise of private hire cars such as Uber and Grab.

For its other business segments, the rest remain stable except for automotive engineering services which see a lower revenue due to lower volume of diesel sold to taxi drivers and a drop in the repairs and maintenance of taxi and bus assembly jobs.


Should We Invest In ComfortDelgro's Business? 

The situation doesn't look that good for Comfort's taxi business but for the public transport service business, I would think there is much optimism ahead. Furthermore, its share price has dropped significantly from about $2.70 to about $2.40 in less than a month. It is currently trading at a PE ratio of 16x with dividend yield of about 4.2% and with gearing of 12.8%. I think this is a fair valuation for a big company like ComfortDelgro. If we compare to other similar companies such as MTR in HK, they are trading at a PE ratio of 32x, not forgetting SMRT which was delisted at 22x PE ratio.

Moving forward, I believe ComfortDelgro's bus revenue will be higher as it reflects a full year of revenue under the BCM. We have already seen higher revenue due to BCM in the last 2 Quarters since the bus industry in Singapore transited into it. DTL 3, which is run by SBS transit will also start revenue service in October this year which we should see higher revenue for its rail business as well. The straits times has reported that ridership on the DTL will double to about 500K daily ridership compared to about 245K now. Adding on, fares in Singapore are expected to continue increasing as the government has already signalled to the public transport council that fares have to keep up with costs involved to continue to be sustainable. The fare review is ongoing now and expected to be completed early next year.

The competition in the taxi industry should also be more or less stabilised now with the impact already factored in. Once the currency for the Pound turns favourable, we should see positive results for them again. I've bought some shares of ComfortDelgro at $2.42 as of now. There are certainly some risks and many factors to consider but personally I've weighed them and invested an amount I'm comfortable with. Let's see how things evolve later on.

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Croesus Retail Trust - More than 10% dividend yield!

Croesus Retail trust year to date distribution per unit (DPU) is 8.98c. This exceeds forecast by 6.3%. That is $89.80 per 1000 shares that we invested. For the price that i bought, the dividend yield which i got was 10.26% year to date. 10% dividend yield do exist. However, the dividend i got was from the period 10 May 2013 to 30 June 2013 which is more than a year. Q4 FY2014 DPU is 2c. Annualising a quarterly DPU of 2c gives us 8c which represents a yield of 9.14% at the price i bought. Still not too bad. Share price of CRT has also appreciated by 12.5c since I blog about it in November 2013. This is an increase of 14.28%.

All about Croesus Retail Trust

CRT owns shopping malls in Japan. From the initial 4 properties in Japan, they have acquired 2 more properties right in the capital city, Tokyo. This sums up their total number of properties to 6. CRT's debt or gearing ratio is quite high at 51.7%. 20% of its debt is maturing in FY 2017, 60% in FY 2018 and the remaining 20% in FY 2019. The high gearing ratio may be a concern for some.

Two of the properties in Tokyo:

Luz Omori in Ota Ward, Tokyo. located at the intersection of a traditional shopping street and a retail street with strong shopper traffic that leads directly to the JR Omori Station.

Nis Wave I in Tachikawa City, Tokyo. Connected to the JR Tachikawa Station

Net asset value has increased slightly to 90c. At the current price of $1, this represents a premium to fair value. At current price of $1, if we annualised a DPU of 2c to get 8c, it represents a dividend yield of about 8%. This is still quite good. However, we have to ask ourselves whether CRT is still able to give a annual DPU of 8c? Will it be more or lesser in the next FY? With this, we have to bear in mind that CRT's policy is to distribute 100% of its distributable income in FY 2014 and FY 2015 and then at least 90% thereafter. So, there is a possibility that DPU will decrease after FY 2015. For now, we may see the same or more DPU in the next dividend payout assuming rental rates and occupancy rates remain stable.


