[My Story]: Investment outlook for 2018

We are one week into 2018 and most of us would have set our New Year’s resolutions for the new year! And it’s important to do that for investment as well, so that we know what are some of the rules guiding us in the year ahead.

2017 have been a rather uncertain year, and it’s also my very first full investing year (since I started in March 2016). I would have to say that I truly learnt a lot from my friends over at IN and from reflecting upon all my investing decisions throughout 2017.

A Quick Reflection of 2017

2017 was an exciting yet frustrating investing year for me as I started 1st Quarter of the year by hitting a multibagger. And then things went rather slowly for me as the next few stocks that I picked took rather long before showing any forms of gains. Most of them were range bound, and prices hover around my purchase price.

Some lessons I learnt in 2017 includes:
1) Buy towards the end of the week to avoid being trapped by traders.

2) No matter how good a stock is, it is vulnerable to the macroeconomic conditions. There were several times where the global markets was on a downtrend due to macroeconomic instability (like North Korea shooting missiles into the water etc). Those times were the true tests of emotional discipline to stick to your investment plan as all the stocks that I am holding can start recording losses as big as 5 – 10% in a few days to weeks.

3) Always buy stocks with the abilities to catch the industry’s tailwind. In 2017, semiconductor stocks were very much in play and many stocks in this industry recorded at least 50% increase in share price. I guess what many investors’ meaning of “a rising tide lifts all boats” was pretty clear last year. Some semiconductor companies who have weaker fundamentals did not rise as much but still were able to clock in a decent share price appreciation due to positive industry sentiments.

Those were the 3 big lessons I take away from 2017 and sadly to say my own portfolio didn’t outperform that of the STI but I will definitely give it another shot this year!

Now looking on to 2018!!

Looking ahead!

I am looking forward to an even more exciting year ahead as I am rather big on three themes in 2018. Mainly the O&G, construction and property industry. By applying Lesson 3 that I learnt in 2017, I will be parking more funds to catch the positive industry sentiments by investing in good qualities stocks in those industries.

I shall share a little more on why I feel these 3 industries should outperformed the rest in 2018. For O&G, the industry was hardest hit in late 2015 as oil prices started crashing until it hit about US$20-30 per barrel which is too low for many O&G companies to make a decent profit. These caused the industry to consolidate as many smaller companies went bankrupt or were bought out (like Ezra, Ezion etc) This was because many companies took on huge loans to run the company when the prices of oil were very high  and when the oil prices crash they weren’t able to finance their debt as their main source of revenue is heavily affected. Now in 2018, oil prices have gradually been recovering and are now sitting near US$60 per barrel. As with all economic cycles, the period after consolidation is the time most O&G companies that were stronger will tend to survive and ride the next uptrend. (Survival of the fittest haha)

Thus I am looking at strong O&G companies with low debts to ride on the potential uptick in the O&G sector.

As for construction and property, its more for local play. Construction sector have been the weakest link in Singapore GDP as it continues to post negative growth in 2017. The construction sector is a labour intensive industry that have not been disrupted by technology. The government have been encouraging the use of technology in the sector to raise productivity in order to lower costs. However, it has not been working as the initial costs of taking up new technology is high and having more competition from foreign construction firms has led many local construction firms to not make the switch. However, the government intends to support the industry by bringing forward more construction activities. With major developments, like the T5 and MRT lines yet to be build this should inject some activity into the constructions sector this year.

Also, there have been a spate of enbloc activities carried out by property developers in Singapore. This should help to boost the construction activities in Singapore too as the acquired buildings will have to be demolished and rebuild.

With private home prices rebounding slightly in 2017, developers are rushing in to stock up their land banks in hope to be able to build new properties to catch the uptrend in private property prices. This represents an opportune time to invest in construction related stocks with support from both the public and private sector this year. Property developers that have many new private property launches this year may benefit from stronger demand due to a possible rebound in private property prices to cash in on their developments.

In conclusion,

these are the areas where I should be parking most of my funds in hoping that a rising tide can lift all boats. My search for undervalued companies in these industries continues and hopefully I will be able to catch some of them before they fly! 🙂

 

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[Eye Candy]: What’s next for GSS Energy?

In the recent announcement by GSS, it have announced the long waited results of their oil and gas venture. I mentioned in my previous post on GSS that this catalyst is the most important for GSS in 2017 as it determines whether a not their O&G business arm will be successful. I also previously shared on IN that the most uncertain part of any O&G business is the exploration phase as a company can spend millions on setting up the place for drilling but if they can’t find substantial oil in the area, its a failed effort.

GSS logoAnd yes! They did it. The management’s postulation on the Trembul area seems to be right.

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In this post, I shall made a new set of possible postulations of what might happen from now on for GSS after reading the various articles and reports about GSS after they have found oil.

Summary of Announcement

According to the announcement released, there are 8 columns of hydrocarbon found under SGT-01, the well that they drilled. The first 2 being gas and the next 6 is oil.

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And according to in-house estimates, the 1P (proven) recoverable resources in SGT-01 is 2.83 million barrels of oil from the 6 oil zones and 8.49 BCF (billion cubic feet) of sweet gas (equivalent to 1.5 million standard cubic feet per day (MMSCFD) of sweet gas for the period of 14 years).

