Valumetrics Comments: Suntec REIT – Maybank Kim Eng 2016-01-13: Unjustified Valuations

Posted on January 14, 2016 by The Valumetrics Team — Leave a comment

We do agree with Maybank KimEng that Suntec REIT is not a good buy at this moment. Beside valuation issue, there are couple of items we want to highlight:

Please take a look at the below comparison table with other Retail REIT (beside office, Suntec also own retail properties, hence we lump them together with the other retail REITS instead. This difference will not change our conclusion)

2015 Financial Statements Starhill FraserCentre CapitalMall SPH Reit Suntec LippoMall
Stock Sticker P40U.SI J69U.SI C38U.SI SK6U.SI T82U.SI D5IU.SI
No. of Shares 2.15E+09 9.16E+08 3.46E+09 2.52E+09 2.51E+09 2.72E+09
Price 0.74 1.875 1.9 0.925 1.545 0.305
Dividends 1.10E+08 9.54E+07 3.75E+08 1.50E+08 2.30E+08 6.80E+07
Net Income 1.09E+08 8.51E+07 4.52E+08 1.25E+08 2.21E+08 5.93E+07
Finance Expense 3.06E+07 1.85E+07 1.14E+08 2.19E+07 7.56E+07 3.44E+07
Performance Fee 1.48E+07 6.49E+06 4.17E+07 1.71E+07 4.33E+07 9.41E+06
Total Assets 2.96E+09 2.52E+09 9.86E+09 3.27E+09 8.60E+09 2.02E+09
Equity 2.03E+09 1.70E+09 6.28E+09 2.35E+09 5.42E+09 1.15E+09
Current Debt 1.24E+08 9.50E+07 7.62E+08 0.00E+00 0.00E+00 1.99E+08
Total Debt 8.43E+08 7.39E+08 3.17E+09 8.43E+08 2.98E+09 6.23E+08
Free Cash Flow 1.41E+08 1.00E+08 4.09E+08 2.25E+08 1.96E+08 1.08E+08
Revenue 1.95E+08 1.49E+08 6.59E+08 2.23E+08 2.82E+08 1.37E+08
Dividend Per Share 0.051 0.1 0.11 0.06 0.09 0.03
Book Value Per Share 0.94 1.85 1.81 0.93 2.16 0.42
P/E 14.62 20.17 14.55 18.58 17.52 13.97
Yield 6.90% 5.60% 5.70% 6.50% 5.90% 8.20%
P/B 0.78 1.01 1.05 0.99 0.71 0.72
P/Free Cash 11.28 17.12 16.09 10.35 19.79 7.66
Net Margin 56% 57% 69% 56% 78% 43%
ROE 5.40% 5.00% 7.20% 5.30% 4.10% 5.20%
ROA 3.70% 3.40% 4.60% 3.80% 2.60% 2.90%
Interest Coverage 3.57 4.61 3.97 5.72 2.92 1.72
Average Rate 3.62% 2.50% 3.60% 2.60% 2.54% 5.52%
Debt/Equity 0.41 0.44 0.5 0.36 0.55 0.54
Expense Ratio – Income 13.60% 7.60% 9.20% 13.70% 19.60% 15.90%
Expense Ratio – Revenue 7.60% 4.30% 6.30% 7.70% 15.30% 6.90%
Expense Ratio – Assets 0.50% 0.26% 0.42% 0.52% 0.50% 0.47%
Debt/Dividends 7.68 7.74 8.44 5.61 12.94 9.16
Property Yield 6.60% 5.90% 6.70% 6.80% 3.30% 6.80%
Leverage Ratio 1.5 1.5 1.6 1.4 1.6 1.8
Sales Turnover 0.07 0.06 0.07 0.07 0.03 0.07

Things that are not good:

  1. Low property yield of 3.3% versus the rest at ~6.5%. This means they are generating only gross rent of $3.3 per $100 dollar of assets before deducting management fees and other expenses. That is low compare to rest which are essentially double
  2. Yield is 5.9% versus 3.3% property yield indicating low price/book value. Either they are overstating their book value or the market is not valuing their book value that much.
  3. High debt/equity
  4. Low interest rate coverage. It will be most sensitive to interest rate hike in future which means much lower distribution to shareholders.
  5. Management pay themselves alot more than the rest. There are the highest paid from the perspective of generated income at ~20%.

We will not be touching this REIT unless it crash drastically in price. We might purchase it opportunistically assuming its financial strength does not deteriorate further.

What are your views?

The Valumetrics Team

Source:

Suntec REIT (SUN SP) – Unjustified Valuations

Maintain SELL & SGD1.33 TP

    • We are negative on Suntec REIT as 23% of its office leases will expire this year. This may force it to lock in unfavourable rents in a year of oversupply.
    • We expect vacancy to rise given its large exposure to weakness in the financial sector.
    • While management could use part of its proceeds from the sale of Park Mall to cushion a fall in distribution, we caution that this is not reflective of its underlying business performance.

  • Unitholders will also assume higher risks from the redevelopment of Park Mall, which it retains a 30% interest.
  • Our TP of SGD1.33 remains based on an FY16 yield target of 7.25%.