The future of Croesus Retail Trust

CRT owns only 6 retail properties now. In future, i guess they will continue to expand their portfolio of properties which will hopefully increase DPU for investors. However, with CRT's debt already at quite a high level, they would most likely finance the purchase of further properties by other means. One possible way would be to offer a rights issue to existing shareholders. If that happens, existing shareholders would have the opportunity to accumulate more shares of CRT at an attractive price. Whether the management will do this is anybody's guess now.

Japan's economy is undergoing a recovery. I've blog about the Japan's economy for a number of times before already. The YEN has devalued quite a bit in the past 1-2 years. The devaluation of the YEN is a game changer. Previously, businesses were struggling due to the strong currency. Both exports and tourism suffered due to high costs for foreigners buying Japanese goods. This resulted in a decade of deflationary economy which depress rents and property prices. However, now we see inflation coming back and rental rates will definitely pick up along with a increase property prices.

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Related Posts:
1. Croesus Retail Trust - First Quarter results released and initiated long position
2. The Japan story - Croesus retail trust and Saizen Reit

Saizen REIT - Income from Japanese residential properties?

Saizen REIT is one of the biggest investment in my portfolio. Owning shares of Saizen REIT effectively means owning 138 residential properties across Japan. Yes, Saizen REIT has a total of 138 properties across 14 cities in Japan. Saizen REIT has reported its full year 2014 financial results just 2 days ago. I've blog about the reason behind investing in Japan previously which i mentioned that i also invested in another Japanese business trust called Croesus Retail trust. Croesus owns shopping centres in Japan and separately announced its financial result just this morning. I'll write up on it in another post.

Credit: Saizen REIT FY2014 result presentations

FY2014 financial results

Saizen's revenue and net property income increased by 3.4% and 2.6% as compared to FY 2013. DPU of 3.1 cents has been announced and adding the previous DPU of 3.25 cents in February, the total DPU for the whole year works out to be 6.35 cents. With the current stock price at 96 cents, the dividend yield is about 6.6% p.a. Of course if you've bought at lower price, the dividend yield would be much higher.

On its debt profile, its gearing ratio is 37%. This is the percentage of debt it has over its total assets. 88% of its debt have fixed interest and all its debt is long term in nature. The nearest loan maturity it has is in March 2020 which is almost 7 years from now.

Net asset value per share decreased slightly from $1.24 to $1.22 in FY2014. With the current price at 96 cents, this represents a discount to NAV of 21.3%. Saizen REIT is still at a good price. Of course, as stated earlier, investing at the current price would mean a dividend yield of 6.6% if DPU remains the same next year. If you're investing for income, you have to decide if 6.6% p.a is a fair return on investment?

Credit: Saizen REIT FY2014 result presentations

The good thing is Siazen REIT DPU has been stable and increasing for the past few years since 2011. From a DPU of about 2.5 cents in 2011, DPU has increased to about 3.1 cents now. This represents an increase of about 20% for the past 3 years. It looks like it will continue to increase as rental rates pick up in Japan when the economy recovers and inflation starts to kick in after the various monetary policies implemented by the Japanese authorities.


Growth prospects for Saizen REIT

Currently, the average occupancy rate for the REIT is 91%. There is definitely more room to grow their property income even if they do not expand their portfolio of properties. According to a report as mentioned in their financial report presentation, mid market rents in the 23 ward area of Tokyo showed an increase of 1.1% from the year 2013. Rental rates should begin to pick up in other cities too. Japan has been suffering from deflation for many year now. It is time for them to get out of deflation. Well, its what the government hope so as they had set an inflation target of 2% by 2015 which is next year.  

As inflation happens, property prices should pick up too. This will increase the NAV for Saizen. It will be interesting to see how the situation develops in Japan. Read related posts below to understand the motivations behind my investments in Japan. So far it has been good and maybe its time for a trip to Japan before prices rise to even higher levels.