I believe that the management was very wise in choosing that location to conduct SGT-01 well exploration as it is near several other old abandoned wells which allow them to also be able to deduce the oil profile of those older wells. Because of this discovery, they were able to estimate more accurately, the oil profile in well P1 that was drilled by Pertamina back in 2005. (Well P1 have more than 3 potential oil pay zones).

Also, GSS have shelved asides plan to drill SGT-02 which was supposed to be done after SGT-01 to drill the surrounding wells near SGT-01 so that revenue can be recognised from this discovery. Another wise move.

GSS will look to monetise the sweet gas zones in SGT-01, start oil production for well P1, TRB03 and TRB06. (I am assuming right here that all these wells are chosen because they are of close proximity to SGT-01 which allow them to have a better understanding of the oil profile in those wells). All these works aim to yield 200 barrels of oil per day by 3Q18 and monetise the sweet gas in SGT-01 before the year ends.

What does all these mean?

All these will mean that GSS will finally recognise their maiden revenue from their oil and gas venture. I shall attempt to do a brief calculation of how big this is for GSS.

For SGT-01,

 

8.49 BCF of gas is equivalent to 8617350 MMBTU of gas. As of current natural gas price, 1MMBTU cost USD$2.65 (but let’s discount it to USD$2.50)

Total gas revenue = USD$21,543,375 = SGD$ 28,006,387.50

Share of revenue for GSS = 31.4% of total gas revenue then 89% of PT SGT = SGD$7,826,664.45

Can’t assume the net profit as we are unsure of the cost required to produce the natural gas. But one noteworthy fact is that the gas found is sweet which is of high quality and can be sold for a higher price.

For oil,

Total oil revenue = 2.83 million barrels of oil x USD$50 per barrel = USD$141.5 million = SGD$183.95 million

Share of revenue for GSS = 23.5% of oil revenue and then 89% of PT SGT = SGD$ 38.5 million.

Net profit for oil (assuming cost of production per barrel is USD$15) = $SGD 26.9 million

For SGT-01 alone, total revenue (oil and natural gas) they can get out of this = SGD$46.3 million

For Well P1,

There are more than 3 potential pay zones according to their announcement.

Screen Shot 2017-12-28 at 11.43.32 AM.png For simplicity sake, let’s just assume that in Well P1 there is only 3 oil pay zone, and that the oil profile is similar to SGT-01. Meaning for that 3 pay zones, it yields 1.41 million barrels of oil (2.83 barrels divided by 2).

Total oil revenue from P1 (assuming USD$ 50 per barrel) = USD$70.5 million = SGD$91.65 million

Share of revenue for GSS = 23.5% of total oil revenue and then 89% of PT SGT = SGD$18.76 million.

Net profit for GSS (assuming USD$15 per barrel COP) = SGD$13.41 million

For well TRB 03 and TRB 06,

Firstly we have to assume that TRB03 and TRB 06 are of close proximity to SGT-01 and they share rather similar oil profile. Because out of all the 24 abandoned oil wells that GSS could pick to work on, they have chosen these two, which I believe is after due consideration.

As we do not have much information on TRB03 and TRB06, we shall assume that both only had 2 oil pay zones. Total oil resources = 1.88 million barrels of oil

Total oil revenue from these 2 wells (assuming USD$50 per barrel) =  USD$94 million = SGD$ 122 million

Share of oil revenue for GSS = 23.5% of total oil revenue and then 89% of PT SGT = SGD$25.5 million

Net profit for GSS (assuming USD$15 COP) = SGD$13.7 million

 

TOTAL GSS REVENUE FROM ALL THESE 4 WELLS = SGD$ 90.56 million 

 

Assumptions Made,

  1. All wells have similar oil profiles as SGT-01, but to be conservative, I have assumed P1 only had 3 oil zones when there are more and also only assigning 2 oil zones each for TRB03 and TRB06 which should be much lesser than it could possibly be.
  2. I also assumed a lower oil price of USD$50 per barrel
  3. Cost of production is said to be USD$10 – $15 per barrel but I took the high end to calculate for all.
  4. Exchange rate used is USD/SGD = 1.3

 

What could go wrong?

Despite all the rosy picture about them striking oil, I would also like to analyse what can possibly go wrong. They may meet with some execution problem, where they are unable to successfully withdraw the oil or the gas.

SGT-01 is the very first exploration well that they drill. Supposedly, SGT-02 will be the next exploratory well and when they go there, the risk of not finding substantial amount of oil to commercialise will remain. The risk remains that when they drill in other areas of the Trembul operation area they might not find enough oil to commercialise it. So you can think of SGT-01 as the first battle won out of the many other battles that have yet to be fought.

Potential Catalysts

Their PE business have been doing rather well. The CEO have been talking about seeking to unlock value in the PE side of the business for sometime now. That could come in the form of a strategic divestment of partial ownership of the business or seeking a spin off of the PE side.

After all, the name GSS Energy is a clear indication that CEO Sydney wants to grow the oil business into a full fledge business to stand on its own. So I am looking forward to the oil business gaining some stability before CEO spins off the PE side of the business in 1-2 years time.

Of course, a clear catalyst for the oil business would be the discovery of more oil reserves in the area, which I think is very possible. If they continue with the strategy of digging exploratory wells near old abandoned wells, its very likely that oil can be found there.