Highest Exposure To Market Weakness

  • With 23% of its office leases due to expire this year, Suntec REIT may be forced to accept unfavourable rents in a year of oversupply.
  • We expect CBD vacancy to rise above 11% by end-2016 and rent declines to accelerate.
  • Furthermore, exposure to weak hiring sentiment in the financial sector is high, at 48% of its office income.

DPU Not Supported By Underlying Strength

  • We expect management to use part of its proceeds from the sale of Park Mall to cushion income losses. However, we caution that DPU distribution will not be reflective of its underlying business performance.
  • Unitholders will also assume higher risks from the redevelopment of Park Mall, which it remains a 30% interest.
  • Current valuations not justified Suntec trades at a narrower yield than sector benchmark, CapitaLand Commercial Trust (CCT SP, HOLD, TP SGD1.25). We think this is not justified, as prospects for the latter are clearly more favourable.
  • CCT is our preferred exposure to office REITs.
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Valumetrics Comments: Sheng Siong Group – RHB Invest 2016-01-13: Safe Is Good

Posted on January 13, 2016 by The Valumetrics Team — Leave a comment

Sheng Siong Group is a buy according to RHB’s analysis. One of the signs to see if a company is fair to its shareholders is to look at its management’s compensation. We don’t like what we see. Actually we like Sheng Siong initially (stable business, predictable cash flow etc.) until we look at the annual report in details. There are 4 executive directors who earn on average $S2.2 million in total compensation for each person as shown in their 2014 annual report. For year 2014, Sheng Shiong’s profit is $47.6 million. The 4 executive directors’ compensation is close to 20% of the profits. That doesn’t sound too right to us. For comparison, let’s look at Singtel CEO’s pay of $5.6million, which is nearly 2.5x of $2.2 million but Singtel’s profit is close to $4 billion which is roughly 80x more than what Sheng Siong is earning. This doesn’t quite add up.

Based on this simple comparison, we got a feeling that they are reaping the retail small investors and are not shareholder friendly. They are the majority shareholders and the company is a family business with many family members as key management. How can we be sure that they will be fair to the commoners and not maximize profit for themselves instead of the shareholders?

Target 25x P/E implies an earning yield of 4%. Theoretically, the  shareholder will be earning only 4% on their investment which is the same as the CPF SA which is RISK FREE. We think it is very optimistic that the price will rise to the target price unless the new investor who is going to buy at this price feel that this company is risk free.

We had our reservation. What about you?

The Valumetrics Team

 

Source:

Sheng Siong Group – Safe Is Good

  • Sheng Siong remains a Top Pick for the consumer sector and we expect its business to remain resilient despite the macroeconomic headwinds.
  • Maintain BUY with DCF-based SGD1.05 TP (from SGD1.10, 27% upside), after minor tweaks to earnings estimates.
  • We believe the stock is to remain a safe haven, given the strong majority shareholding, defensive business and healthy dividends.

 Recession-Proof Business.

  • We believe Sheng Siong has a resilient business, which would thrive during recessions.
  • In our recent trip to various supermarkets in Singapore, we noticed that there may be some trading down by higher-segment consumers, ie expatriates to NTUC FairPrice from Cold Storage and working professionals to Sheng Siong from NTUC FairPrice. This is common during poor economic conditions.

 Consumers Trading Down.

  • On an overall price basket basis, we believe that Sheng Siong is the most competitive in Singapore, about 2-3% lower than NTUC FairPrice. It is also well-perceived for providing value to consumers.
  • The company is able to maintain healthy margins by:
    1. being operationally cost efficient,
    2. undertaking bulk purchase using its central warehouse, and
    3. directly sourcing for its fresh food offerings.

 Upside For New Stores This Year.

  • We believe the rental environment is currently conducive to Sheng Siong, given the weak consumer demand.
  • Management is optimistic about securing new stores in 2016, given the bumper crop of 61,000 new Housing and Development Board (HDB) flats to be completed over 2H15-2017.
  • Given the long-term nature of HDB estate leases, this could potentially help the company secure a next leg of growth.

 Expecting Strong 4Q15 Results, Maintain BUY.

  • After fine-tuning our FY15F earnings estimates by 1%, our TP is tweaked to SGD1.05 (vs SGD1.10), implying 25x P/E.
  • We expect Sheng Siong to announce strong 4Q15 results at end-February, with YoY net profit growth of 21% to SGD14.2m.
  • We also expect final dividend of 1.75 cents/share, bringing full-year dividend to 3.5 cents/share.
  • Given the strong cash flow and net cash position, we expect Sheng Siong to be able to maintain a 90% payout ratio in FY16.
  • The key risk to our forecasts would be unsuccessful expansion of new stores.
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RHB Research 20160104: Sembcorp Industries (SCI SP) – Firing Up The Chinese Portfolio

Posted on January 12, 2016 by The Valumetrics Team — Leave a comment

RHB Research 20160104: Sembcorp Industries (SCI SP) – Firing Up The Chinese Portfolio:

Sembcorp announced that it has formed a joint venture in Chongqing, China, to invest in a 1,620MW coal-fired power project. It now holds 49% of the JV, which has an operational 300MW plant and a 1,320MW plant which will commence operations by 1Q17. Maintain BUY with SGD3.80 TP. We believe that Sembcorp’s utilities business is under-appreciated by the market, trading at an implicit 0.75x P/BV. We wish management and investors a Happy New Year !

