Sunday, 15 November 2015

Life goes on - Accumulated CACHE Logistics Trust

The market has reacted badly on CACHE's private placement and the Paris terror attacks made sentiments worse. The private placement of units was done at $0.94, so I believe CACHE is being oversold. Today, the price reached $0.905, which is significantly lower than the private placement price. Hence, I seized this opportunity to accumulate more units.

As promised by the management, CACHE utilised part of the funds raised by the private placement to acquire a new logistics facility in Adelaide, Australia. This latest acquisition looks to be yield-accretive. It is a freehold property with 8.9% NPI yield and WALE of 4.6 years. Furthermore, the deal is a triple net lease structure with annual rental escalation built in. I like the swiftness in the management's execution. They accomplished what they promised efficiently. The gearing stays healthy at 35%.

Looking forward to full rental contributions from the newly-completed DHL facility and Australian acquisitions. Life goes on. Stay strong, France! :)



DK

Saturday, 14 November 2015

Worries about the 4th telco are overblown

A 4th Telco could potentially launch operations in the Singapore market after the spectrum-bidding is settled in 2017. Analysts have been busy looking into their crystal balls and coming up with various projections, none of them bodes well for the 3 incumbent Telcos (SingTel, Starhub and M1).
 
The general consensus is that the new entrant will seize market share away from 3 existing Telcos, thus causing them to suffer a drop in revenue and profits. A bleak and uncertain future was painted especially for Starhub and M1 as their businesses are focused in the Singapore market.
 
However, I think the fears and concerns are blown out of proportion.
 
1. Competition is not something new
The 3 local Telco have been competing against one another for many years. Pricing wars is a norm for them. The tongue-in-cheek advertisements between Singtel and Starhub never fail to amuse me before every COMEX, The IT Show. In fact, Singtel also competed against foreign behemoths in overseas markets like Telstra in Australia and Vodafone in India. Despite the stiff competition over the years, they survived and grew. When Singtel snatched the exclusive broadcasting rights of the Barclays English Premier League back in 2009, everyone thought Starhub would be in terrible state. On the contrary, Starhub kinda benefitted because the obscene amounts of money which were originally earmarked for bidding for the broadcasting rights can be re-channelled into other areas of capex. Starhub emerged stronger, raising annual dividend payout to 20 cents per share and maintaining it until today. This event not only shows the resilience of Starhub but also the aggressiveness of SingTel. SingTel, with financial muscle, is willing to do whatever it takes to win the broadcasting rights even though they barely break even by offering EPL matches on Mio TV packages back then. I will like to believe Singtel, Starhub and M1 are not sitting ducks. They are professionally run by experienced and capable minds which are able to mitigate the potential challenges posed by the new Telco. They can see the new Telco coming from a mile away, with time to prepare. 

2. No guarantee the new Telco will be a roaring success
Analysts are expecting the new Telco to eventually grab around 10% of the local market after a few years in operation. This is only a projection, an assumption, a best case scenario. The actual figure could well be lower. If the new Telco tries to entice new customers with huge discounts, dirt-cheap pricing and unlimited data plans, they will probably be making a loss initially during the promotional period. But they cannot afford to be that aggressive forever. As their customer base grows, I doubt their network can support the unlimited data usage in the long run. Upgrading the network will be capital intensive. Eventually, their pricing will normalise for the business to be viable.

3. No mass exodus of customers from M1 and Starhub
Looking at how drastic the prices of M1 and Starhub have corrected over the past few months (M1 hit another 52-week low yesterday), the market seems to be assuming that customers of the new Telco will be mainly switching from M1 and Starhub. The truth is, nobody knows for sure how consumers will react to the new Telco. Maybe most of the customers jump ship from Singtel? Maybe the loss of market share will be evenly spread out among the 3 Telcos? Who knows?

4. Population growth
We live in a digital world and the smartphone is an essential part of our lives. The pie might not be big enough for 4 telcos now, but in a few years time, the population might have grown to a size that make it a viable scenario.


DK

Tuesday, 10 November 2015

Is there really a need to invest in foreign companies in the name of geographical diversification?

This year, Singaporeans celebrate five decades of nation-building. Development, transformation and progress of this once fishing village into a modern city has been nothing short of an economic miracle. As we look forward to the next 50 years, how will SG100 be like? Will Singapore still prosper? Will Singapore still be relevant in the distant future? It is no secret that the Singapore market is lagging other major global indexes in recent years. The 2013 'penny stocks debacle' has somewhat dealt a crippling blow to the confidence of local retail investors. So naturally, people are starting to shift their funds towards foreign stocks which offer potentially better returns and diversification as there is no guarantee that a tiny island Singapore will still be around 50 years from now.

Well, in my opinion, blue-chips such as DBS, UOB, OCBC, SingTel, ST Engineering, SingPost and CapitaLand have already spread their businesses deep into other countries for years. In fact, some of them are not as 'local' as they seem although they have the term 'Sing' in their names. For instance, SingTel gets the bulk of its annual revenue from overseas subsidiaries like Bharti in India and Optus in Australia. Some REITs offer exposure to other countries too. For example, Mapletree Logistics Trust has a massive portfolio of logistics real estate spanning across Asia.

So do not fret. You can still achieve geographical diversification by being vested in these 'local' companies.