In conclusion,

the total value of the 4 wells they are working on is worth SGD$90.56 million. At the price of $0.175 which is the price the CEO last bought from the open market, the market capitalisation is only SGD$ 86.8 million. Which is undervalued as they still have a functioning PE business delivering about SGD$75.61 million in revenue for FY 2016. Furthermore, this is only phase 1 of the oil business for GSS, they can still strike oil in other areas of Trembul with the 22 untapped abandoned old wells.

I would say that GSS is a long term play as the initial period of oil production is usually the hardest. Holding it for 2-3 years should see the real value being uncovered should everything goes according to plan.

PS I am vested.

Links where I took my information from:

http://infopub.sgx.com/FileOpen/SGX-GSSEL_20171213-Completion_of_well_SGT-01.ashx?App=Announcement&FileID=481906

https://www.nextinsight.net/story-archive-mainmenu-60/939-2017/11930-gss-energy-first-oil-discovery-with-sweet-gas-surprise

 

[Portfolio]: Added Emperor Capital

Emperor Capital is a financial institution in Hong Kong listed in the HKEX.

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Its professional teams provide a wide range of financial services including: brokerage services for securities, futures and options traded on the exchanges in Hong Kong, Japan, the US and the UK, as well as wealth management and asset management services; provision of margin and IPO financing as well as loans and advances such as personal money lending and second mortgage loans; placing and underwriting services; and corporate finance advisory services.

Financials

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Its financial growth have been impressive. CAGR for revenue is 23.37% and CAGR for its net profit grew at 33.41%.

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Cash in hand stands at HKD $2,368,604,000 compared to total borrowings of about HKD$1,900,000,000

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Insider Ownership

The CEO Ms Daisy Yeung is deemed interested in 41.31% of the company’s shares as she is the beneficiary of AY Trust set up by her father Dr Albert Yeung.

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Also interestingly, China Huarong International and Taiping Assets Management owns about 9% of the newly issued shares from Emperor Capital. Both are big state owned companies in China and this could pave the way into potential positive developments for Emperor Capital in the future.

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Possible Catalysts

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Surprisingly with the impressive revenue and net profit growth, Emperor’s share price is still range bound since September 2015. In my opinion, this is a rare gem that is forgotten by the market. Given its PE of 5x, there is definitely room for it to re-rate upwards. Also, with the management owning roughly half the entire company, its in their interest to push the price up. With the entry of well known companies like Huarong and Taiping taking a stake in the company, this should give Emperor Capital more visibility in investors’ radar.

At current price of HKD$0.570, it’s trading at its support level and could possibly represents a trend reversal at this stage.

[Portfolio]: Added Nordic Group

Hi all, recently I have started a portfolio where my friends and I will screen for opportunities and enter them together. We have decided to add Nordic Group into From Ground Zero’s Portfolio. Nordic Group have long been in my watchlist and we entered at the price of $0.530.

nordic-group-limitedNordic Group is a global systems integration solutions provider serving mainly the marine, offshore and oil & gas industries. Their business segments include 1) system integration, 2) maintenance, repair, overhaul and trading, 3) precision engineering, 4) scaffolding services 5) Insulation services. Most of their businesses are in the O&G sector but they also do serve the aerospace and medical industries.

Their revenue and net profit have been increasing for the past 5 years with little debt used.

nordic-financial-highlights
Furthermore, Nordic CEO have been owns a lion share in the company (55.38%) and also recently bought Nordic’s shares at $0.50.

Catalysts ahead

With oil prices heading upwards, we could see more O&G companies spending more on capital expenditure to upgrade their existing systems or even to build new ones. This should help Nordic gather more contracts from their O&G clients going forward.

Besides the possible positive industry tailwind, Nordic have about $96.9 million worth of order book as at 31 Sept 2017. This is a good record to have especially operating in a tough industry.

Also, their new acquisition Ensure Engineering have been doing very well for Nordic. The Group’s Maintenance Services business segment jumped by 83% from S$5.7 million in 3Q2016 to S$10.4 million in 3Q2017 mainly attributed to revenue contribution from Ensure.

In conclusion,

I would have to say that the management have been very shrewd and made many good decision for the company. All their acquisitions have been turning in good results for the company’s top line. Looking forward, the management have hinted at more acquisitions to diversify away from the O&G sector and to grow their maintenance services. By doing so, their revenue can be more recurring in nature compared to the main bulk coming from project services now. This is a positive development which should see the company growing even more in the next 1-2 year.

With the CEO’s putting his money where his mouth is, and being able to achieve such impressive record even in a downturn in the industry, I believe the future is bright for this company. We are LONG on Nordic Group.

[Building Blocks]: The “More-Than-5%” Dividend Yield Strategy

Imagine having cash passively deposited into your account every half a year. Nope not from your usual day job or work that pays you for your service.

Most companies in the stock market gives out dividends to their shareholders (people who bought their stocks), as a form of reward or to retain shareholders. The company distributes a portion of their cash they earned from their products/services to shareholders. Not all companies give out dividends as some management may feel that the company can use the cash to further grow their company and decide not to give out dividends.

Usually, for any particular company their dividend yield do not extend beyond 5%, let’s not talk about REITs as its an another investment vehicle altogether. So today I want to talk about how to achieve more than 5% dividend yield.

1) What is dividend yield?

Basically, dividend yield is the amount of dividend given per share divided by its share price.

