Tuesday, 14 November 2017

Core holdings quarterly report (October to December) Part 2 - Non-Reit

This is part 2 of core holdings quarterly report which focus non-Reit counters.

iFAST and 800 Super replaces Micro-Mechanics and SingTel in the core holdings since the last quarterly report. Micro-Mechanics was divested before its last quarterly results as my return provided 5 to 6 years of dividend which was my initial investment reason. Since my divestment, its price has continued to hit new high to remind me of my pain. SingTel just dropped out of the core holdings as I purchased more of the other counters.

The tables below summarizes their performances for the latest quarter.

Another fantastic quarter by Valuetronics. Revenue and net profit increases for the seven consecutive quarters, contributed by both CE and ICE segments. The strong performance for the past few quarters have been attributed to smart lightings of CE segments. The ICE continues to grow but at a slower rate. 

It also declared its first interim dividend of HK 7 cents. The momentum should continue to carry on for a few more quarters and I hope to hear more growth from its ICE segments, since it has increased its capital expenditure for the last 2 quarters on new machineries.

At forward PE of about 12x (and only 9x excluding cash), and probable yield of about 4.6% (based on $1 price), it is not a compelling buy. Having said that if the price corrects to around $0.90 or more good news is announced in the coming quarter, I might add more.

Food Empire
Food Empire reported another good quarter with a minor increase in its revenue and a higher growth in its net profit. From the beginning of its turnaround last year, it has continued to generate good cash flow. Coupled with its regular scheduled repayments of its debt, the company 
 is finally in net cash position after being in net debt from 2013.

Going forward, the growth might not be as strong with management highlighting stiff competition for IndoChina market and maturity of its ingredient business. With the positive experience in the ingredient business and increase in cash, I am confident that the management will announce further expansion in the upstream project in due course.

Having average up a few times over the past year, Food Empire is currently my top holding, occupying 8.5% of my portfolio (by cost). While I believe that it will continue to do well and pay out more dividend, I will not add on more shares as its growth might slow and currency risk while reduced, is still a concern.

iFast continues with a strong showing this quarter as compared to previous year. However, the increase is much lesser from previous quarter. I expect the momentum to continue and its Q4 will be about the same as this quarter, with the potential of upside surprise. 
The company has also increased its dividend by 10% from $0.0068 to $0.0075.

High valuation of PE 29x if Q4 results is within my expectation and PEG of about 1. So pretty much fairly priced but I continue to like how the company goes about executing its strategies. While China loss widens, it continues to establish itself. the recent step in an institutional business partner in China (Beijing Financial Alliance Technology Co Ltd) is evident of its effort. 

I am happy with the gradual growth for the next one to two years with the a possible explosion in growth (and price) once it establishes itself in the China market.  

As I was expecting quarter three to continue its growth momentum from the previous two quarters, I was disappointed to see the dip in performance when I first took a glance at the results. Feeling more neutral when I realized that the weaken performance is largely attributed to UWX due to a restriction of visitor to the island. The other attractions reported an increase in revenue. 

Straco continues to generate a large amount of cash and now has a net cash position of 137 mil. With a quarter to go, I would expect its net cash to be in the range of 140 to 150 mil by the end of this financial year. That is a whooping $0.17 per share.

Before Straco bought Singapore Flyer (SF) in 2014, it generated about 12 to 15 mil per year. When it acquired SF, its net cash was at 110 mil. After SF, it has been generating about 40 mil per year and with the record cash that it is holding, I am pretty confident that it will increase its dividend for this year.

Hence, I will continue to hold on to my current stake. I am unlikely to increase my stake further until there is more clarity on how the company is going to deal with the cash that they have.

800 Super
800 Super produces a stable quarter with minor increase in revenue and minor decrease in net profit compared to previous year. However, its performance is better than the previous quarter and net profit margin is back to 11%. 

It has obtained TOP for its WTE plant and will be carrying out testing of its biomass boiler. The plant is expected to commence operation from 2018 first quarter. The development of sludge treatment plant is in progress and is on track for completion in 2018 second quarter.

Looking forward to the completion of the above two projects in the coming quarters.

Vicom produces another stable quarter with minor decline compared to the previous years. Next quarter's report will be interesting as we can see the effect of the minor price adjustment for vehicle inspection. 

I continue to stay confident of its ability to generate cash and am quite sure it will at least maintain its dividend by the end of the year.