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Related Posts:
1. The Japan story - Croesus retail trust and Saizen Reit
2. Looking to invest in Japan's real estate

Review of Select group's first half 2014 financial report - The F&B business in Singapore

Business operations

Select group is in the F&B industry in Singapore. They own several restaurants such as the Peach Garden chain of restaurants, Texas Chicken fast food outlets, several catering businesses such as Stamford catering, Hong Kong Sheng Kee deserts, super tree dining at gardens by the bay and also the recent Chinatown food street etc. The business that generates the bulk of their profits is their Peach garden chain of restaurants.

Credits: www.peachgardencatering.com.sg

Financial performance

During the financial result last year, Select group faced some headwinds due a small loss from its Texas chicken outlets. However, there may be some interesting developments in future days ahead. In the first half of 2014, both revenue and gross profit increased by 10.5% and 6% respectively as compared to 1st half of 2013. The final net profit increased by 53.7% due to a 1 Million government grant. As Select group is considered a SME in Singapore, they are entitled to government grants which helps these companies to increase productivity and grow stronger.

Challenges of the F&B industry

The food and beverage industry is labour intensive. In Singapore, not many people want to work in the service line as the working hours are long and the pay is relatively lower. As such, restaurants have to employ foreign manpower. But with the tightening of foreign manpower in Singapore recently, there is certainly some labour crunch for these labour intensive businesses which causes labour cost to go up.

In Singapore, the profit margins for the F&B industry is low as compared to other industries. Net profit margin is only about 3% for Select group. If we compare to Breadtalk group which is in similiar industry, their Net profit margin is only 1.7-2% for 1H 2014 which is also quite low. Breadtalk group's profit was lower as compared to last year as they had to close down some poor performing outlets. Select group manage to maintain and had a small increase in their profits.


The growth ahead

Select group's earnings per share (EPS) for 1H of 2014 is already 2.2 Cents as compared to only 1.41 Cents in 1H 2014. Throughout the past 3 years from 2011, the highest EPS was 2.93 Cents in FY2012. Looking at these figures, there may be a possibility that EPS will break the high of 2.93 Cents in FY 2014 this year if they are still able to produce good results in the later half of this year.

Chinatown food street

Select group also recently announced in May 2014 that they are planning to expand their business in south east asian countries. The first retail space was identified in Kuala Lumpur as a suitable location for the expansion of Hong Kong Sheng Kee desert into Malaysia. The expected operation date will be in September 2014. With more expansion plans to come, revenue and profit may increase by a huge margin in the future. Currently, all of Select group's operation is only in Singapore. With their many years of experience in the F&B industry, the venture into the overseas market may prove to be a good one.


Financial Valuations 

Is it a good time to invest in Select group now? Assuming the company made half the amount in the 2H as compared to the first half in 2014, EPS will be around 3.2 Cents (2.2 Cents in 1H 14 + estimate 1.1 Cents in 2H 14). This would mean a PE ratio of about 12x (current price 0.4 / EPS 0.033). Assuming a compound annual growth rate (CAGR) of 20%, the intrinsic value would be 52.5 Cents which means the current price of 40 Cents is undervalued and provides a margin of safety of  23.8%. But the question is will Select group be able to achieve a CAGR of 20%? If CAGR is 15%, intrinsic value will then be 39.9 Cents which is fair value for the current price of 40 Cents. For the past 10 yers, CAGR was calculated to be around 10% which means the intrinsic value would then be only 30 Cents.

The question we have to ask ourselves is will this company grow by 10%, 15% or 20% in the next few years? If they can continue to grow, which means most likely their overseas expansion plans succeed, the reward can be quite substantial. If not, there will be some more headwinds ahead. The current 40 cents is a good price only if they are able to grow at 20% or more for the next few years.

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1. Company in focus - Select Group

Review of Yongnam's 2014 Q2 and half yearly financial result

This posts came a little late. The financial report was out on 6th August but i'm only writing on it now. But anyway, Yongnam is still one of my investments till now. The motivation behind the investment in Yongnam was due to the positive outlook of more construction projects in Singapore. As Singapore grows, our infrastructure could not keep up with the growing population. As such, the government has embark on new construction projects such as the new MRT lines, many new residential and commercial buildings, building of new expressways such as the MCE and also plans for the fourth and fifth terminal for Changi Airport.