So for instance lets take a look at ST Engineering,

Screen Shot 2017-11-04 at 1.33.14 PM.png

They give out 2 times of dividends in 2017, $0.10 and $0.05 respectively. So dividend yield on the current share price amounts to be about 4.32%.

$0.15/$3.47 x 100 = 4.32%

So if you are vested in ST Engineering for the entire 2017, you would have received 4.32% return just on the dividends alone (not inclusive of capital appreciation if any). In that sense, this is “free money” given to you if are invested in a company stocks.

2) Why would anyone prefer a dividend strategy?

In any dividend strategy, we are looking towards a long term investment horizon of a few years of holding that particular stock ( I mean no point buying for just 1 year of dividends as the return is minuscule of 3-5% only). So normally people who uses a dividend strategy are people who do not want to actively manage their investment, or do not want to take too much risks in their investment (since they can just live off the “free money” given by the company).

Building a portfolio of stocks for people of this profile means that the stocks chosen have to be sustainable in their dividends (you would not want a company to give you 10% this year and decides not to give anymore dividends next year). By sustainable I mean that the company must not be over-stretching themselves just to give out dividends. Imagine a company having to borrow money from the bank just to give you dividends, sooner or later they would have to find ways to finance those debts which is not good. A good dividend company would be one where giving out dividends does not affect their core operations.

That’s why most people who employ a dividend strategy prefers buying blue chips as they are big enough and have a history of giving dividends.

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But if you realise most blue chips dividends yield are in the range of 3-5%, very little actually surpass the 5% threshold.

3) Breaking the 5% threshold

Breaking the 5% threshold would require you to pick company in the middle of their growth phase and hold it for years. Before any company become a blue chip they all have to start somewhere small.

Screen Shot 2017-11-04 at 2.27.48 PM.png

So where we should look for are middle size companies that are only starting to give out their first or second year of dividends. When a company decides to instate a dividend policy this is usually only after the company feel that they are large enough and are able to now consistently give out dividends to their shareholders.

Using this concept above, we shall look at some examples.

In the example of ST Engineering above, the very first time that they gave out dividend was in 1998, when they just got listed. In 1998, they gave out $0.18 worth of dividends, that amounted to about 5.19% that year.

Screen Shot 2017-11-04 at 2.40.54 PM.png

Imagine that you now decided that you will buy ST Engineering in 1999 after you have studied their fundamentals and feel that its a growing company with the ability to sustain their dividends into the future. In Jan 1999, you bought ST Engineering at $1.50 per share. Fast forward to today, in 2017, your dividend yield for this year alone is 10%.

$0.15/$1.50 x 100 = 10%

And if you realise, you also benefit from the rise in share price. At $3.47 in 2017, you would have gain 231% just based on share price appreciation since you first bought back in 1999 (not counting the amount of dividends you collected from 1999 all the way up to 2017).

So if ST Engineering can keep up with giving $0.15 per share of dividends or even increase their dividends for the next 10 years, you are looking at a 10% return every year. (Sooo much more than the bank!)

We take a look at another example, Sheng Siong.

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Sheng Siong started paying dividends in 2012 at 2.89% dividend yield.

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Imagine now that you have decided that Sheng Siong is fundamentally sound and will be able to sustain their dividend payout. You decided to buy in 2013 at $0.539 per share. Fast forward to 2017, your dividend yield would be 6.3%.

$0.034/$0.539 x 100 = 6.3%

Share price appreciation would have been 178% just based on share price alone. If Sheng Siong can continue to sustain or even grow their dividend payout, your dividend yield will grow beyond 6.3%!

4) Is this too good to be true?

Yes! Employing this strategy requires more research than just dumping your money into existing blue chips. What you are doing here is buying the blue chips of tomorrow. Not every company that gives out dividends for the first time can sustain them throughout the next 10 years. They KEY here lies in choosing the ones that will.

So checking out their fundamentals, the management and future prospects are all equally essential to the success of this strategy.

In conclusion,

breaking the 5% threshold is easy if you are patient enough to hold a stock for years and choosing the right company at the right stage before it becomes a blue chip kind of status.

[Eye Candy]: What has happen to Tiong Seng so far?

It’s been about 6 months since my last post on Tiong Seng. What has happen so far? In this post I will share some catalysts that have happen and whether there are any more upcoming catalysts we can look forward to.

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1) Share buyback continues…

As we can see share buybacks have dominated most of the company announcements. The last time the company bought back their own shares was at 23 Oct 2017, at $0.37 – $0.375 per share.

2) Interesting acquisitions

Tiong Seng have made 3 acquisitions to increase their land bank way before the recent enbloc fever. The 3 acquisitions are:

  1. Sloane Court Hotel at 17 Balmoral Road at $80 million
  2. Two freehold sites in Jervois Road at $21 million

All 3 sites are to be redeveloped into residential properties.

Sloane Court Hotel 14380663.jpg

With the recent positive developments in the private residential market, it seems like Tiong Seng’s move to acquire these sites came at the right time. Give it another 2-3 years of development, property prices may have recovered and Tiong Seng could market the buildings at a profitable price.

Also all 3 of these sites are situated in District 10 area which is highly attractive. Their current property development project Goodwood Grand also had rather good response in the District 10 area.

3) Risks

– Dwindling order book –

After their recent Q2 financial results, it seems that their order book have dwindled to about $700 million. Each quarter recognises about $100-300 million so if Tiong Seng is unable to win anymore construction tenders, it will affect its revenue going forward.