Raffles Medical Group
Results continues to be flat with Hospital Services Division's revenue increased by 3.1% but Healthcare Services Division's revenue decreased by 4.2%. Looking forward to the opening of 

Raffles Hospital Extension by end of this year which should improve both top and bottom lines as it has been operating at full capacity in recent times.

It continues to generate strong cash flow and cash balance has maintained at  around 110 mil, even after distribution of 9 mil of dividend and payment of 31 mil for investment properties under development.

With Raffles Chongqing opening in 2018 second half and Raffles Shanghai in 2019 second half, it is exciting time for the company. 

A "C" grade for current performance but a "B" for its potential in the new few years. I will continue to hold on to my current stake and may add more at the appropriate juncture.

Thursday, 9 November 2017

Core holdings quarterly reporting (October to December) Part 1 - Reit

Decide to break up my core holdings quarterly reporting to two parts as my 3 REITS have completed reporting and the rest of my holdings are still reporting their results until the end of the month.

Again, my definition of core holdings are counters which I am more familiar with. These are counters which I am more confident of and have a more substantial holding (about 5% of portfolio); hence I am more likely to hold them for a longer period of time.

The tables below summarizes the 3 REITs performances for the latest quarter.

Frasers Centrepoint Trust
As seen from the above table, FCT reported a strong quarter with increase in revenue, net property income, DPU and NAV. This despite the fact that Northpoint City is still about 18% vacant due to AEI. The strong showing comes from increase in occupancy in Changi City Point and Bedok Point, and 8.3% rental reversion for the past quarter.

I expect even better performance for the next two quarters with completion of Northpoint City. Also, with the opening of Downtown line, that will boost the traffic to Changi City Point.

The DPU might not jump in quantum as I think the proportion of management fees to be paid in Units will reduce from the current quarter of 70%. However, I believe that the management will want to continue to increase its DPU for the 12th straight year. Hence, I expect its DPU for next year will grow between 3% to 6%.

Also, with a low gearing of only 29%, acquisition of Punggol Waterway Point within the next few years is definitely a possibility.

The price of the counter has gone up quite a bit before the results is announced. It dipped to $2.17 recently which is not cheap with respect to its NAV of $2.02. However, with its proven track record and my thinking of its next year's DPU, I increased my stake by another 25%. With this increase, my average price is $2.06.

ParkwayLife REIT
Parkwaylife continues its stable and strong performance. Even excluding the divestment gain, its DPU has gone up by 2.9% compared to 2016Q3. For this financial year, its DPU has slowly increase too (Q1 3.06, Q2 3.10, Q3 3.15). No complain about it except that its price has really run up too much for me to accumulate further at this point. Might start considering again if yield increases to at least 4.8%.

Starhill Global REIT
All metric continues to drop as compared to a year ago but it seems to have stablized over the previous quarters. The key concern still lies with its office occupancy but the bright spot is management has shared that they are finalising the deal for 1/3 of its vacant space.

Going forward, things should look slightly brighter with the above, completion of Australia AEI and stable income from China properties. The price seems to have factored in the outlook as it hardly move after the announcement of the weaker results. I am going to continue to hold on to my current stake (average price of $0.70) which occupies 4.8% of portfolio.

Monday, 30 October 2017

A look at my recent buys (Part 3) - 800 Super

I first came across 800 Super in 2015 when its price was only 40+ cents. A cusory glance at its balance sheet puts me off as it is in a net debt position and its debt had been increasing. The company’s share price burst into action in the second half of 2016 and reaches a high of $1.38 on 12 May 2017.

I finally took a small bite of it at $0.93 in December 2016 and sold it off at $1.26 in May 2017 for a 36% gain. The recent dip in its price to $1.1+ allows me to take a second bite at it. Together with the few recent buys of iFast, Hock Lian Seng and UMS, I decided to take a closer look at the company’s past record.

What do they do?
Listed on Catalist on 15 July 2011, 800 Super is an established environmental services provider for both the public and private sectors in Singapore. The Company's environmental services include waste management, cleaning and conservancy and horticultural services. The company is one of the four licenses public water collectors appointed by NEA. It has been the Public waste collector for Ang Mo Kio-Toa Payoh sector since July 2006, and was re-awarded the contract in 2014 for 7 years and 9 months.

