Saturday, July 27, 2013

Warren Buffett - The World's Greatest Money Maker

BBC documentary on Warren Buffett that provides insight on how he makes his money!

This blog has also mentioned Buffett in the following post:
Transcipt of Warren Buffett's 1991 Lecture to Notre Dame Faculty
What Warren Buffett Can Teach Us About Position SizingTop 10 investment books for Superinvestors

Thursday, July 25, 2013

OUE Hospitality Trust: Banking on Singapore Tourism Growth

This is a report from UOB Kay Hian on the upcoming listing OUE Hospitality Trust. It gives an overall view of the assets in the trust and the distribution yield. This should be useful for investors interested in the IPO

Saturday, July 20, 2013

Popular Holdings: Value stock trading below book value

In my search for investment ideas, I read extensively on investment website, blogs and publications. I recently come across an investment thesis for Popular Holdings from beyondproxy that I would like to share with readers. Most readers of this blog will be familiar with Popular. Popular has 64 stores in Singapore and is well known among Singaporean as a bookstore that sells storybooks and assessment books. Retailing and distribution of books, stationery and magazine is considered a boring and non-growth business. Besides books business, it is also involved in property business and publishing business. In the investment thesis outline, Popular Holdings is trading at below estimated book value of $0.29 and is estimated to be worth at least 35 cents

Below is the investment thesis for Popular Holdings from

Popular Group started in 1924 as World Book Company which was engaged in distribution & publishing of Chinese books in Singapore. In 1936 Group started retailing Books & Stationery in Singapore. Group started expanding regionally by setting up a bookstore in Malaysia. In 1949 Group established Publishing Business in Hong Kong to publish magazines & books in region. The company got listed on Singapore Exchange in 1997. In 2007 Group decided to diversify into Property Development Business. The reason for them to diversify into Property Development Business was that they wanted to mitigate risk in their portfolio by moving away from the sunset industry of Book Selling/Publishing to a Business where they can recycle their capital & generate cash flows. Over the last 6 years the Property Development Business launched 3 Projects : One of them is completely sold, 90% of another project has been sold & the 3rd project is recently launched. On retail front, Popular has 156 stores : 75 in Malaysia, 64 in Singapore & 17 in Hong Kong. It also has Publishing Business in Singapore, Malaysia, Hong Kong , Taiwan, China & Canada.
To sum up Popular Business can be divided into the following 3 categories:

  • Retailing & Distribution : ( Books, Stationery, Magazines etc.)
  • Publishing ( Publishing Books, Magazines etc.)
  • Property Development ( Residential Property Developer)


  • Selling Assessment & School Books: These are the books which are required by school children ( Singaporean have to study in local schools) & assessment books are the one which students read to complement their existing school material. This to me is stable ex-growth business in Singapore & Hong Kong while growing in Malaysia as Popular expands its presence across smaller towns in Malaysia.
  • Selling Stationery: Again this is a stable business & on SSS basis revenue seems to be flat. Last year Popular has started getting into Office Stationery Business (which has bigger potential than Stationery Retailing).
  • Selling Books : This business faces the greatest risk from Digitalisation as people move towards e-books. It set up stand alone book stores under brand name of Harris, Prologue etc. ( following concept of Kinokuniya, Borders). This business has not been successful & though company does not disclose it; these stores are loosing money. As a strategy Popular has been reducing the number of these stores & has been using existing book stores ( where it sells school books & stationery) to sell the books. Popular does not have a wide range of selection which e.g. Kinokuniya has but what it has is reasonable collection of best seller – so when the customers will visit shops for stationery, printer inks, assessment books etc. – they buy the books which are best sellers, children book etc. To attract customers to Buy books & stationery – the company has Popular Loyalty Card where membership is priced very attractive S$ 12 for 1 year & S$ 30 for 3 year. This card enables the customer 10% discount on all Popular Bookstores. This way if I have a Popular Card – I am able to Buy books at price lower than Kinokuniya – though I get less choice At Popular Bookstore.
Popular’s outstanding shares adjusted for Treasury shares are 819.25 mn shares. This means that the Market Cap is S$222 mn, long term debt S$16 mn (loan against property development), Cash S$125 mn; giving it EV of S$ 113 mn. Against this, it has Development Properties & Properties held for sale worth S$ 79 mn & S$ 12 mn. This means one is paying S$ 22 mn for its core Book Selling & Publishing Business. Please note that these properties are valued at lower of cost or realisable value. These properties realizable value according to our estimates is above Popular’s costs so value of property shown in Balance Sheet is on lower side than their market value. As a prudent approach, we assume that these Properties should be valued at cost.Though a lot of cash is required to run the Retail & Publishing business this cash still belongs to the company. So essentially we are buying Retail & Publishing for S$ 22mn.
Lets look into the so called sunset industry: Retail & Publishing. If you live in Singapore you can see Popular shops in all the malls. One has to look essentially at the kind of books sold in these stores which are books prescribed by school, assessment books and other such books with mainly academic content, popular titles for children’s literature at prices less than other leading stores and stationery. with emphasis on academics being an upward rather than downward trend the demand for such material is steady. It is a stable business with low margins, retail revenues being flat in FY09 (year of Global Financial Crisis) with profitability down in retail, while revenues & profitability being stable in Publishing business. These businesses generate both operating & free cash flow. These businesses have generated on an average S$ 23.8 mn PBT in the last 6 years & worse year being FY09 when they generated PBT of S$ 9.5 mn (Exhibit 1). Assuming tax rate of 22% in a worse year they would have made PAT of S$ 7.4 mn or on over 6 year average PAT of S$18.5 mn. We value it at 5x multiple to average 6 year Profits & fair Value for stock comes to S$ .355 cents. This gives investors upside of 35%. Please note at current prices market is valuing its Retailing & Publishing Business at less than 1x Cash Flows which consistently makes both Operating & Free Cash Flows. Digitalisation has been happening for sometime & this business has survived – so we believe it will last at least more than one year.
Popular Holdings — Segment Profit and Loss