Yongnam has a good track record in winning key construction projects. They were previously involved in projects such as the circle line, the KPE, National library building, Suntec city, Changi Airport terminal 1 etc. The recent projects were the new sports hub which was just completed earlier this year, new downtown line and also the new Changi Airport terminal 4. They are also involve in overseas projects such as the Hong Kong MRT, KLIA airport and also Brunei and Bangkok international airport. Currently, they are also bidding for the project for the construction of Hanthawaddy International airport in Myanmar.

Yongnam has good track records of profits. For the past 5 years from year 2008, profits have been steadily increasing up till 2011. From year 2012, profits started to decrease to a low of only 5.5 Million in 2013.

However, Yongnam reported a second consecutive loss this quarter. This increased the loss for the half year of 2014 to 7.17 Million. This was attributed to lower revenues and also lower gross margins. With lower gross margins, this means that cost of construction materials may have gone up and cost of labour may also have gone up. This would be true for the increase in labour cost as the government tighten their foreign manpower policies. To counter this, Yongnam stated that they will focus on high yield projects and maintain its resources in anticipation of winning more projects in the second half of 2014. Whether or not they can achieve what they set out for, we'll have to see the results by the end of this year. But, do bear in mind that the loss which Yongnam reported is actually not a real loss. Depreciation is already 13.71 Million which is not a real loss which is incurred.

This explains even though Yongnam reported a loss, cash flow from operations remain healthy and increased 8.9 Million for the half year 2014. This was in fact higher than in 2013 which is good news. The increase in cash flow is due to the trade receivables which is the payment that they receive for previous projects owed to them. Gearing is at 0.59 times which is healthy for the construction sector. Net asset value per share is 23.78 cents which means the current price at 22 cents is slightly below fair value.

For Yongnam, the investment will still be good only if they are able to turn around by the end of 2014. For now, the risk for investing in Yongnam is high bearing in mind the uncertainty. I have adjusted my portfolio to take into consideration the risk so that it does not constitute too big a portion of my overall investment portfolio.

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1. Yongnam reports a marginal loss of S$1.9 Million in 1QFY2014
2. Yongnam secures subcontract for construction at Changi Airport Terminal 4

Yongnam reports a marginal loss of S$1.9 Million in 1QFY2014

Yongnam just released their Q1 financial results and as expected, it's a bad report. For the rest of FY2014, Yongnam is still expected to report this kind of financials. Any contracts they are awarded now will only be reflected in their books from the second half of FY2014.

Q1 revenue fell 12.4% which results in a marginal loss of S$1.9 Million. Yes, its a loss. I wrote in an earlier blog post that Yongnam's full year financial results for FY2013 fell by 49.7% as compared to FY2012. This resulted in it share price falling along in tandem as well. The share is trading at a fair value of 24 cents now with NAV at 24.79cents. Why did i invest in this stock when everything is so negative for Yongnam? Yes, for those who did not know, i did initiate a position in this stock when the price fell.

Yongnam has good track records of profits. For the past 5 years from year 2008, profits have been steadily increasing up till 2011. From year 2012, profits started to decrease to a low of only 5.5 Million in 2013.

This may just be a cyclical downturn for Yongnam itself. Yes, i said it may or may not be. No one can be sure of what will happen next or if Yongnam will be able to rise back to where it was previously. But, with its good reputation and a track record of winning contracts, things may start to look good again as Singapore and other parts of Asia are still actively expanding their infrastructure projects.

Moving forward, there are concrete plans which Yongnam has laid out. I quote from it's press release today:

"In 1QFY2014, the Group has secured orders amounting to S$54.3 million, including two new structural steelworks subcontracts for the upcoming Changi International Airport Terminal 4 and the redevelopment of the UIC Building along Shenton Way, Singapore.  