— The new assets. Sembcorp has injected CNY925m (c.SGD202m) of equity into ChongQing SongZao Sembcorp Electric Power for a 49% stake in the JV. The majority share is held in effect by the Chongqing Municipal Government. The new power plant, which utilises supercritical technology, is expected to be among the most efficient power plants in Chongqing. Its efficient technology, combined with ideal location next to its primary coal input and the impending reform of Chongqing’s power market to allow power generation suppliers to retail electricity directly to qualified power consumers should mean that these plants will enjoy a high proportion of generation uptime in the foreseeable future.

— A nearer-term asset this time. In contrast to Sembcorp’s previous power-plant contracts, which will only be completed in 2018 or later, this project has a shorter period to first cash flows. The 300MW power plant is already in operation and the 50%-complete 1,320MW power plant should begin contributions by 1Q17. The total investment value will be c.CNY6bn (c.SGD1.3bn), for which Sembcorp will finance its half by a combination of equity and on-shore long-term financing.

— Utilities business now trading at 0.75x P/B. Stripping out the SembMarine (SMM SP, Neutral, TP SGD1.81) market- and book-values, Sembcorp’s utilities business is trading at an implicit 0.75x P/B. In view of the many new overseas utilities contracts Sembcorp has been winning in recent months, we believe this underprice the long-term potential of the business. The Group itself trades at undemanding 0.96x FY15F P/BV, 8.0-9.4x FY15-17F P/Es, and EV/EBITDAs of 5.2x-7.1x. The 5.2% yield (implying a 43% payout ratio this year) should be sustainable and a key attraction to income investors. In addition, we would like to wish management and investors a Happy New Year!

Valumetrics Comments: We too felt that the utilities business of SCI is undervalued. The selloff seems to be only based on oil price and performance of SMM. People may forget that the utilities business provide a stable cash flow to SCI which in turns sustain its dividend for shareholders. Current 5.2% yield is attractive @ 43% payout ratio. Assuming no contribution of SMM, we believe SCI will still be able to sustain the dividend.

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Valumetrics Comments: Almost A Third of Singapore’s 50 Biggest Stocks Represent Real Estate

Posted on January 12, 2016 by The Valumetrics Team — Leave a comment

This article released by SGX give us some information on the largest listed companies in SGX. We felt this is a good start for us to look for blue chips which pay out good dividends and is safe to hold for long term investors. Our comments are in green. Do give us your comments.

The Valumetrics Team

Source

Almost A Third of Singapore’s 50 Biggest Stocks Represent Real Estate
  • The 50 largest primary-listed stocks listed on SGX have a combined market capitalisation of more than S$500 billion and consist of 16 Real Estate plays.
  • Last week, the 50 stocks averaged a 2.9% decline, whilst the 16 Real Estate plays averaged a 2.1% decline. Similar sized stocks by capitalisation in Hong Kong declined 5.3% last week, with the real estate plays declining 5.1%. In the US, similar sized stocks by capitalisation declined 4.8%, with real estate plays declining 1.7%.
  • The median price-to-book ratio of the 16 Real Estate plays within Singapore’s 50 largest primary-listed stocks is 0.8, compared to 0.6 for similar sized stocks by capitalisation in Hong Kong, and 2.0 similar sized stocks by capitalisation in the US.

This is the largest listed property related stocks on SGX. Their dividend yield is higher than STI index of ~4% partly due to the REITS. If you just look at the non REIT companies, the yield is much lower with Hong Kong Land giving the highest yield of 2.9%. Notice most of these companies are trading below book value. This show some signs of undervalue for these companies which warrant us to do more in depth analysis on the soundness of their balance sheet, profitability and cash flow profile. Of course, the main reason that these stocks are beaten is due to the property cooling measures imposed by the Singapore Government. Once the cooling measures are removed (we do not know when), these companies potentially will start seeing re-rating of their share price.

Name SGX Code Market Cap in S$B Total Return YTD % P/B Dvd Ind Yld % GICS® Sub Industry Name
CapitaLand C31 13.4 -5.7 0.8 2.8 Diversified Real Estate Activities
City Developments C09 6.9 -0.9 0.8 1.1 Diversified Real Estate Activities
UOL Group U14 4.7 -5.1 0.6 2.5 Diversified Real Estate Activities
United Industrial Corporation U06 4.2 4.5 0.7 1.0 Diversified Real Estate Activities
Suntec REIT T82U 3.9 0.3 0.7 6.5 Diversified REITs
Mapletree Greater China Commercial Trust RW0U 2.4 -3.8 0.7 8.0 Diversified REITs
Ascendas REIT A17U 5.8 -1.3 1.1 6.8 Industrial REITs
Mapletree Industrial Trust ME8U 2.7 -1.0 1.1 7.4 Industrial REITs
Mapletree Logistics Trust M44U 2.4 -0.5 1.0 7.6 Industrial REITs
CapitaLand Commercial Trust C61U 3.9 -1.9 0.8 6.5 Office REITs
Keppel REIT K71U 2.9 -1.6 0.7 7.4 Office REITs
Frasers Centrepoint Trust J69U 4.8 -1.8 0.7 5.2 Real Estate Development
Hongkong Land Holdings H78 22.4 -4.2 0.6 2.9 Real Estate Operating Companies
Global Logistic Properties MC0 9.4 -7.9 0.8 2.8 Real Estate Operating Companies
CapitaLand Mall Trust C38U 6.8 -0.5 1.0 6.2 Retail REITs
Mapletree Commercial Trust N2IU 2.7 -1.5 1.0 6.3 Retail REITs
Average -2.1 0.8 5.1