The key question which potential investor may have is whether the profits are sustainable in the above two businesses. Digitalisation/e-book means that these businesses will have low growth & always raise concerns whether these businesses will survive. The company does not disclose the exact numbers product wise & following are my analysis. I reckon Publishing Business is already an ex-growth business & it complements Retailing Business. I assume revenues & profit will be flat from this business. The key debate in my mind is Retailing & Distribution which is a bigger business. This business can be divided into 3 parts which my understanding are almost equal revenue & profit-wise :
If Popular starts selling its Property (which are launched) then Cash further increases on its books & fair value goes up as company will be able to book profit. In addition Popular has never revalued its retail shops. If we start revaluing its 3 owned stores in Singapore ( Book Value will go up by 1.5 cents).
Stock trades at S$ 27 cents & on our numbers its Book Value as of April end, 2013 is 28 cents. The company has been Buying Back shares after it got approval to do Share Buy Back in August 2012. Till today the company has bought back 21.8 mn shares (2.6% of issued capital) & its last purchase was 1.1 mn share as of 27th May 2013 @ 28 cents. In addition Mr. Chou – controlling Shareholder of the company has been Buying shares nearly for year. He has bought 14 mn shares since publication of last Annual Report & his Holding has now increased from 58% to 60% of the issued capital. Mr. Chou last purchase was on 8th April 2013 for 489000 shares @ 29 cents.

Friday, July 12, 2013

Suntec REIT - Reward Awaits The Patient Investor

Kim Eng release the latest report on Suntec Reit. It believes that Suntec’s 2Q13 DPU is likely to be lackluster, dragged down by Suntec City Mall’s (SCM) ongoing renovation works. The upside that it see is that the average passing rents for SCM post-AEI may be secured at SGD13.50 psf/mth. It also think this is still conservative, given that passing rents at nearby Raffles City Mall are contracted at ~SGD18-19 psf/mth. We also believe that the South Beach development and the SGD95m Marina Square expansion (first phase of 50k sqft gourmet precinct and second phase of 200k retail wing) will further add vibrancy to the Marina area.

To read report on Suntec Reit, click here

SPH REIT - Yield Comparison with Industry Peers

MEDIA group Singapore Press Holdings (SPH) filed its preliminary prospectus for its retail mall real estate investment trust (Reit). The IPO is expected to raise between $523 million and $554 million, with an offer of 308.9 million units at between 85 and 90 cents each.
SPH will inject Paragon and Clementi Mall into the Reit for $2.5 billion and $570.5 million respectively. The IPO proceeds will be mainly used to acquire the properties, and for transaction costs and property-related expense
Below is a comparison of SPH REIT vs other Reits that is already in the market
SPH REIT Quick Facts
Sponsor:                         Singapore Press Holdings