“Outlook for infrastructural developments and commercial projects in Singapore and the region remains positive and the Group continues to actively pursue S$1.2 billion worth of new infrastructural and commercial projects in Singapore, Hong Kong, Macau and the Middle East of which 73%, if awarded, is expected to commence in the second half of FY2014,” added Mr Seow.  

In addition, the Group, together with consortium partners, Changi Airport Planners and Engineers, and JGC Corporation had, on April 22, 2014, re-submitted its proposal for the design, construction, operation and maintenance of the Hanthawaddy International Airport in Myanmar.  

The Group’s order book stood at S$316 million at the end of March 2014." 

Again, do note that any new projects they secure, would only start contributing from the second half of FY2014. The whole FY2014 may still report poor profits but things should start to look good after FY2014 once more contracts are awarded to them. 

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1. Is Yongnam's disappointing FY2013 financial result a concern?

2. Yongnam secures subcontract for construction at Changi Airport Terminal 4

Is Yongnam's disappointing FY2013 financial result a concern?

Yongnam reported its 2013 full year result just yesterday. I have friends and colleagues coming to tell me that Yongnam's profit drop drastically and its shocking. Yes it is if you're just looking at the numbers. Yongnam's net profit actually dropped by a whooping 87.3% from 43.5 million to just 5.5 million. EPS dropped from 3.45 in FY2012 to 0.44 in FY2013. I'm vested in this company since August last year so i should be concern right? Or maybe not. Ok, enough of the bad numbers. Let's look at what happened.

Firstly, revenue actually increased by 19.9% for them but why did profit dropped so much? This mainly has to do with cost over run of 3 structural steel works projects. Which 3 projects was it they did not mention in their report. This caused its cost of sales to increased by 43.3% resulting in lower gross profit.

There was also a "one-off non-recurring loss of $8.1 million on disposal of fixed assets in 3QFY2013 and a $5.1 million provision made on amounts owing from Alpine Bau GmbH, the insolvent main contractor for MRT Downtown Line 2 in 2QFY2013 caused General and Administrative expenses to spike from $24.2million in FY2012 to $31.1million in FY2013. However, this increase was partially offset by a decrease of $6.3 million in staff expenses during the year."

In spite of the drastic reduction of profits, Yongnam still declared a dividend of 0.6cents. This shows that they are still rewarding shareholders even when profits suffer. The cost overrun should be temporary and more of a one off event. Moving forward with more projects coming up, Yongnam's profit should return back to normal and even increase. With Singapore's Land transport authority already awarded various contracts for the construction of the new Thomson line, Yongnam will certainly be part of the game. Previously, Yongnam has been doing most of the Specialist Civil Engineering works for the MRT circle line.

Let's take a look at some of Yongnam's on-going projects:

1) National Art Gallery

• Contract worth $38.8 million
• Expected to complete 2Q 2014

2) Singapore Sports Hub (previously National Stadium)

• Contract worth $110 million
• Expected to complete 1Q 2014

3) Market Street Development

• Contract worth $36 million
• Expected completion in 3Q 2014

4) South Beach Development

• Contract worth S$21 million
• Expected completion Sep 2014

5) Marina One (New marina bay CBD)

• Contract worth $168 milion
• Expected completion in 2016

6) Various Singapore Downtown line projects

• Total contracts worth $221 million
• Expected completion June 2014 to Aug 2015

7) HK MTR Extension – 8 contracts

• Contracts worth HK$766.6 million
• Expected completion between 2014 to 2016

All the above on-going projects is expected to provide Yongnam with stable profits for at least the next 1-2 years. There are other potential projects for example the new Changi Airport terminal 4, Project Jewel in Chnagi Airport and Thomson Line etc. The construction sector does look promising to me at least for Yongnam who's playing a part in the commercial and infrastructure upgrade by the government. 

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Baker Technology: A cash cow company

This is the first time i'm doing a write up on this company called Baker Technology. I've been invested in it since the beginning of 2012 and dividend yield has been great so far. This company has no debt at all with quite a big stash of cash kept away. It's cash position stands at S$205.9 Million currently. This translates to a cash of 23.6 cents per share. At the current trading price of 0.31 cents, isn't it a good bargain? 

