Why I buy VICOM Ltd?

I first read about VICOM as I was re-building my portfolio in 2015. Looking at its past record, I lamented that it was another counter that I have missed over the past decade of investing. Nevertheless, I found it to be a simple and cash generating business and decided to take a stake in it, thinking that its price has factored into the increase de-registration of car for the next few years.

Apparently, the market did not think so and its share price continued to drop and I divested completely in 2016, making a loss of 3% after accounting for dividend received. It continued to stay in radar but I did not buy into it as there is a continued worry of its sustainability of its dividend.

Why buy?
I decided to buy the counter again due to its announcement of its new dividend policy of paying out 90% with immediate effect in its Q2 result. This provided me with a higher certainty that its dividend will more or less be sustainable in the next few years even as revenue and net profit will continue to slide with the decrease in its vehicle inspection due to the increase in car de-registration. 

Of course, it has been paying out 80+% in the past two years, hence it is not such a big increase. However, I think by putting in writing 90% payout, I am thinking it might pay out even more especially when it is a cash generating business.

From the data, the increase in de-registration should continue into 2019 with an increase in vehicle inspection from 2020. With COE continued to stay high for the past year, there is also an increase in COE renewal. Not sure how all these will pan out in the next few years, but I think it might stabilize the number of vehicles requiring for inspection.

VICOM also has a non-vehicle inspection business SETSCO. From a report from The Fifth Person done in 2015, SETSCO actually accounted for 60% of its revenue. Unfortunately, in the recent annual reports, VICOM no longer provides segmental report of its business. In the latest annual report, it is reported the SETSCO experienced a difficult year in 2016.

All the above factors and its strong balance sheet which has about $1.08 per share gives me confident that the company can maintain its dividend for the next few years before the upturn in its business again.

What I expect?

Near to zero movement in its price until pre- and post- dividend. A dividend in the range of 26 cents for 2018 and 2019, giving me a yield of 4.5%. From 2020 onwards, its dividend should increase together with its revenue and profit. Its share price might follow with that.

Possible catalysts include an increase in dividend payout, an increase in car inspection fees (the last increase was in 2012) and better performance by SETSCO amid the challenging environment.

When will I sell?

If there is a steep drop in dividend, reducing the yield to less than 4%, I will probably switch out of the counter.

Why I buy Food Empire Holdings

My first encounter with Food Empire was way in 2003. I was intrigued and impressed by that a Singapore company is the top seller of coffee in Russia and other emerging markets. Being relative new in investing then, I bought and sold to take small profits and took losses with small movement. Best performance then was a 70% gain from late 2006 to early 2007 when price surged from $0.525 to $0.905.

It went out of my radar after the financial crisis in 2008. Finally took a look at it again in early 2014 at $0.41, thinking that the price was pushed down too much due to the Russia, Ukraine crisis. 

Probably took up a position too early as the crisis lingered longer. Sold, bought, sold during 2015 to 2016 as shown in the diagram. And with all these buys and sells, my overall gain is only 9.7%. Of course the gain would be more if I am committed to my purchase reason and did not sell when the price went up to $0.32. Well, if only....

The turnaround continued in the second half of 2016 and price moved up with it. I decided to average up as I am positive about the counter for the coming year.

Business

From the company website:

"Food Empire Holdings (Food Empire) is a global branding and manufacturing company in the food and beverage sector. Its products include instant beverage products, frozen convenience food, confectionery and snack food. 

Food Empire’s products are sold to over 50 countries, in markets such as Russia, Ukraine, Kazakhstan, Central Asia, China, Indochina, the Middle East, Mongolia and the US. The Group has 24 offices (representative and liaison) worldwide. The Group operates nine manufacturing facilities in India, Malaysia, Myanmar, Russia, Ukraine and Vietnam."

Hence, Food Empire operates in a competitive landscape with inherent risk as the products are sell in emerging markets.

Why invest now?

So why buy into this company with such unfavourable conditions? And how does it end up to become my largest holding?