The next table shows the 50 largest listed companies on SGX which comprises of the blue chips (typically safe and stable) which are giving on average 4.3% of dividend yield. Buying a STI ETF will cover much of these companies. We can apply some stock screening criteria to filter out some of the “unsafe” stock from the balance sheet or valuation perspective and select the truely defensive companies which we can hold for long term and feel safe enough to sleep soundly at night and pay us a good dividend yield for income while waiting for price appreciation.

Name SGX Code Market Cap in S$B Total Return YTD % P/B Dvd Ind Yld % GICS® Sub Industry Name
Singapore Telecommunications Z74 56.6 -3.3 2.3 4.9 Integrated Telecommunication Services
Jardine Matheson Holdings J36 48.7 0.3 0.9 3.0 Industrial Conglomerates
Jardine Strategic Holdings J37 42.1 -2.5 0.7 1.0 Industrial Conglomerates
DBS Group Holdings D05 39.3 -5.8 1.0 3.8 Diversified Banks
Oversea-Chinese Banking Corporation O39 34.6 -4.5 1.0 4.3 Diversified Banks
United Overseas Bank U11 29.6 -6.1 1.1 4.6 Diversified Banks
Hongkong Land Holdings H78 22.4 -4.2 0.6 2.9 Real Estate Operating Companies
Wilmar International F34 18.1 -2.4 0.8 2.8 Agricultural Products
Thai Beverage Public Company Y92 17.2 -0.7 4.0 3.3 Distillers & Vintners
CapitaLand C31 13.4 -5.7 0.8 2.8 Diversified Real Estate Activities
Jardine Cycle & Carriage C07 13.1 -4.6 1.9 3.4 Distributors
Singapore Airlines C6L 12.8 -1.7 1.0 2.5 Airlines
Dairy Farm International Holdings D01 11.9 1.9 6.0 3.8 Food Retail
Keppel Corporation BN4 10.5 -10.9 1.0 8.3 Industrial Conglomerates
Great Eastern Holdings G07 9.5 -1.2 1.6 2.5 Life & Health Insurance
Global Logistic Properties MC0 9.4 -7.9 0.8 2.8 Real Estate Operating Companies
Singapore Technologies Engineering S63 9.0 -3.7 4.4 3.1 Aerospace & Defense
Genting Singapore PLC G13 8.7 -5.8 1.2 1.4 Casinos & Gaming
Singapore Exchange S68 7.9 -3.8 9.3 3.9 Specialized Finance
City Developments C09 6.9 -0.9 0.8 1.1 Diversified Real Estate Activities
CapitaLand Mall Trust C38U 6.8 -0.5 1.0 6.2 Retail REITs
Hutchison Port Holdings Trust NS8U 6.5 -1.2 0.8 7.9 Marine Ports & Services
ComfortDelGro Corporation C52 6.4 -2.6 2.8 2.9 Trucking
StarHub CC3 6.1 -4.3 32.1 5.6 Wireless Telecommunication Services
Singapore Press Holdings T39 6.0 -4.1 1.7 4.0 Publishing
Ascendas REIT A17U 5.8 -1.3 1.1 7.3 Industrial REITs
Sembcorp Industries U96 5.0 -8.9 0.9 5.8 Industrial Conglomerates
Frasers Centrepoint Trust J69U 4.8 -1.8 0.7 5.2 Real Estate Development
UOL Group U14 4.7 -5.1 0.6 2.5 Diversified Real Estate Activities
Olam International O32 4.7 -6.9 0.9 1.5 Food Distributors
Golden Agri-Resources E5H 4.5 2.9 0.4 0.5 Agricultural Products
United Industrial Corporation U06 4.2 4.5 0.7 1.0 Diversified Real Estate Activities
SATS S58 4.2 -1.0 2.9 3.7 Airport Services
Genting Hong Kong S21 4.0 4.9 0.5 3.0 Hotels, Resorts & Cruise Lines
SIA Engineering Company S59 4.0 -3.2 3.0 4.1 Airport Services
Yangzijiang Shipbuilding (Holdings) BS6 3.9 -6.8 0.8 5.4 Construction Machinery & Heavy Trucks
Suntec REIT T82U 3.9 0.3 0.7 6.5 Diversified REITs
CapitaLand Commercial Trust C61U 3.9 -1.9 0.8 6.5 Office REITs
Sembcorp Marine S51 3.4 -6.9 1.1 7.4 Construction Machinery & Heavy Trucks
Singapore Post S08 3.3 -7.0 3.0 4.4 Air Freight & Logistics
Neptune Orient Lines N03 3.2 0.0 0.9 N/A Marine
Fraser and Neave F99 3.0 1.4 1.3 2.4 Brewers
First Resources EB5 3.0 -2.9 2.3 1.9 Agricultural Products
Keppel REIT K71U 2.9 -1.6 0.7 7.4 Office REITs
Mapletree Commercial Trust N2IU 2.7 -1.5 1.0 6.3 Retail REITs
Mapletree Industrial Trust ME8U 2.7 -1.0 1.1 7.4 Industrial REITs
Mandarin Oriental International M04 2.6 -5.5 1.5 4.9 Hotels, Resorts & Cruise Lines
Mapletree Logistics Trust M44U 2.4 -0.5 1.0 7.6 Industrial REITs
Mapletree Greater China Commercial Trust RW0U 2.4 -3.8 0.7 8.0 Diversified REITs
M1 B2F 2.4 -5.5 6.5 7.4 Wireless Telecommunication Services
Average -2.9 2.3 4.3
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Valumetrics Comments: Singapore Post Ltd – CIMB Research 2016-01-11: Business as usual amid CEO’s resignation

