My Awesome HUAT Guesses

I received an advertising mailer selling a recommended list of REITs in Singapore. When I looked at the teaser, my riddle-solving mind became very excited so I thought... it can't be that hard to guess right?

Just for fun, my awesome HUAT guesses to the riddles:

1. Ascott REIT "only REIT of its kind in Singapore... 6+%" cos Keppel DC REIT doesn't meet the 6+%.
2. Capitaland Commercial Trust "owns a handful of the sheer most valuable prime commercial real estate in the country"
3. Capitaland Retail China Trust "10 income-producing properties (in some of China’s very best locations)"
4. Capitaland Mall Trust "landlord with some 3,000 tenants"
5. Ascendas REIT "manufacturing and warehouse sites ... overseas assets... loyal clients ... 6+%" would have guessed AIMS AMP if it didn't say 6+%.
6. Mapletree Commercial Trust "more than 1 million square feet of the best commercial real estate in Singapore"
7. Starhill Global REIT "Malaysia, this REIT boasts a portfolio of dozens of prime properties... excellent lease structure"
8. SPH REIT "suburban mall play with little debt"

Any resemblance to the actual report is merely coincidental. 

Any wrong guess is also unintentional.

Stock Review: Singtel

Few years back, when Singtel prices were low, I wrote a review for Singtel in Sep 2015. I usually don't read every company's quarterly or financial report. It's a lot to read if I have to read 20 reports every quarter because I have about 20 different stocks. I usually only read up on companies which are on my shopping list and their prices are at 52-week lows, or below the past 5-years mean.

I reference Singtel's latest 3Q2018 report, i.e. 9 months ended 31 Dec 2017.

A recap of Singtel's business is that it has 3 lines of business -- Consumer (Telco), Enterprise (NCS, IT services), Digital Life and Corporate (which I will call it the rest, including rental income, start-ups, venture capital endevours), which contributes 77%, 23%, 0% profit before tax and depreciation (i.e. EBITDA on Page 31) respectively.

In the financial report, we aren't able to get a clear breakdown of telco EBITDA by geography because the report is grouped at a high-level as 100% owned and non-100% owned. Singtel and Optus are 100% owned, so the number is reported together. For the remaining telcos, they are like investments made by Singtel and the financial report itemised them and also allow you to calculate the Return on Asset for these investments. The profit (i.e. EBITDA minus depreciation, tax) by geography is available in the 2017 Annual Report (AR2017 data is 9 months old).

Data extracted from 3Q2018 Page 31

Although Airtel is not giving a good return, returns from Indonesia, Philippines and Thailand are good.

Screen shot from AR2017 Page 2

Income stream remains well-diversified with 70% of income sourced outside of Singapore. What could have caused Singtel prices to fall (and continue to fall) are possibly the reduced income from Airtel because Airtel is facing regulatory demands to the tune of S$3.75B (Page 28). To me, the worst case scenario is no dividends from Airtel, let's assume S$276M/year less profits. AIS (Thailand) is also facing regulatory demands of S$1.11B. Let's say we assume the worst case scenario of no dividends from AIS, then S$337M/year less profits. In 2017, net profit was $3.853B (AR2017 Page 6). If we assume worst case scenarios of 0 income from Airtel and AIS, S$3.24B and 16,344,561,000 number of shares (2Q2018 Page 20) translates to Earnings Per Share (EPS) of 23.96 cents (AR2017 Page 110) to 19.8 cents. This should not have any impact on Singtel's ability to pay 17.5 cents of dividends.

In terms of competition from the 4th, 5th, 6th Telco in Singapore, I don't think there will be much impact as these telcos will still need to rent the lines/bandwidth from Netlink Trust or existing telcos Singtel/M1/Starhub. These new players will also keep Singtel on its toes to keep cost low and retain their customers, which a definitely a good thing. The least we want is complacent monopoly giants.

In 3Q2018 Management Analysis Report, we can read some management comments. Usually management statements such as these are made together with the financial statements. Singtel separated it as a separate document probably because they furnish a lot more information than other companies would, which I like. I like their transparency, and it shows that they are also facing competition head on.