1. I see Food Empire as a turnaround story with positive performances in the coming quarters. The belief in the company is more qualitative rather than based on historical track record. If you look at the numbers, you will see that despite increasing revenue, earning is lumpy and can be totally wept out in a crisis. Having said that, despite going through two major crisis, the company has grown bigger as seen by its equity and net asset value.

The company does give out dividend in good years. On average, payout ratio is around 20% to 30%. So, I do expect dividend to increase as the turnaround continues.

2. I am quite impressed by how the management has managed the two crisis that they have gone through and became stronger after that. Especially in the recent crisis, the company did not focus on just cost cutting but continue to look for way to diversify. Today's results is due to the seed planted a few years back. From growing business beyond Russia, Ukraine and CIS countries to growing upstream into production of ingredient, all these initiatives started in 2012/2013.

As seen from the table above, other countries (including Indochina) now contributes more than 40% of its revenue. This is indeed phenomenon as compared to only 11% in 2012. Indochina's market especially Vietnam has done so well that the company now consider it as a separate segment. What is more interesting is that beyond Indochina, other countries continue to grow from 10.5% in 2014 to 21.5% last year.

Besides diversification geographically, the company also gone upstream into production of ingredients. Again, that has done well and it now contributes 4.3% of its revenue. Moving ahead, it should continue even more as the company ramps up the production in its India plant.

3. I become more confident of the company after attending the AGM. Brief pointers of AGM can be found here. My personal perception is that Chairman Tan Weng Cheow and CEO Sudeep Nair have good dynamics between them and together they should be able to bring Food Empire to greater height. 

In fact, the change in Food Empire highlighted in point 2, coincides with the appointment of Sudeep Nair as CEO while Tan Weng Cheow takes on the role of an Executive Chairman. In 2012 annual report, Mr Tan highlighted their different roles. 

"Mr Nair will take over the overall oversight of the Group’s day to day operations, while I, as Executive Chairman will continue to focus on the long term strategic objectives such as developing new markets exploring opportunities for acquisitions as well as enhancing in-house production capabilities."

4. The recent purchases by CEO provided a confident boost. As the saying goes, there is a lot of reasons for an insider to sell but there is only one reason for insider to buy.

When will I sell?

I hope I never gets to sell it as I am quite excited about its current growth. However, if its execution in other markets and ingredient market hit a barrier, I might trim down my holdings. Of course, it the valuation goes way beyond its fundamentals, I might sell too.

Conclusion

Food Empire is a company that I am familiar with. Its market concentration in Russia, Ukraine, Kazakhstan and CIS countries has always been a concern. However, what happened over the past five years provided me with hope that the company is finally overcoming this issue. Of course, its results is still going to be affected by political issue, and currency fluctuation but with increasing contribution from other markets, I believe that the effect might not be as devastating. I am also excited about its ingredients business. Still small at the moment but it provides growth opportunities. 

With a clearer understanding of its recent development, I am now more confident in having Food Empire resides among my top few holdings.

Why I buy Best World?

I have written a longer write ups on Best World last July in the following two posts:
Best World International Limited

MLM and Best World...my experience with them

This post will summarise my reason for buying it and my expectation. I will also share its latest results.

Why buy?
The following are the key reasons why I purchased Best World.

• The group gains traction in both Taiwan and China markets and has grown tremendously from 2014.
• The group obtained its Direct Selling license in China which opens up a giant market for them in the next few years.
• The group is a cash business. If they can grow their top-line, they would generate cash. And with a dividend policy of 30%, it means more cash-back.

What I expect?

I expect the company to execute their strategies to grow their China market. Execute well, and it should have double digits growth for the next few years. I also think that the company might issue bonus and rights in the next few years to generate further interest in the company. Best World would become a billion company if they can sustain their growth. Longer term, I hope that they can translate their performance in Taiwan to other markets.

When will I sell?

I would be holding on to my stakes for at least the next few years as there is clarity in their growth. I will sell if there is a sudden reversal of their fortune in both Taiwan and China due to regulatory changes. Another reason that I might sell is if the valuation goes crazy like PE 50x. I probably won't sell all but will definitely takes profit. 