Posted on January 11, 2016 by The Valumetrics Team — Leave a comment

CIMB recently published the below article explaining that its business as usual for Singpost amid CEO’s resignation and highlighted that at current price, Singpost is actually undervalued at current price of ~$1.53 versus  DCF-based target price of S$2.04 (7% WACC).

DCF means discounted cash flow. Cash flow typically means free cash flow (operating cash flow minus capital expenditure). In Singpost 2H2015/16 financial statement, the operating cash flow is $22 million (1H 2015/16) and capital expenditure is $170 million. Total issued shares is 2,153,868,416. Assuming operating cash flow for 2015/2016 is 2x of 1H 2015/16, we have operating cash flow per share of $44 mil/2,153 mil shares = $0.02 per share versus capital expenditure of $0.08 per share. We will have negative free-cash for 2015/2016. However, for the sake of discussion, we assume this is once-off and use $0.02 as input for DCF analysis.

Assuming a simple single stage DCF model with the following equation:

Target Price = Cash per share / (WACC – Growth)

With a WACC of 7%, the growth expected is 6%. Is this too aggressive?

Lets check the earning profiles for Singpost from 2006 to 2007 from Morningstar:

Year EPS Growth
2006 0.06 –
2007 0.07 16.67%
2008 0.08 14.29%
2009 0.08 0.00%
2010 0.09 12.50%
2011 0.08 -11.11%
2012 0.07 -12.50%
2013 0.06 -14.29%
2014 0.07 16.67%
2015 0.07 0.00%
TTM 0.08 14.29%
Median 6.25%
CAGR 3.25%

The median YoY growth is 6.25% while compounded annual growth rate is 3.25%. If you feed in CAGR to the DCF model, your target price will be much lower at ~$0.53 while if 6.25% is used, it will be $2.67. This is a huge range. What we are trying to show is actually we feel that the inputs for a DCF model is highly subjective. Is the WACC too low? With global interest rate increasing, can the company get cheap debt? Is the cost of equity so low at 7%? We will be more comfortable with a higher discount rate of 10-12%. This will be more prudent for a typical investor. if you simply divide the target price by the operating cash, you will get P/OP Cash multiple of ~100!!!. Paying hundred times for free cash flow? Even at current price of $1.5, we are paying 75 times current operating cash flow. This kind of valuation seems very rich and maybe applicable to fast growth company. CAGR of 3.25% doesnt seems to be a growth rate for a fast growing company.

We expect the price of Singpost to be further depressed in near future if the growth initiative fails to shows results to justify their frothy valuation. The price need to decrease further to make it more attractive for an investor who is interested in the long term prospects of Singpost.

What are your views?

The Valumetrics Team
Source:

 

Singapore Post Ltd – Business As Usual Amid CEO’s Resignation

  • SPOST’s share price has taken a plunge since Dr. Wolfgang Baier’s resignation as Group CEO, and concerns over corporate governance issues at SPOST.
  • With key management at the individual business level still intact, we expect business as usual and no change in strategy despite the CEO’s departure.
  • Maintain Add. In the medium term, we think a re-rating could be driven by the allaying of corporate governance concerns, and realisation of synergies from M&As.

Concern #1: Corporate Governance Issues

  • SPOST has been flagged for corporate governance issues following the failure to disclose its independent director Mr. Tay’s interest in SPOST’s acquisitions of FS Mackenzie and Famous Pacific Shipping (NZ). The deals were arranged by Stirling Coleman Capital, of which Mr. Tay is non-executive Chairman and a shareholder.
  • SPOST reported that Mr. Tay had abstained from voting in the FS Mackenzie deal, as was reflected in the Board minutes, though his interest in the transaction was omitted from the SGX filing due to administrative oversight. As the deals occurred amidst multiple changes in the Company Secretary role from 2013-15, we think it could have been a case of a slip up, rather than an intentional effort to withhold the information.
  • Based on disclosure in its annual reports, we estimate that SPOST acquired F.S. Mackenzie at 16x P/E and Famous Pacific Shipping (NZ) at 3x P/E, assuming their actual NPAT contributions in FY15 were annualised. The forward P/E multiple would have been an estimated 9x and 6x respectively, based on SPOST’s average NPAT forecasts as stated in the annual report. We think these multiples are fair and in line with peers, and see no foul play in terms of inflating the transaction value.