Of course with the government pushing forward with more construction projects, hopefully it will only be a matter of time that Tiong Seng will grab some of these projects given their strong record in using technology for construction.

4) Catalysts ahead

– TOP of Goodwood Grand –

One of Tiong Seng’s property development project have achieved TOP in June 2017. With only 7 units left in the 73 units for sale, these seems to be a rather popular project. Tiong Seng owns 30% of the project. So far there have not been any revenue recognition from these project.

Maiden contributions from this project should give a boost to the upcoming Q3 and Q4 results.

– Expect fantastic results this FY-

This FY will be the best results that Tiong Seng have posted for the past 5 years!

Screen Shot 2017-10-23 at 9.21.29 PMScreen Shot 2017-10-23 at 9.21.59 PM

Its 1H2017 results are already very close to that of their FY2016’s results. With 2 quarters left to go, Tiong Seng is on track to crush their previous FY’s results.

– Positive industry outlook –

The construction sector is deem to pick up with the government introducing more projects to save this dying industry. Also, recent rebound of private property prices, coupled with the enbloc fever could see more private construction demands in the years ahead. This should benefit Tiong Seng positively given their strong record as I mentioned above.

In conclusion,

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some may be wondering if there is still value in entering Tiong Seng now after the recent run up in their prices. Like I mentioned in my previous post on the construction sector, the pick up in construction demand is almost certain, what is not certain is whether Tiong Seng can clinch any of these projects.

In my opinion, Tiong Seng’s ability to achieve such magnificent financial results in Q2 is partially because it was able to clinch a slew of contracts back in the earlier years. They have been able to keep their order book at around $1 billion dollars almost every year. Whether Tiong Seng can be a justifiable buy at this price really depends on whether they can ride the positive industry wind going forward in the form of more contract wins.

Tiong Seng have always been a share buyback play. Their aggressive buybacks have cause some investors to buy and ride on the buybacks. As of now, one thing for sure is that the management still feel that the current share price is undervalued, as they have bought back their shares on the date of this post, at $0.37 – $0.375 per share. Before the most recent buyback, there have been a massive buy up with more than usual volume, could this be a signal that smart money has entered and today’s buyback acts as a support for the current price? If that’s the case, it seems that more upside is likely. Thank you and always dyodd! 🙂

 

[Eye Candy]: Signs of possible recovery in the construction sector?

Some posts ago, I remember talking about how I was fishing for stocks that are out of favour and one place I looked into was the construction sector. This is because construction have been contracting QoQ due to a slow down in construction demand  especially in the private property segment. Hence, many construction stocks were trading below valuation and I thought that might be a good place to look for some gems if any. You can read about my post here. So after doing some research I decided to put money into Tiong Seng as a share buyback and undervalued play as company have be aggressively buying back shares and top management pretty much owned about 50% of the entire company.

Recently, due to a slew of positive developments like the enbloc fever, first upturn in private property prices, government’s pledge to bring forward construction projects etc. Property developers and construction stocks have seem to be quietly on the move. Even Tiong Seng a construction company stock that do not usually have much liquidity other than their own management buying back their own shares on certain occasions have started to move.

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Tiong Seng’s chart

Especially in the month of October, most company that engage in property development and construction have been quietly creeping up.
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Could this be a signal that smart money is coming into this sector in light of an improved outlook on this sector? Do bear in mind that in 2017, the main sector that led the way was the semiconductor industry and this is what happened to them.

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Many companies in the semiconductor industry reported great earnings which led to an upward surge in their stock prices. Could this be an indication that the same is about to come for the property development and construction sector? After all, they say that the stock market cycle is always ahead of the economic cycle. Some of these companies have been announcing more tender wins from the government and some of them are snapping up land sites for development.

In conclusion,

I think we will have to take a closer look in the months ahead to see if these companies start to garner even more contract wins and property development projects which should boost earnings. At the end of the day, it is strong and improved earnings that usually sustain the upward surge in their stock price. A lousy company that cannot translate positive industry sentiments into improved earnings will not benefit much anyway. This is just my own humble observations. 🙂

[My Story]: Confessions of a 20 years old thousandaire…

Hi everyone, this is my first post since I got back from being deployed overseas for a month in Australia. Happy to finally be able to have some time on hand to do things I like. Recently, I read this article on Medium called “Confessions of a 23-Year-old thousandaire”. In the article, he wrote about his financial journey as a 20 odd years old individual in the US. I was inspired by it and thought I should do a Singaporean edition based off my own experiences. I hope teenagers or even those in their 20s will glean something off my CONFESSIONS. Haha so here goes…


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Chapter 1: Who says you got no money?

There is always this common misconception that teenagers like us have no money. True enough we don’t draw a constant salary unlike our parents. But we do draw a steady stream of pocket money from them. One thing I regretted when I was drawing pocket money from my parents was to draw it daily instead of weekly or monthly.

Drawing your money weekly or monthly is a better arrangement as it forces you to learn BUDGETING. You will need to learn how to allocate your money wisely throughout the week or month in order to have sufficient for each day.

Budgeting is a critical first step in learning how to plan your money wisely.  It was only until NS when I stop taking pocket money from my parents and start living off my own NS salary that I realise the importance of budgeting. On some days, you can very well spend a few times more than you are supposed to, so remember to always BUDGET!

Like they say:

“Failing to plan is planning to fail.”