Recent results
Amazing 1H results. Revenue up by 154.3% and net profit increased by 466.1%. Dividend of 2 cents and propose bonus shares of 1 for 4. Taiwan continues to be the star performance with revenue up by 275.8% and China is catching up with revenue growth of 164.7% for its export market. Currently, Taiwan and China accounted for near to 90% of group's revenue. Indonesia also saw growth of 122.9% but it is very much smaller in absolute revenue. 

I am happy to see the results even though it was already expected. There is a slight concern that Taiwan accounted for 63.7% of its revenue. However, things should change by next year with conversion of China export model to direct selling.  

I will continue to hold on to my current stakes and might buy slightly more after the bonus issues.

Why I buy Valuetronics?

I got to know Valuetronics after I read articles on NextInsight. I was attracted to its dividend and purchased a small stake. I increased my stake further after reading its past few years of annual reports. I like its story of how it exited LED business in Consumer Electronics (CE) segment and growing in the Industrial, Consumer Electronics (ICE) segment which provides a higher margin. Just before writing this post, I browsed through the posts on Valuebuddies and now know a bit more of its historical business of licensing, to CE and now ICE. 

Why buy?
My main reason to purchase Valuetronics is its high dividend yield. My average yield is about 6.6% if it can maintain is 20 HK cents DPS going forward. How likely is that? I think that in the near term, it is quite possible if they can continue to grow their ICE business which commands a higher margin. 

Reading the posts from valuebuddies confirm my dislike of manufacturing sector which typically has low margin and depends a lot on its customers. Valuetronics has survived near to 25 years since it was established in 1992 and it seems nimble enough to continue to grow its business.

What I expect?

Do not really know what I can expect but I am hopeful that their growth in ICE will make them a bigger player in the Electronic Manufacturing Services provider.

When will I sell?

Of course if what I hope for doesn't turn true or when Mr Market value it 3-5x the annual dividend I am receiving and there is no change in its fundamentals.

Recent results
20171Q revenue and net profit continued to decrease from its exit of LED segment since 20163Q, partially offset by the growth in ICE segment. Management has guided that revenue of CE segment is more or less stable at about HK 140 mil to HK 160 mil. Entry to automotive industry will be its next driver.

So all is well, within expectation and I will continue to hold on to my small stake.

Why I buy Capital Retail China Trust?

My first exposure to China retail sector was my purchase in Metro in 2008. Bought with CPF, I have held on to it until now, with near to 200% return (including dividend) and yield based on purchase price is near to 15%. Just two days ago, Quarz Capital Management have written an open letter to urge Metro to return cash. Hopefully that will get Metro to take some action to further unlock shareholder's value.

I decided to purchase Metro rather than CRCT was due to my familiarity to the brand then and hence CRCT seldom came to my mind as a purchase idea.

Why buy?
My main reason to purchase CRCT is its high dividend yield. I was attracted by the more than 7% yield and the trust have increased its dividend payout over the years, though the increase is not linear and dropped in two years.  With these information, I believe that the group can continue to give consistent dividend in the coming years.

What I expect?

I expect that in near term, the dividend payout will be pretty stable. While the recent purchase of Galleria, Chengdu is DPU accretive for the trust, I feel that the impact will be pretty small.

When will I sell?

I will sell when Mr Market decides to value it higher and provides me a return of at least 3 years of dividend, without any change in its fundamental.

Recent results
20161H revenue and net profit income is pretty stable and there is a slight dip in the interim DPU. I will continue to hold on to my lots to collect dividend.

Why I buy Singapore Technologies Engineering?

I bought and sold ST Engineering shares numerous time over the past 12 years. I decided to dig into my record and check the details and these are the details.

2003 - Purchased a lot at $1.81 and sold at $1.96 within the year.
2009 - Purchased 5 lots at $2.38 and sold at $3.10 in 2010. 
2011 - Purchased 10 lots at $2.81 and sold at $3.35 in 2012.
2015 - Purchased 5 lots at $2.985 and sold ???