The report explained that the decrease in profit is mainly due to reduced profits from Airtel and reduced income from Netlink Trust as a result of selling Netlink Trust when compared on a year to year basis. Reduced income from Netlink Trust is expected to be seen in every quarterly report from Jul 2017, we will see this quarter-on-quarter reduction in another 2 more quarterly reports. I am personally not concerned with this because Singtel profited from the sale of Netlink Trust and lowered their debts as a result.

Debt was reduced from S$9,354M (D/E = 23.8%) to S$8,551M (22.5%). Debt/Equity (D/E) ratio is a measure of how much debt the company has as a percentage of shareholder value and retained earnings. ~20% is a good number. Singtel probably used the Netlink Trust sale proceeds to lower their debt, which is a good thing.

Singapore mobile revenue is 19% of overall revenue (Page 8). If there are worries about the competition in Singapore, M1 and Starhub are the ones who will face stiffer competition than Singtel because Singtel is the elephant in the room with 48.9% prepaid and postpaid market share (Page 53). In terms of debt, Singtel's debt is a lot lower than M1 and Starhub's. I have more details on the debt comparison in Stock Review: M1.

As at 31 December 2017, NCS’ order book increased by 25% to S$2.9 billion from a year ago (Page 33). There is no further elaboration of this, but these increases in revenue should be recognised in the next few years, and won't be immediate as IT projects typically have 1-2 years of implementation time.

Assuming a 17.5 cents dividend, at Singtel's last closing price of $3.33, it translates to a 5.25%. This is a very good yield for Singtel, considering how big an economic moat it has, diversed income streams, and stable dividend yield track record.

Major shareholder - Temasek - I bet they won't sell their stake in Singtel. It's anyone's guess how much lower prices will go. The previous low was $3.10 in 2011 but circumstances are very different now. It was $4.40 a year ago and how different were circumstances? The price has a history to have cycles and as long as we buy at the lower ends, we will have a higher margin of safety (to go wrong and make a loss). If you have extra cash, you can buy more and sell some away when the prices go up. For me, I am happy with a 5% yield.

Screen shot from AR2017 Page 230

The writers owns Singtel shares.

What did I buy in Feb 18?

Singtel I can't stress enough how good a deal Singtel is now. $3.35 screams lelong lelong and I don't know why there is so much selling. I bought more at $3.50 and $3.35. My next entry price will probably be around $3.20 if prices continues to fall. Anything below $3.50 (i.e. 5% yield) is a really good deal. 17.5 cents/year of dividends is definitely sustainable. I will say $3.80 would have been a fair price as its historical yield is closer to 4% than 5%. $3.60 would have provided sufficient margin of safety.

Wilmar I bought 1 lot only at $3.00 after much deliberation. It's a fair price, but I don't feel that I have sufficient margin of safety. I will see how it goes.

I am not sure if I will buy more in Feb, but I will monitor the situation as I had spent quite a bit these 2 months. I am also feeling slightly cash poor because I channelled $40k into Singapore Savings Bonds last month, and we aren't exactly in a market crash situation, so I won't be dipping too much into the warchest.

What did I buy/sell in Jan 18?

Singtel I bought 1 lot at $3.60. Fair price, not dirt cheap. Will accumulate if price dips further.

Keppel Corp I sold 1 lot at $8.16, after it gapped up consecutively and +16% over 5 days. After I sold, it continue to climb, i.e. +24% from the low of $7 after the bribery settlement news. I may cash out 1 more lot if the prices continue to gap up, to lower the concentration of Keppel Corp in my portfolio. It has been lowered from 30% to 25%.

Hyflux 6% CPS On the same day I sold Keppel Corp, I bought Hyflux 6% CPS 100 units at $91.70. I thought it was a no-brainer to buy it because the CPS redemption date is 25 Apr 2018, and the shares are going below $92. There is also a 3% dividend payment on 25 Apr. That's a total of 8% + 3% = 11% in 3 months. If Hyflux doesn't redeem the CPS, the dividend rate will be increased to 8%, which is even better right? If Hyflux doesn't redeem the CPS, they are also not allowed to pay dividends to the shareholders of the Hyflux shares. However, I dared not show-hand on this. Keep wondering if I am missing out on anything...