Concern #2: What Happens After The CEO’s Resignation

  • Prior to joining SPOST, Wolfgang was with McKinsey and a consultant for SPOST on its transformation plan. He was later appointed CEO. From our understanding, the transformation strategy came from the Board amid declining letter mail volumes. With the Board still in place and the Chairman overseeing the group’s direction, we think the transformation efforts have not come to a halt (i.e. no change in strategy).
  • Key management at the individual business unit level is intact. We think business will not be interrupted with Wolfgang’s departure. Marcelo Wesseler, SP eCommerce’s CEO, has been spearheading expansion in the e-commerce business, and been relocated to the US to oversee the consolidation of TradeGlobal and Jagged Peak.
  • Ms Goh Hui Ling, Deputy CEO of International Mail, has been with the company for over 20 years and remains the key relationship manager with Alibaba. Woo Keng Leong, CEO of Postal Services, is the longest serving top executive at 30 years and continues to drive the mail segment, which contributed 77% of FY15’s operating profit.

Maintain Add With Re-Rating Potential In The Medium Term

  • Near-term, expectations of earnings pressure are not new, due to:
    1. loss of rental income from the redevelopment at SPC, and
    2. consolidation of TradeGlobal, which is still lossmaking.
  • In the medium term, we expect a re-rating to be driven by:
    1. allaying of corporate governance concerns, and
    2. realisation of synergies from recent M&As.
  • Maintain Add and DCF-based target price of S$2.04 (7% WACC). SPOST is trading at 20x forward P/E, the same multiple it traded at prior to the news of Alibaba’s initial 10.1% investment. It offers an attractive yield of 4.6%.
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Valumetrics Comments: These are the five worst-performing STI stocks of 2015

Posted on January 8, 2016 by The Valumetrics Team — Leave a comment

There is an article that mentioned the worst performing STI stocks in 2015. Over here, we took a contrarian view on loser stocks. We like loser stocks as they are heavily discounted. So typically when we come across such news, we will take a quick look at the names mentioned. Of course, not all losers are good. Some are beaten for a reason. For example, most of the big STI losers are related to commodities, oil and gas industry and property sector. The question we should ask is, are they undervalued now given the general bearish view on them?

Take for example Noble, beaten badly because of drop in commodities prices and shorters’ accusation of fraudulent accounting versus Sembcorp Industries who is having a drop in price due to its holding of SembMarine which is largely depressed due to drop in oil prices. Are we comfortable to take a stake in any one of them? We will probably not touch Noble as it is highly leverage and is a potential risk for trouble and its fate is link closely to the commodities prices which is currently in a downward cycle. We dont know when price will stabilize and move upwards. But we know that it has tons of debts that need to be serviced. If banks are not interested to refinance their debt, they will either raise cash from shareholders or simply go kaput. We cannot stomach such kind of scenarios hence we prefer less leverage companies. Sembcorp’s debt level is acceptable and warrant us to further study its business to check if there is any current mismatch in value.

At least from the eyes of UOBkayhian, it is undervalued. At the worst case scenario where SembMarine is deem worthless, the utilities business of Sembcorp is still worth S$2.85 which is higher than the current price of S$2.76. We are quite sure Sembmarine won’t be worth nothing and the utilities business is in general stable (who don’t need electricity nowadays?). The current yield is around 6% assuming dividend is maintained. The yield won’t drop drastically since utility business cash flow is stable. At current yield plus potential price oil price rebound, upside is plenty for our typical retail investor who dare to take the plunge now and purchase a stake of the company for a fair return held over long term. We cannot be sure that the price will not drop further but at least we did not purchase at its all time high of near S$5 and suffer a near 50% loss, the probability of incurring another 50% loss from current price is lower. With a long term horizon, we are confident the typical investor will be able to reap meaningful returns.

What are your views?

The Valumetrics Team

 

 

Source

Most counters booked double-digit losses.

Most of Singapore’s largest stocks experienced hefty losses in the past year. The benchmark Straits Times Index dropped 14.3% in 2015, dragged by the extremely poor performance of its constituents.

Data from Bloomberg show that the worst performer was commodity trader Noble Group, whose share price declined 64.91% in 2015 following a spate of short-seller attacks. The next worst-performers were Sembcorp Marine and Sembcorp Industries, which declined 46.32% and 31.46, respectively, on back of the sharp decline in commodity prices.

Meanwhile, resorts operator Genting Singapore dropped 28.7% on back of persistently weak gaming revenue. Lastly, Keppel Corporation dropped 26.4% last year on back of the bearish outlook on rigbuilding.

Other poor performers include Golden Agri-Resources, City Developments, Hutchison Port Holdings, United Overseas Bank, and DBS Group Holdings.