My purchase in 2003 was of course during a time when I was still clueless about investing. Yes, I made a gain of $100 but that was without any homework done. If I know the financial of the company better, I would have definitely held on to my lot and even buy more at a price below $2.

The subsequent purchases weren't really much better. By 2009, I roughly know what the company does but its business is very much more complex for my simple mind. As you can see from the purchase price each time, it has been creeping up, though the last 2 purchases were below the previous price that I sold. 

So unlike my purchase of Best World, Parkwaylife Reit, Raffles Medical, Straco and Starhill Global Reit, I don't seem to be buying ST Engineering for long term.

Why buy?
Based on its track record, ST Engineering delivered a pretty stable performance. From 2011 to 2015, revenue and net profit is around $6 bil and $5.3 mil respectively. EPS is around 17 to 18 cents and DPS is around 15 cents. 

My assumption is that the company will continue to pay out dividend annually and there won't be much change in the amount of dividend in the coming few years. Hence, I have a sense of comfort buying it whenever the price dropped below $3, as at 15 cents, that give me a good yield of 5%.

What I expect?

I expect that in near term, the revenue and net profit should continue to be stable. There might be a dip as economy seems to be drifting at this moment. The dividend payout should remain pretty stable at 15 cents too.

When will I sell?

I will sell when Mr Market decides to value it higher and provides me a return of at least 3 years of dividend, without any change in its fundamental.

Recent results
20161H revenue grew by 5% and net profit grew by 2%. Management guides that revenue would continue to grow in 20162H but profit before tax will be lower. 5 cents of interim dividend declared which is the same as last year.

Will hold on to my 5 lots and continue to monitor.

Why I buy Raffles Medical?

It was 8 years ago when I decided to purchase Thomson Medical over Raffles Medical (RMG). The decision made was not base on its financials or a study of its fundamentals but more of an emotional one. I simply bought Thomson because my first daughter was due in a year and my wife's gynaecology was based at Thomson.

Do I regret the decision? Yes, but not because I bought Thomson as I did a good exit price when Peter Lim made it private. I regretted that I decided to choose one instead of buying both. 

RMG has more than double its net profit and free cash flow since 2008. Stretched it to 2004, RMG has quadrupled its revenue, net profit and free cash flow. So RMG has a solid track record over the past decade.

Why buy?
RMG is expensive in terms of valuation and that has always stops me from buying it for the longest time. So why did I purchase it last year and buy even more this year? It boils down to the report I read from Motley Fool on the group's near and mid-term plans and I am optimistic of its growth.

The group recently completed its development and started its operation of its Holland Village medical/retail complex. RMG is also building its extension in the adjacent land next to the current hospital. This is expected to be completed in the first half next year and will increase its capacity by 80%. The last development is a joint venture with Chinese state-owned enterprise Shanghai Lujiazui Group to develop a new 400-bed internal hospital in Shanghai. This is expected to be operational in 2018.

So if RMG is successful in its execution of its plan, then while valuation appears rich now, it is reasonable when one considers its growth. 

What I expect?

I expect that in near term, the net profit might not grow as much due to expenses for expansion. Things will look brighter after the initial expenses.

When will I sell?

I would love to hold it for as long as I can since it is a great company and should continue to grow for a long time.

Recent results
20161H revenue grew by 21% but net profit grew by 4%. All is in line and will continue to hold on to my current holdings.

Why I buy Starhill Global REIT?

I first wrote about Starhill Global REIT here and my reasons to purchase its shares remain the same.

Why buy?
I bought Starhill Global then mainly for its yield and my perceived good properties in Orchard Road. No regret so far as its dividend has gone up over the years though it is getting flattish

What I expect?

I think the REIT would provide stable distribution for next 2 to 3 years. The possible up side might come from asset enhancement of its Australia properties.

When will I sell?

I would like to hold on to this REIT for as long as possible as I am getting about 7.7% yield based on my purchase price. Sell will only comes in if there is major negative changes in its fundamentals.