 


Chapter 2: Save yourself by saving…

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To tell you honestly, I didn’t even realise the importance of saving until I was 18.  I regret not saving up left overs of my pocket money into my savings account. Usually my leftover cash will stay in my wallet and mysteriously “disappear”.  Haha it probably went into my stomach with all the snacks or occasional Starbucks that I bought.

The lesson here is by not saving and leaving cash in the wallet, it exposes us to several dangers lurking out there. By dangers I mean temptations to buy things that you probably won’t need.

With the advent of cashless payment, it becomes even more important to be discipline in your budgeting and saving habits. You will not feel the pain when you just click a few buttons to purchase whatever things you see online. The pain only comes when you check your bank account at the end of the month.

Don’t belittle the small amount you save each day, be it from your pocket money or your monthly salary. It is these small amounts that will pave your way to financial freedom.

 

“The habit of saving is itself an education; it fosters every virtue, teaches self denial, cultivates the sense of order, trains to forethought, and so broaden the mind.” — T.T Munger


Chapter 3: Make your money work for you…

money work for you.jpg

Sadly, in our times, it is no longer enough to just save for retirement. Inflation is continuously eroding the value of our savings 10, 20 years down the road. Inflation is the reason why our $2.50 chicken rice is now $3.50. Here’s a chart showing the price of property for the past few decades.

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The one clear trend here is UP. Of course, wages have also been growing but the paramount question will be if wage growth can always outpace the rate of inflation. And even so, all those money you save up in the bank are only going to depreciate in value as inflation rate outstrips the interest rate gained on your savings.

Hence, we need to have some ways to make our money work for us. And that is through investing. Whenever I tell others about investing, many tend to look at me with fearful eyes. Even my mum advised me against investing, because to her its akin to gambling. What many don’t know is that investing can be a safe and fuss free way to grow your money.

Average inflation rate is about 2-4% per annum. Banks currently give you about 0.05% on normal savings account. To win the game of investing, all you need to do is to ensure your money grow at a higher rate than inflation. Sounds tough? It’s actually quite easy.

For those who don’t intend to actively manage their investments which usually yield higher returns albeit at a higher risks, index ETFs are safe and fuss free way to win the game of investing.

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The above are 2 of the indices that track a group of stocks. S&P 500 tracks the best 500 US stocks and FTSE tracks the best UK stocks. As you can see as long as you are able to hold it for a long time, the trend is only UP. S&P 500 annualised return since its inception is about 10% per annum which is much higher than the inflation rate. The FTSE return about 5% per annum for the past 20 years also higher than inflation rate. Hence putting your money in the best stocks in the world through index ETFs are definitely an easy way to make your money work for you.

There are also many other methods to invest for beginners which I shared in this article 

“An investment in knowledge pays the most interest.” — Benjamin Franklin


Chapter 4: Compounding is the key to financial freedom…

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The key to a fruitful retirement in the future is through compounding. Imagine someone were to give you 10% every year on the $1000 you put with them.

Screen Shot 2017-10-05 at 9.20.21 AM.png You will realise that you do not just get $100 every year. The amount earned increases exponentially with time!

Now imagine 2 individuals, Adam and Smith. Adam starts investing with his $5000 savings at the age of 20 by buying into the index ETF that return 10% per annum. On the other hand Smith started slightly later at 30 buying into the same investment product as Adam.

Assuming they both aim to retire by 65, how much retirement sum would they have?

For Adam:

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Wow a sum of $364,452.

As for Smith:

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The difference is HUGEEEE. A 10 year difference means your results are reduced to about HALFFFF!!

So who says you can’t start investing with a few thousand dollars? The magic of compounding usually sets in the longer you hold onto your position.

The lesson here is start picking up investing EARLY and have PATIENCE to let your money do the work for you.

“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein 


 

Chapter 5: Enjoy the process…

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The most important thing of it all is to enjoy the process. There’s no point to save up such a huge amount of money but lead a miserable life of cooping yourself at home in order to save up a few penny. At the end of the day, you can’t lug your bag of cash with you to the grave. I ever once tried to save 90% of my NS salary and only spend 10% of it. It was tough and I found that I wasn’t happy. That is not to say that you abandon saving altogether, but rather plan your budget around your lifestyle and find a healthy amount to save and invest.  This is so that you can both enjoy the PRESENT and the FUTURE!

“Enjoy the process. You will get there, you might as well enjoy the journey!” 


 

In conclusion,

the whole idea of me setting up this blog is to educate young people to take charge of their financial journey early. You don’t need a lot to start From Ground Zero, I started out with $300 in the stock market. You just need to be patient and disciplined in budgeting, saving, investing and the rest will take care of itself. Hopefully this will encourage more young people to take charge of their finances! 🙂

[Eye Candy]: Raffles Medical Group’s growth story continues…

There’s only one word to describe Raffles Medical Group (RMG)’s share price in 2017 which is DOWN.

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Which is what interests me. One man’s trash is another man’s treasure. The continued decline of the share price prompted me to look deeper into RMG. RMG was once the star of the healthcare scene in Singapore and my analysis today will highlight that it will continue to be in the years to come.

RMG logo

RMG have a long listing history since 1997, it has since grown from strength to strength from a network of clinics in Singapore to owning a hospital, network of clinics overseas and even a mall in Holland V. It owns many clinics in Singapore and abroad, 1 hospital in Singapore and 1 mall in Holland V. In recent years, growth have been slowly tapered down compared to its high growth days in the past. RMG’s growth throughout the years hinged on opening of new clinics, hospital either in Singapore or abroad.