In its IPO document, the company stated the following as their business strategies and future plans.
• Expand our material recovery facilities capacity and the capacity of our vehicle depots
• Enhance the efficiency of our services and capacity
• Venture into waste treatment and renewable energy businesses
• Focus on public sector projects
• Continue to focus on operational excellence
• Explore strategic investments or alliances and acquisitions
• Expand into overseas markets

Based on the past few years record, tt seems that they have been executing their plans, with the completion of the material recovering plants and vehicle depot at Tuas South. Also, they were awarded integrated public cleaning for North-West (6 years) and South-West (7 years) sectors in 2014.

Recent Development
The group had a hiccup in its growth of both top and bottom line in the latest year with poorer performance in the last 2 quarters. This coincides with the delay of its completion of its Waste-to-Energy (WTE) plant which was slated to be in operation in 2017Q2. I suspect they are ironing out some teething problems and hopefully it can come into operation by end 2017.

In October 2016, the company was awarded a15-and-a-half-year, S$133.65 million contract that the Public Utilities Board (PUB) for a sludge treatment facility. This is slated to be completed in 2018 second quarter.

In the latest financial year, the company continues to increase its dividend from 2.5 cents to 4.0 cents.

The Lee brothers Lee Kok Yong (Chairman), Lee Cheng Chye (CEO) and Lee Hock Seong collectively have a 75% stake fo the company.

It is my opinion that they are networker and are people-oriented leaders with interest aligned to the shareholders.  My opinion comes from the position they held – Lee Kok Yong is a direction of Ang Mo Kio Joint Temple Association and Lee Cheng Chye is currently the treasurer for Bishan East Citizens Consultative Committee and was conferred the Public Service Medal (PBM) by the President of Singapore at the 2015 National Day Awards.

The company has also increased its dividend over the years, from 1 cent in 2012 to 4 cents  in the latest financial year.

Crunching the numbers

The company has grown its EPS by about 24% over the past 5 years. I opined that the company can at least grow by 15% in the next few years which would give its PEG of about 0.85.

Dividend has been increasing and based on the payout ratio and likely increase in cash balance, I think it can at least sustain its 4 cents and that provides an yield of about 3.3% based on current price of $1.215.

The company seems to believe in using debt to grow and it is not something that I am comfortable with. However, its ability to generate cash is improving over the past few years and net debt has gone down until the recent increase in debt to finance the buiding of the sludge treatment plant.

After taking a closer look at the company, I must say that I am impressed by how the company has kept to what it has set out to do in its IPO. It has grown over the past 5 years and increases its dividend. While debt is something I am not comfortable with, it seems that the company has been able to deal with it and moving forward, the chance of paring it down seems high.

Weighing the risk and reward, I decided to add on to my holding today, resulting in an average price of  $1.16. It now occupies 5.4% of my portfolio.

Thursday, 26 October 2017

A look at my recent buys (Part 2) - Hock Lian Seng vs UMS

Hock Leng Seng (HLS) vs UMS? Why compare them? How are they related? 
Nothing except that both are listed on Singapore Exchange and I bought them recently in September as dividend counters.  

What do they do?
Hock Lian Seng is a leading civil engineering group that is established for 45 years. It is listed on SGX mainboard in December 2009. At any one period, the group does not have many projects but they have big projects with revenue that is recognized over a few years. Some recent completed projects include Marina Bay Station, Marina Coastal Expressway. On-going projects include CAG airport runway and Maxell Station. Upon listed, they forayed into property development and had developed industry building such as ARK@Gambas and ARK@KB and collaborated to developed the Skywoods condominium. The remaining project that the group is doing now is Shine@Tuas South. The other segment is investment properties which contributed negligibly in the latest financial year.

As seen from the segment value, the group seems to have gone a full circle with tapering civil engineering projects to an increase in it after a few years in experimenting properties development and investment. Going forward, it seems that they will be focusing on civil engineering business.

UMS is a is a one-stop strategic integration partner providing equipment manufacturing and engineering services to Original Equipment Manufacturers of semiconductors and related products. It is formed with the merger of Norelco Centreline (listed on SESDAQ in 2001 and upgraded to mainboard in 2003) with UMS Semiconductor in 2004. The key change in their product occurred in 2010/2011 when they acquired Integrated Manufacturing Technologies Pte Ltd and Integrated Manufacturing Technologies Inc. Since then, their revenue is mainly from Applied Materials.