DK

Friday, 6 November 2015

Dividend Knight Portfolio Update (Nov 2015)


 
Company
Shares (1000)
1.
M1
12
2.
AIMS AMP
30
3.
Starhub
10
4.
Singtel
8
5.
Frasers Centrepoint Trust
12
6.
CACHE Logistics Trust
16
7.
Mapletree Logistics Group
18
8.
SATS
4
9.
CapitaLand Mall Trust
7
10.
Raffles Medical Group
3
11.
ST Engineering
3
12.
ParkwayLife REIT
5
13.
Suntec REIT
6
14.
MGCCT
7
15.
Keppel DC REIT
10
16.
Sheng Siong
7
17.
Mapletree Commercial Trust
2
18.
VICOM
0.5


Dividends received in November 2015: S$2, 184

Total dividends received since Jan 2015: S$15, 449

Average dividends per month: S$1, 287

Average dividends per day: S$42.30


CACHE Logistics Trust will be doing a huge private placement at a significant discount. This placement will fund a potential (hopefully yield accretive) acquisition in Australia and also lower the gearing to a reasonably healthy 35%. There will be an advanced distribution so as to be fair to existing unit-holders. I will still stay vested for now as full rental contribution from the new DHL facility will be coming in next quarter. This should help to mitigate the drop in DPU due to the dilution effect. Based on a quick 'back-of-the-envelope' calculation, DPU per quarter will drop to around 19 cents after the placement.

Global markets have stabilised and rebounded in recent weeks. Not so long ago, I still remember doomsayers mentioning the word 'recession' and an impending 'bear' market. Sometimes, people fall into the trap of 'investment paralysis' due to over analysing the price movements.

When there is a market correction, they would say , "Oh! The prices are dropping. Low can get lower! I should wait for awhile before entering the market."

When the market eventually recovered, they would say, "Oh! The prices are too high now. I have missed the boat. I should wait for the next correction."

And the vicious, investment-paralysis cycle continues......

In the meantime, prudent investors who buy on dips and hold through volatile times are collecting dividends while enjoying the chance of a potential upside when the market recovers. Better still, they can reinvest their dividends in order to compound their returns. If you seriously strive to be a long-term investor, you must have the fortitude to last through the volatile times and not be easily swayed by sensational headlines from the mass media.



Man on a mission
DK

Wednesday, 4 November 2015

Building your own 'ETF'? Why not?

Recently, more local investors are warming up to the benefits of ETFs, more specifically the STI ETF. In general, ETFs offer diversification and low cost. In his will, even Warren Buffet endorses the merit of owning low cost ETFs from Vanguard. He is confident that over the long run, a low-cost index fund will outperform actively-managed funds with high fees.

However, simply buying the STI ETF is not really optimal for local investors. When Warren Buffet said buy an index fund, I guess he is referring to one which tracks the S&P 500 index. That particular index is made up of Fortune 500 companies! Being vested in the top 500 corporations in USA is great diversification. Now, compare it to the STI's meagre 30 companies. So, if you live in America, for sure you should invest in some kind of S&P 500 ETF. Unfortunately, I live on a tiny island nation. 30 companies is not really great in the diversification department.

Secondly, the constituents of STI are not equally weighted. The three local banks (DBS, UOB, OCBC), Singtel and Keppel make up almost half of the index. So, if an investor is already vested in these five companies,  adding STI ETF to his portfolio will lead to concentration risk instead of diversification. So remember, if you are buying the STI ETF, you are mainly investing in these five companies.

Lastly, and most importantly, there are a few companies (Noble, Yang Zijiang Shipbuilding, Keppel Corp, Sembcorp, SIA, Capitaland) in the STI which I do not wish to own. Not to mention the STI totally lack any healthcare stocks which goes against my investment strategy. Buying the STI ETF is like going to a buffet and being told you have to try all the dishes, whether you like them or not.

In my opinion, it is better to build your own portfolio according to your investment vision, conviction and financial needs. Who says you cannot build a portfolio as if you are building an ETF. For me, I prefer to customise my portfolio into a dividend-oriented ETF or income-oriented ETF.


DK

Monday, 2 November 2015

Full Divestment of First REIT

The sponsor of First REIT and Lippo Mall Trust is reportedly considering shifting the two REITs to the Indonesia exchange as the Indonesian government will be removing the 'double taxation' law. Besides, most of the real estate assets owned by these two REITs are based in Indonesia, so I guess it makes sense for the parent group to shift the listing back to Indonesia. Furthermore, Lippo Group could be aiming to kickstart the REIT market in Indonesia as a shining example to other major Indonesian corporations.

I am not familiar with the actual process and mechanics of delisting from one exchange and re-listing on another. Lippo Group would probably buy out the stakes of the minority unit-holders at a premium. I managed to fully divest First REIT at $1.315 once the news broke last week. Its NAV is around $1. Will Lippo offer 30% premium over NAV? I doubt so......and I do not intend to stick around to find out. Anyway, even if the delisting does not happen soon, I am pretty sure it will always stay as a viable option for Lippo and this uncertainty just makes me feel uneasy.

First REIT contributes 4.5% of my annual dividend income So, this situation is a minor headache. Cash from this divestment was used to accumulate more Mapletree Logistics Trust (MLT). Sadly, this will not completely replace the passive income that I used to enjoy from First REIT. MLT is not related to the healthcare industry. I might have to resort to adding more PLife REIT or Raffles Medical Group in the future.

Aiming to hit my dividend income target of $1.5k per month in 2016. Fingers crossed that the market will not throw too many of such curveballs at me :(


DK