1) Fundamentals

— Balance Sheet —

RMG always have kept a very strong balance sheet over the past few years.

balance sheet

Assets easily covers all the liabilities they have and cash in RMG is around $100 million which easily covers its debt obligations.

— Cash Flow —

RMG’s cash flow have also been very healthy throughout the years.

cash flow

It has managed to record positive cash flow from ops for the past 5 years. In certain years, cash flow from investing is high as they spent quite a bit on building new hospitals in China and the Holland V mall which I will go into more details later. But overall this seems to be a rather good set of cash flow with their current operations bringing in a healthy amount of cash every year.

— Income Statement —

RMG’s income statement have also been rather impressive. I have taken figures from their Annual Report from 2008 to 2016.

income statement 2008 to 2012

Revenue and EPS steadily increasing from 2008 to 2012

income statement 2012 to 2016

From 2012 to 2016, revenue continues to increase while you can see there is growth rate for EPS have been slowing down and in 2016 fell marginally below 2015. These shows that RMG’s growth have been slowing down and the group requires further growth catalysts in place to continue growing the top line.

2) Prospects

Management in RMG understood the slowing growth rate and did put in place plans for expansion as early as 2014. Below are some prospects which I feel will drive growth for the group in the future.

— Two new hospitals in China —

RMG have announced that it is venturing into China by setting up 2 hospitals, 1 in Shanghai and the other in ChongQing. These 2 hospitals are modeled closely to the one in Singapore which was open in 2001. Raffles Hospital in Singapore have been a strong growth driver for RMG since its inception.

Hospital Services segment of RMG growth rate:

  • 2003: 10%
  • 2004: 23.5%
  • 2005: 50%
  • 2006: 22.4%
  • 2014: 8.4%
  • 2015: 7.0%
  • 2016: 6.3%

So we can see that RMG have been rather strong in managing the hospital in Singapore which saw it to grow continuously for 15 years despite the slower rate of growth recently. Thus, these 2 hospitals will be the one to watch which should play a significant role in propelling RMG’s next phase of growth.

— Raffles Hospital Extension to open in Q4 2017 —

Locally, plans to expand the current Raffles Hospital was drafted as early in 2014. The completion of it should see an increase in capacity that Raffles Hospital can take in. This should also play a role in driving growth as Raffles Hospital’s growth rate have tapered down since its inception.

— Raffles Holland V —

RMG’s first ever investment property open just last year in 2016. It houses a Raffles Medical clinic on top level and the other places are rented out to different companies. The investment property have already broke even within 7 months and looks set to provide a steady stream of rental income in the future.

With ageing population an emerging trend throughout the world, the need for healthcare is definitely a necessity. Capacity expansion for RMG will definitely drive RMG’s next phase of growth.

3) Risks

— Higher cost —

When RMG started the Raffles Hospital project in 2001, it recorded a loss for that year because of higher staffing cost and operating expenses incurred in getting the hospital up to shape. This time round with 2 hospitals and 1 extension to be fulfilled in 2019, 2018 and 2017 respectively, a surge in operating costs is a given. However, its worthy to note that RMG’s cashflow from ops have been rather healthy from its current operations. $70 to $90 million of cash flow is generated from its existing operations which should help it to pay off some of these costs.

— Execution risk —

Having 2 new hospitals in China at around the same time will be a challenge for the management in attracting talents and ensure quality service at the same time. However the management have also had many years of experience under their belt in running healthcare services in Singapore which should be valuable.

In conclusion,

RMG’s growth story hinges on the upcoming hospitals to be opened. However, RMG’s financial performance could stagnate or even drop during this period when the hospitals are getting prepared due to higher costs needed to start the hospital. With RMG’s strong ability shown by their execution of the Raffles Hospital in Singapore, the other 2 hospital projects should similarly fuel RMG’s next phase of growth.

RMG chart

The drop in RMG’s share price this year could have priced in the coming tougher years ahead in managing costs of these new projects and could provide a good opportunity to enter for long term investors. Executive Chairman and Co-Founder Dr Loo owns 51% of RMG which have his interests aligned with shareholders. Aberdeen Asset Management Fund also bought shares of RMG at $1.21. Hence, there should be some value if the share price are below those levels. Regardless, like I always say please DYODD! 🙂

[Building Blocks]: The ‘Catalyst’ in catalyst investing

Hi everyone, first and foremost a Happy National Day to all of my readers! Today I am going further in depth into catalyst investing. I have mentioned quite heavily about how I like to look for catalysts in the company that will boost the share price. Generally, a stock catalyst is an event that will cause the price of the security to move and sometimes quite significantly. This can come in the form of a superb earnings release, a potential takeover offer, special dividend release etc.

The simple rule of thumb is that all catalysts should lead to an increase in either:

1. Revenue and profits

2. Shareholders’ value

It is purely because of events that lead to higher revenues/profits or enhanced shareholders’ value that will eventually cause investors to bid a higher price for a stock. Hence leading to an increase in share price. And depending on the impact of this catalyst, the magnitude of the share price movement varies.

1) Types of catalysts

When I look at catalysts, I tend to divide them into 2 types of catalysts, “Company-specific” and “Sector-specific”.