Recent development, results and price movement
Hock Lian Seng proposed a special dividend of 10 cents in the latest financial year. Wow, a big windfall for investors who have invested in the company before that. Unfortunately, I am not one of them. 20171H performance has been muted as there is no contribution from property development. Revenue from Civil Engineering segment was flat from previous year. The bright spot since the beginning of the year is the record order book which stands at a high of 890 million. Also, it has about 27 cents of cash per share which means I am just paying about 18 cents for its solid order book. Share had drifted to $0.4+ in August/September when I made my purchase. It was moving up over the past week and is now at $0.51.

UMS renewed its integrated system contract with Applied Material for 3 years (and has the option of extending it for another 3 years). It is also attempting to diversify its customer base by subscribing to 51% of the enlarged share capital of Kalf. Recently, it has also gone XB for its 1-for-4 bonus. Its price has dropped from its high of $1.2+ (pre-bonus) in May/June to $0.9 (pre-bonus) when I made my purchase. It has gone ballistic after XB recently and is now at $0.99 (post-bonus).

Dividend and Sustainability?

Year         HLS         UMS
2016 12.5 c 4.8 c (adj)
2015 2.5 c 4.8 c (adj)
2014 4.0 c 4.2 c (adj)
2013 1.8 c 3.8 c (adj)
2012 1.8 c 3.8 c (adj)

As seen from the above table, both companies have been quite consistent in giving out dividends with HLS giving out special dividend periodically and UMS has increased its dividend.

Dividend payout for HLS around mid 30%, while UMS ranges from 70+% to 100+% if based on net profit. Based on free cash flow, UMS is around low 80%. Also, as mentioned earlier, HLS has about 27 cents in cash; while UMS cash holding is around 14 cents.

Based on the above, I am quite confident that both companies will sustain their pay out in the coming year (HLS – 2.5c, UMS – 6c) and this will translate to a yield of about 4.9% for HLS and 6.1% for UMS.

I first purchased both when their price has slid downwards in August/September. I was quite impressed by Hock Leng Seng as it has a strong net profit margin and return of equity. The property development has probably masked the NPM and ROE figures and I have not spent time drilling down on its AR. However, if I based it on 2009, 2010 figures when property development has not started NPM is around 10% and ROE is high 20%. Impressive numbers. 

Based on these numbers, order book and cash per share, I have added slightly more this month, bringing my average price to $0.45. I would like to see how things unfold in the coming quarters before deciding if I would accumulate more.

With the contract renewal, there is more certainty of  UMS for at least the next few years. I have not added to UMS since my purchase at an average price of $0.76 (adj) in August, as the price has ran up and I was waiting to see if it would correct to below $0.80 after XB. The run up after XB was totally unexpected. I would be waiting for its Q3 results and the price then before making further decision.

Wednesday, 25 October 2017

Buy and sell actions in October

Unlike the past 3 months, I have taken relatively less actions in October.

1. Added more iFAST as I felt excited and confident of its future growth after reading through the past annual reports. See previous post on my thoughts about the company. It now occupies 5.4% of my portfolio with my average price at $0.935.

2. Added more Hock Lian Seng after learning more about the company through the past annual reports. With a strong order book and balance sheet, feel confident that it can maintain its 2.5 cents of dividend. That gives me a yield of 5.5% with my average price of $0.454.

3. Added more Frasers Centrepoint Trust after its stellar Q4 performance and price dipped to $2.17 from the recent high of $2.2+. Expect DPU and NAV to continue to grow next year now that AEI of Northpoint is almost completed. Assuming that DPU comes in at 12.2 c, it will provide a yield of 5.6% at $2.17. My average price is now $2.06 which is only slightly above its current NAV of $2.02.

4. Bought ULTA Beauty at USD196.85. Felt that it was way oversold from its recent high of USD300 in June, especially when it is growing at 20% to 25% for this financial year. Its current PE of 25-27 is much lower than its past 5 years average of 38.

5. Bought 800 Super at $1.21. After a closer look at its business, decided that there is still room for growth in the next few years especially with the Waste-to-Energy (WTE) coming into operation at the end of this year.

6. Sold CDLHT at $1.63, making a small gain of 2.7%. DPU after rights is lower and the outlook of the hospitality sector probably need another year or two for greater clarity. So decided to sell and use the proceed for other counters.

7. Sold OUEHT at $0.805, making a gain of 5.8%. Similar reason on hospitality sector. Decided not to wait for quarterly results in the coming week as I have made a small gain and am unsure how the DPU will be affected as there will be no more income support.