Recent results
2016 distributions increased be 1.4% with a flat 4Q. Full contribution from Myer Centre but drop in contributions in Japan and China. Fortunately, China only takes up about 2% of its portfolio.

No impetus to buy or sell. Hold and continue to receive the dividends

Why I buy Straco Corporation?

I first came across Straco from Motley Fool Singapore subscription service. As mentioned in my detailed analysis of the company, I wish I have gotten to know this company earlier.

Why buy?
The following are the key reasons why I purchased Straco.

• The group has been able generate cash consistently. This leads to its ability to pare down its debt and to increase its dividend over the years.
• The acquisition of Singapore Flyer marked its foray beyond China. I believe this would lead to other acquisitions when opportunities arise.
• The ability of the group turning over the fortune of Singapore Flyer within one year of acquisition gives me confident that the management team knows what they are doing.

What I expect?

Base on the past actions, I expect the management to use its cash to repay its debt in the next few years and hence dividend should remain the same. After which, it would increase its dividend unless there are new attractions to acquire. I also think that the management will improve Singapore Flyer's business further within the next 2 to 3 years.

When will I sell?

I am confident that the company will continue to grow and hence look to hold on to the shares for a long time. I will sell if the competition in Shanghai significantly affects SOA's top and bottom lines. 

Recent results
20161H saw Straco's revenue decreased marginally by 0.5% from 20151H. Its net profit dropped by 8.2%. Management attributed the drop to poorer number at SOA and UWX but offset by increase in revenue at SF. Net cash flow from operation also decreases by about the same amount. 

I have a slight concern of company's performance at SOA and UWS. I am not sure if the numbers will continue to deteriorate and will continue to monitor the coming quarters results. I have decided to reduce to my holdings in the company even though I think it's still a good company to collect dividend due to its ability to generate cash. I will also re-classified the company in the dividend category rather than growth category in my portfolio.

Why I buy Parkway Life Reit?

I first came across Parkway Life Reit from Motley Fool Singapore subscription service. It is interesting that this healthcare Reit was not in my radar for the past decade. It could be that I was holding on to First Reit through CPF in the past decade and hence it did not occur to me to look for other healthcare Reit. And because of that, I missed its growth over the past decade! Ouch!

Why buy?
I believe it is still not too late to take a stake in this stable and probably growing Reit. A few reasons behind my optimism.

• Population in affluent Singapore and Japan will continue to age and hence there will continue be demand for quality healthcare and nursing homes.
• The built-in rental escalation for the three Singapore hospitals (Mount Elizabeth, Gleneagles, and Parkway East) which is based on the formula of consumer price index (CPI) + 1 allows annual growth rent.
• Past performance indicated a strong management team which has ensure no more than 30% of its debt matures every year.

What I expect?

What do I expect for the next decade? I expect to receive consistent dividend from the Reit and based on my purchase price, it's about 5.2% yield. Growth should be moderated since it does not have much headroom for debt (though management felt that there is ample headroom) with its gearing around 38%. I think these are two possible events in the next decade, 1) Rights issue to raise money for new acquisition; 2) occasional divestment which will result in special dividend.

When will I sell?

I do hope to keep this forever unless there's a big deterioration in its fundamental such as a big drop in its revenue, net property income etc.

Recent results
In the results released in July, Parkway Life Reit continues to perform well. For 1H 2016, its revenue has grown 7.7% to $54.286 million and net property income grew 7.5% to $50.7 million. Its dividend per unit dropped by 8.6% to 6 cents due to lack of divestment gain. Exclude the divestment gain, current dividend represented 51% of 2015 full year dividend. From the presentation slides, management highlighted two prong approach in its Strategic Investment.

• To continue to seek out long-term and strategic partnership with good lessee/operator where possible. 
• To prioritise & seek out investment opportunities in countries where PLife REIT  already has investments. It might establish a country HQ for closer monitoring of its properties and portfolio.

All seems well and I will continue to hold on to my small stake.