A company-specific catalyst is one that tend to be applied only to the company and is independent of other companies in the same sector or not. Examples of this includes, a potential takeover offer by another company, disposal of an asset of the company for a sum of money, spinning off of a subsidiary of the company, a new product that is disrupting an industry etc. All these catalysts are specific to the company and tend to either increase revenue for the company or enhance the value of the shareholders.

A sector-specific catalyst is one that tend to apply to an entire industry. This could come in the form of an increase demand of a particular industry like how the semiconductor boom this year have provided a favourable tailwind for many semiconductor companies. Those in this sector experience higher earnings QoQ which led to higher stock prices. Also events like lifting of regulations on a certain industry can also lead to higher stock prices as earnings is speculated to improve.

2) Real life examples

I will give you some real life examples of what catalysts can do to a stock price.

— Company specific —

1) Takeover offer

Some of you may know that Global Logistics Properties one of the largest logistics provider in Asia recently received a buy out offer of $3.38 per share from a Chinese consortium. However, this catalyst was not new. GLP had announced that it is undergoing strategic review early this year which eventually culminated in a buyout offer. If you had bought in when the strategic review was announced at $2.60, you are already sitting on a 30% return due to the buyout offer of $3.38.

GLP chart

2) Disposal of asset + special dividend

Neratel announced that they are in talks to dispose off their payment solutions subsidiary on April 29 2016 and are intending to pay out the divestment gains to investors.

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This led to a gain of 18.4% if you had bought when the announcement is released in April at $0.49 to a peak of $0.58. Neratel eventually did dispose off the subsidiary and gave out a special dividend of $0.15 per share.

3) Earnings accretive business venture and acquisitions

Acquisitions that are earnings accretive or entering into a new business with huge upside to earnings are also potential catalysts.

I did a post on GSS before here, which talks about their foray into the oil and gas industry (new venture) which many thought was an earnings accretive venture. This caused the stock price to rocket up. Buying at the top of the green circle at $0.28 also gave you about 30% return at the peak of $0.375.

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Another example would be MM2 Asia, an entertainment company in Singapore. They produce films like Ah Boys to Men. Since 2016, they have been on several acquisitions, they include buying over cinemas, buying over a concert production company Unusual Entertainment and subsequently spinning off Unusual Entertainment. All these acquisitions have improved MM2’s results tremendously and by spinning off Unusual, it also unlocks value for existing shareholders.

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If you had held from the first catalyst announcement in Jan 2016 at $0.20 to the peak at $0.630, this would have been a 315% returns!!

— Industry specific —

Industry specific catalysts generally come in the form of improved sentiments in the industry. Some of yall may know how badly hit the O&G sector was hit due to the drastic drop in oil prices. On the contrary, an improved in sentiments can also bring up the entire industry. For instance, earlier this year MAS announced the relaxation of a regulation governing the financing of SMEs.

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This led to all 3 smaller banks listed in Singapore, Hong Leong Finance, Sing Inv & Finance, Singapura Finance to all rise in tandem as investors believe that it will benefit from the new regulations.

 

If you are following up till now, you will realise that industry specific catalysts are usually more unpredictable compared to a company specific catalysts. However, its also good to choose a company with a good mixture of both. Depending on industry-specific catalysts alone is too risky.

3) Some tell-tale signs to improve accuracy

As you can see from all the examples given above, catalysts are definitely a great booster to a stock’s price. However, one must understand that buying on catalysts is like betting on the future which as investors we should avoid. This is because catalysts depend on many factors to allow it to come to fruition. Just like a company announcement signalling their intention to acquire a new business, it will not become a good investment if the new business do not lead to higher revenue and profits for the company. In this case, it is definitely a catalyst but it has not led to the ultimate end goal.

Thus, it is important to understand how to improve our accuracy when picking catalysts stocks.

— Management —

The management must be capable in order to successfully allow the catalysts to manifest. Thus it is important that the management have a large enough stake in the company (Insider Ownership), so that their interests is aligned with the shareholders. Have the management live up to their promises? A quick run through their Annual Reports should shed some light on the managements’ aspirations for the company. Comparing that with actual results, should shed light to their capability.

 

Always look out for:

  1. Insider buying more shares
  2. Share buyback by the company

These moves are usually an indication of better things coming that will positively benefit the company.

— Timing your entry —

To maximise your returns, one should always look to enter before the catalysts are made known to the general public. This will give you sufficient margin of safety and allow you to lock in the gains when the public come to hear of the catalysts. Doing that is hard because you will not know when it will happen.

Usually, you will hear of news that this certain catalyst is going to happen to this company but there’s no confirmed date. The best thing you can do is to look for a consolidation phase in the chart and buy on the first breakout.

GLP chart

As you can see from the GLP chart. The first breakout in the first week of Jan 2017 is a good time to enter. This is in conjunction with the news released on 5 Jan 2017.

Hence, buying on a strong breakout with high volume is also another way to enter at a better timing as strong volume usually indicates a strong uptrend as buyers are usually funds and big buyers.

In conclusion,

I hope you have learnt a bit more about my own experience on catalyst investing. Buying on catalysts alone is not recommended and this should be mixed with fundamentals analysis of the company including its PE, debts level etc etc. A good stock with strong fundamentals plus good catalysts and a perfect entry timing will be a much safer way to invest on catalysts!