Credits: www.bakertech.com.sg

As stated on its website: 

Baker Technology Limited (Baker Tech) is a leading manufacturer and provider of specialised equipment and services for the oil & gas industry. Its core business is in the design and construction of a wide range of equipment and components for use in the offshore environment.

The current situation of the industry which Baker Tech is in is still relatively competitive. Order book has slowed down from 3Q of FY12 to 2Q of FY13. However, for the past 2Q which is the second half of FY13, order book has seen an increase. It's primarily market is in China contributing 76% to its net order book followed by Singapore at 23% and the middle east at 1%.

Credits: www.bakertech.com.sg

With 100% cash and zero gearing(no debt), this company can ride out the downturn relatively easy. During the downturn in 2012 and 2013, this company has given dividends of 10 cents in FY12 and 5 cents in FY13. This is almost 50% dividend yield for the past 2 years. Of course if you had bought the shares at a higher price, the dividend yield is about 40%. Still not bad at all. As i had bought the shares much earlier, i had in fact got back more than 40% of my money.

With cash of 23.6 cents a share and only slightly more than 50% of my initial invested capital in this stock, my risk exposure is relatively small now. I will stay invested in this company and who knows maybe i will get back all my initial invested capital within the next few years. Till then, it would be a free cash cow company providing me income for as long as its there.


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1. Croesus Retail trust 2nd Quarter results beats forecast. DPU 3.1% higher than forecast

Croesus Retail trust 2nd Quarter results beats forecast. DPU 3.1% higher than forecast

Croesus retail trust has another quarter of DPU which is higher than its forecast. Final DPU is 5.24cents which will be payable in march. This is good news for shareholders of this trust. I've initiated a long position in November last year at a price of 0.875. After the announcement of good earnings, the stock price closed at 0.915 today. Another good news for shareholders.

Credit: http://www.croesusretailtrust.com/html/portfolio_moriya.php

Fundamentals wise, this trust remains strong and outlook remains positive. They have 4 shopping malls under them and all have approximately 100% occupancy rate. 100% of their total debt has been swapped to fixed rate which will minimize their risk in case of interest rates spikes. At least 80% of their debt has also been hedged against currency fluctuations. Gearing ratio is currently at 41.8% and they have also issued S$100million of fixed rate notes to be due in 2017. I hope they will make some good acquisitions to include more properties in their portfolio using the debts they have and this will increase DPU as well. It is written in their Quarter 2 financial statement that the S$100Million notes will be used by:

"CRT and its subsidiaries for the purpose of financing or refinancing its acquisitions and/or investments, financing any development and asset enhancement works on the properties in which it has an interest and general corporate purposes." 

Uniqlo was recently one of the new tenants in their Aeon town Moriya shopping centre. Having big and branded tenants in their shopping malls will certainly attract more customers as well as other tenants to set up their retail outlets with them. NAV per share has risen slightly from JPY72.40 to JPY74.09. This is about 91.7 cents when converted back to Singapore dollars. At the current price of 91.5 cents. it is still at fair value. Investors who buy now will still enjoy a annual dividend yield of about 8.9% if DPU is maintained. Those who bought at 87.5 cents would have enjoyed a dividend yield of 9.3% p.a.

It was reported today that Japan is moving to speed up the impact of a US$50 billion stimulus package aimed at countering any slowdown from a looming sales tax hike. They really seem to be doing whatever they can to bring their economy out of the decade long depression. Prices will start to increase in Japan which will boost consumer spending. Previously, due to deflation, consumers hold back their purchases as they keep thinking if I don't buy now, i will be able to buy at a cheaper price later. Japanese people have became savers over the past few years. Now when prices start increasing, they will want to buy now for fear that prices will keep rising in the future. CRT which owns shopping malls will stand to benefit as more tenants look for space to set up their shops.

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