Stock markets around the world are hitting new highs everyday. It's feels like Apr 2015, which is the typical post financial year end reporting euphoria-effect, just that financial year end reporting has not started. This means that it can only go higher, which is probably fuelling the confidence. You would be sitting on 50% gains if you have bought the STI ETF in Feb 2016 at $2.50. Or better, you will be sitting on 80% gains if you have bought Keppel Corp in Jan 2016 at $4.70. Or even better, you will be sitting on 105% gains if you bought DBS in Feb 2016 at $13.01 (To date, I still remember this day because I was queueing at $13.00 and it didn't hit.)

Ok, enough dreaming and back to reality. It's back to the waiting game again -- waiting for the right price.

Proxy indicator - STI ETF stock code ES3

Keppel Corporation

DBS

What did I buy in Dec 17?

Singtel I bought more shares when prices hit $3.60 (4.86% based on 17.5 cents) after it went XD (post dividend). Historically, Singtel share prices cycle up and down within a year so I see this as an opportunity to buy. I would have preferred to have a higher yield though.

Stock shopping is beginning to feel more expensive, which is a sign that the market is picking up. In my view, as long as we avoid the medical and food stocks which tend to be over-priced, it's still possible to find some fair price items. For e.g., Singtel, AIMS AMP, QAF, SIA Engineering, ST Engineering. For those with weak hearts, avoid the bank stocks that have risen by 50% from their troughs in Feb 2016, 22 months ago, because you might be in for another roller coaster ride.

Outlook seems to be more positive, which may not be a good thing. Confidence breeds complacency.

How much have I earned and lost in 2017?

How much have I earned and lost in 2016?

My objective for 2017 was to maintain my existing portfolio and receive $10,000, and achieve a stock to cash (exclude emergency funds) allocation ratio of 50:50. I met my target. It is also a milestone for me to have finally reached $1,000/month of passive income. It has been 14 years since I dreamt of hitting this target. It had been a combination of work hard to increase my earned income, to learn how to pick stocks, and to cultivate patience and will-power.

Income was $11,800 (this is based on received, will be $12,800 if based on ex-date), which was largely due to increase in portfolio and better bank interest rates for interest income from Bank of China 2.5%, UOB One 2.43%, Hong Leong Finance 1.7%, CIMB Fastsaver 1%, Singapore Savings Bonds 1.1%. I picked up $29 worth of coins (about 100 coins, of which 40 coins are 5 cent coins, which is still $2). Every coin adds up.

Average dividend yield is 4.56% (based on ex-date). After some rebalancing this year and using retirement calculators, I decided that my objective for 2018 is to increase my average yield by 0.5%, and then maybe another 0.5%/year for another 2 years, to 6%, but I will reassess this at the end of 2018. This will need to be supported by increasing REITs to 50% of my portfolio. Currently, the ratio is about 23%, I will implement this by rebalancing and capital injection at the right prices over 3 years, from 23% -> 33% -> 43% -> 50%.

I also started investing in Vanguard ETFs through Autowealth, adopting a dollar cost averaging approach, but I select which day of the month to deposit my money to buy, hoping to catch low points in a month. I started with $5,000 in Aug 2017, and contribute $400/month. It is currently returning an insane annualised yield of 15%, which I don't believe is sustainable, hence I am taking it slow and steady.

Unrealised profits which is nice to see but cannot eat:
Autowealth = S$260
Singapore Stocks = $20,000
Although we are not at the end of the year yet, I don't foresee much variation over the next few weeks. I will update again if there is a sudden market crash or something.

Objective for 2018: Increase REITs by 10%, increase portfolio yield by 0.5%, increase income to $14,000.

Chart of humble beginnings

Lifetime accumulated dividends and interest, net of losses = $49,000

Portfolio income "methodology": Assuming that I continuously invest $36,000/year or $3,000/month,
In 3 years, accumulated dividends and interest = $100,000, $1,600/month
In 7 years, accumulated dividends and interest = $200,000, $2,200/month
In 10 years, accumulated dividends and interest = $300,000, $2,700/month

Compounding is awesome. Every coin adds up.

What did I buy in Nov 17?

QAF I bought more shares when prices hit $1.10. As there was price weakness after the oversupply of pork in Australia, I decided to spread purchases over a few months to get a better spread. If prices were to remain at this level, I may add more.

Other shares that I had been watching are:

• SIA Engineering
• Comfort Delgro
• Singapore Press Holdings
• ST Engineering

I had no luck at the RE&S IPO.

No bargains in the market, so I will continue to save up and wait.