On the contrary, four stocks managed to book positive price returns in 2015. These include SATS, ComfortDelGro, Hongkong Land Holdings, and Capitaland.

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Posted in Investment, Market, Singapore, Singapore Stocks, Uncategorized

Valumetrics Comments:Use CPF to revive waning Singapore stock market: SBF

Posted on January 7, 2016 by The Valumetrics Team — 1 Comment

 

It seems like Singapore Business leaders wish to have more government action to flood the market with CPF account holders’ money to prop up the sluggish STI. It is kind of funny when international investors are not interested in pumping money into our local market and these Business leaders who most of them should be CEOs of local listed companies want the government to be the money supplier. Will this be posing more risk to the CPF account holders bearing in mind that this is supposed to be a retirement account and any investment should generate a long term stable return for the holders. The money should not be use to support the local stock market just because it is currently not attractive to the international investors or maybe to a certain extend, local investors.

We believe this kind of thinking is unfair to the commoners. Lets hope the government will not be risking the hard earn monies of the account holders.

The Valumetrics Team

Source:

Business leaders want to separate CPF from investment limits.

Major local business leaders are calling for workers’ Central Provident Fund (CPF) to be used to revive Singapore’s “moribund” stock market.

A position paper by the Singapore Business Federation (SBF) noted that the local stock market has lagged behind the country’s growth as a major financial centre. In 2012, the market capitalisation plummeted to 142% of GDP from 2005’s market capitalisation of 248%, making Singapore significantly less attractive as a listing venue.

“The Government should consider separating the CPF component and managing it differently as how pension funds are managed. This will free these funds from the GIC investment restrictions and will likely result in some investments in the Singapore market. These investments will send strong signals on our market to other investment professionals,” the position paper asserted.

The paper also noted that the way the CPF funds eventually flow back into the local market will serve as a barometer of local bourse Singapore Exchange’s efforts to make the flagging market more attractive.

Further, the growth of local companies allow for a furthered scope to develop other market platforms “to address the gap between Catalist and the SGX Mainboard.” This would thereby attract companies with stable performances but are relatively moderate in size.

“These companies will find comfort amongst their peers and will not have to fight with the other classes of companies for market attention. As we widen the investor pool, this additional platform can differentiate the listed companies for more targeted attention by investors,” the paper stated.

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Posted in CPF, Market, Singapore, Uncategorized

Valumetrics Comment:Singapore stocks are extremely cheap, but there’s a catch

Posted on January 6, 2016 by The Valumetrics Team — Leave a comment

When we see such headlines, we like it. Stock market is cheap. This provide good opportunities for serious investor to buy a stake in good companies or the whole market index at a discount. Indeed STI has not been doing quite well as it loses around 15% in 2015 while S&P is near all-time high and other developed markets are above their previous peak prior to the 2009 financial crisis. In investing, we should aim to buy low and sell high. Now is a relatively good time to buy into STI compared to the other markets. We won’t say that STI is absolutely cheap now since it had almost doubled since its 2009 trough. There is still chance for it to retreat further. However, if need to invest, we would rather buy STI than S&P 500 from perspective of valuation. In our previous post, we highlighted that buying a STI ETF, you can enjoy a dividend yield of 3.3% which is much higher than S&P 500 yield of 2.1%. With a low priced entry point, potential for price gain will be higher than S&P500 where it is near all-time high. While waiting for price appreciation, the investor will have its 3.3% dividend fuss-free.

We like this hands-off approach to investing. What about our dear readers?

The Valumetrics Team

Source:

Slow growth justifies low valuations, experts say.

Singapore equities are trading at multi-year lows. The benchmark FSSTI is trading at 18% below its long-term mean price-to-earnings ratio and at a 30% discount to its long-term price-to-book valuation, but analysts from UOB Kay Hian warn that this cheapness might be justified given slower earnings growth.

“The FSSTI looks inexpensive but the discounts look appropriate, given the mixed outlook and structurally weaker domestic growth prospects,” said UOB Kay Hian.

UOB Kay Hian also warned that although investors are hoping for an earnings rebound this year, bottomline growth is only likely in the second half of the year as many near-term headwinds persist.

“We forecast 2016 market EPS growth of 8.2% yoy, but see potential downside. Consensus forecasts continue to trend down with a 5.4% EPS growth (-1.8ppt) after a lacklustre 3Q15 reporting season. With limited earnings visibility, growing geo-political risks, rising rates and uneven growth, investors should buy on pullbacks,” UOB Kay Hian noted.

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Posted in Investment, Market, Singapore, Uncategorized

Valumetrics Comment:Tigerair minority shareholders unsatisfied with SIA’s tweaked offer: SIAS

Posted on January 6, 2016 by The Valumetrics Team — Leave a comment

We won’t be surprised that the minority shareholders of Tigerair are unhappy if they had bought their shares at the 2010 IPO price of $1.5. Since then it had plunged to its lowest price at around $0.25 during Aug 15. If you can predict the future and purchase it at this low price, you will be sitting on a 80% return within 6 months of purchase. That is a pretty awesome return. But we cannot predict the future and most of the shareholders are typical folks who bought into the hype generated during the IPO such as Tigerair is backed by a strong parent (SIA), it is government linked (via Temasek owns SIA), low-cost carriers are booming etc.  However, if we care to look more into the prospectus, we should be able to detect that something is not quite right from its financials (extracted from Morningstar) as shown:

 

2009 2010 2011 2012 2013 2014 2015 TTM
Revenue SGD Mil 378 486 622 618 866 734 677 693
Gross Margin % — — — 53.2 58 53.9 56.8 62.4
Operating Income SGD Mil — — 47 -83 7 -52 -40 -8
Operating Margin % — — 7.6 -13.5 0.8 -7.1 -5.9 -1.2
Net Income SGD Mil — — — -104 -45 -223 -264 -31
Earnings Per Share SGD -0.1 0.05 0.05 -0.12 -0.05 -0.19 -0.18 21.5
Dividends SGD — — — — — — — —
Payout Ratio % — — — — — — — —
Shares Mil 490 577 737 853 1,002 1,204 1,492 —
Book Value Per Share SGD — 0.21 0.27 0.26 0.22 0.32 0.09 0.08
Operating Cash Flow SGD Mil -39 50 81 -93 91 -83 29 12
Cap Spending SGD Mil -78 -239 -433 -469 -531 -365 -41 -11
Free Cash Flow SGD Mil -118 -190 -352 -562 -440 -448 -12 1
Free Cash Flow Per Share SGD — -0.33 -0.48 -0.52 -0.46 -0.34 -0.12 —
Working Capital SGD Mil -227 -72 -157 -205 -256 -14 32 —

Lets look at the 2010 earnings, free cash flow & book value per share of $0.05, -$0.33 and $0.21 respectively versus the IPO price of $1.5 which translates to a P/E of 30 and P/B of 7.1 . Price to free cash flow has no meaning since it is negative and the company does not pay a dividend.

Does the price ratios seems too high when compared to a low cost carrier such as Air Asia or even Tiger’s own parent company SIA? If we look at morningstar, in 2010, SIA’s P/E is 15.4 and P/B is 1.3 which is significantly lower than Tigerair. So why does retail investors still flock to the IPO? This is something we cannot understand. Maybe the hype seduction of explosive returns in the future is too strong to resist and clouded the mind of rational investor. Based on these valuation metrics, we are quite confident that downside risk to the share price will be high versus the upside capital gain. Indeed, on hindsight, the share price rose to $1.6 end 2010 and plunge all the way (with rights issues) till current level inflicting serious paper loss to new shareholders. Now, with SIA being the major shareholder and propose the buyback price of $0.45, the capital loss will be permanent for shareholders. That is unfortunate. We only can say that the obvious real winner is SIA/Temasek who sold an overvalued stock to the public and buy back the stock at this “discounted” price. This serves a lesson to us that when investing in IPO, we should pay much more attention when compared to an established listed company with available historical financials for analysis.

Good fundamental analysis may not 100% leads to explosive returns but it helps to minimize the downside risk greatly. You cannot be always right but you can minimize your mistakes made. This should be the methodology in long term investing: minimized mistakes, take care of the downside risk, the profits will come to you. Avoid overpriced stocks and the risk of serious capital loss will be minimized.

Invest safely to have a good night sleep.

Appreciate any comments from our readers.

The Valumetrics Team

Source:

They say it undervalues what they have paid.

Singapore Airlines has greased the pan, and it raised its offer to Tigerair shareholders from $0.41 to $0.45 a share, and it’s now the shareholders’ turn to pour the batter.

However, according to a statement by the Securities Investors Association of Singapore (SIAS), some shareholders aren’t satisfied with the sweetened offer, saying it underestimates what long-time shareholders have paid.

Meanwhile, SIAS says it is an option for shareholders to not accept the offer and remain an owner of Tiger Airways. But, they caution that if SIA manages to achieve over 90%, Tiger Airways would no longer be listed, and the shareholders would have a hard time selling their shares.

“Nevertheless, under the Singapore take- over code, he will have an additional 3 months to decide to tender his Tiger Airways shares to SIA, and SIA will have to honour the original offer price. After this 3 month period, SIA is not obliged to accept his Tiger Airways shares, and he will continue to remain a Tiger Airways shareholder as an unlisted company,” SIAS said.

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Posted in Singapore, Singapore Stocks, Stocks, Uncategorized

Singapore Market News 2016-01-06

Posted on January 6, 2016 by The Valumetrics Team — Leave a comment

Daily Summary

SINGAPORE : The FSSTI lost 0.1% to close at 2,834.23
after testing the intraday low of 2820.42 as Asian shares retreated in choppy trade on Tuesday. Tiger Airways jumped 9.8% to close S$0.450 after its biggest shareholder Singapore Airlines raised a buyout offer for its stakeholders at S$0.45 per share, following a call by a lobby group for South-east Asia’s largest carrier to sweeten its bid. The broader market in Singapore saw 216 gainers and 190 losers, with total trading value at S$894.9m.

SGX Listed Companies Action

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Daily Singapore Market News

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Posted in Market, Research, Singapore, Singapore Stocks
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