Sponsor stake post IPO:         70%, Free float 30%

REIT manager:                 SPH REIT Management

Leverage:                         27.3 - 31.3%

Revenue breakdown:         97% of gross retail rent linked to contracted base rent, 3% tied to retail sales

Yield Comparison with Industry Peers

SPH REIT's indicative yield stands at 5.58%-5.79%, which is largely in line with its retail S-REITs peers, as illustrated in the following chart:

Reit List Tracker by Brokerage House : July'13

The tracker shows the brokerage house recommendations and their view of the intrinsic value. It also provides a view of the reporting dates

To view Reit List tracker for June'13, click here

Wednesday, July 10, 2013

Whitney Tilson Wisdom on Value Artist like Buffett and Klarman

Whitney Tilson of Kase Capital shares with Forbes the art of Value Investing. His portfolio comprises of stocks such as AIG, Howard Hughes, Berkshire Hathaway, Hertz, Deckers and Netflix

Beside managing a professional portfolio, Whitney also publishes a monthly investment newsletter called Value Investor Insight. He recently publishes a book "The Art of Value Investing: How The World's Best Investors Beat the Market" which compiles all these years of insight that he got interviewing investors for Value Investor Insight. This book is one of the must-read investment book of the year!

Saturday, July 6, 2013

REITs offer value after selloff

The Edge July 5: REITs offer value after selloff
SINGAPORE REITs HAVE surrendered about a third of their gains in just six weeks after a spectacular 55% rally since the start of 2012 powered by the hunt for yield.

Following Fed chairman Ben Bernanke’s announcement last month that the US central bank will start to wind down its monetary stimulus programme later this year, REITs have been hammered as investors cashed out of what had been one of the best-performing sectors for several quarters in the Singapore market.

The expected tapering of the Fed’s quantitative easing programme led investors to believe interest rates will rise in the foreseeable future. Higher rates could mean increased risks for REITs as they require funds to pay for acquisitions or refinance existing debt.

Yields on 10-year Singapore government securities (SGS) jumped from about 1.4% in early May to a two-year high of 2.8% late last month. They are now holding around their long-term average of 2.6%.

The FTSE ST Real Estate Investment Index fell almost 19% in June from its 5-year high of 890.16 in mid-May. It is now holding just above 750.

With the selloff, REITs appear to be back in favour – at least among some analysts.

David Lum of Daiwa, in a report dated July 3, upgraded the sector to “positive” from “neutral”, noting that value has emerged. The sector’s weighted average price-to-book ratio had come off from 1.25 times at end-April to 1.05 times at end-June, he said.

“Although we cannot rule out further unit-price downside risks for S-REITs (triggered by rises in the 10-year SGS yield), we can now declare with some confidence that we believe the overall S-REITs sector is no longer overvalued,” he said.

A notable feature of the recent weakness in REITs, according to Lum, was that the spread between their weighted-average dividend yield and the yield on so-called risk-free 10-year SGS did not change much, hovering between 3.4% and 3.7%.
That was because the increase in the SGS yield was largely offset by the higher dividend yield from REITs arising from their selloff.

“Yield spreads usually narrow when the market’s perception of S-REIT risk recedes and investors become more comfortable with their fundamentals and willing to accept lower yields (relative to risk-free rates),” said Lum.

“Although the Fed’s recent pronouncements – that it would begin tapering if the gradual improvement in economic conditions supports such a move – have effectively eliminated any prospects for yield-spread compression, we see little justification for yield spreads to widen.”

Yield spreads typically expand when investors expect fundamentals to turn for the worse. In effect, Lum expects spreads to remain stable for the next one to two quarters.

Daiwa’s top pick is Suntec REIT, on which it has a price target of $2.01. The broking house also recommends CapitaCommercial Trust ($1.65 price target), Ascott Residence Trust ($1.42) and CDL Hospitality Trusts ($1.85).

UOB KayHian has a different opinion on REITs. On July 3, it downgraded the sector to “market-weight” from “overweight”, mainly on the view that borrowing costs will rise. An increase of 100 basis points in interest rates will reduce the price targets of the REITs under its coverage by about 8.1%, it said.

Even so, as economies recover, REITs will evolve from being “yield vehicles” to “growth vehicles”, UOB said. This should help mitigate the impact of higher interest rates on their income.

UOB’s preference is office and industrial REITs, which it expects will benefit from a pickup in rentals. Suntec REIT, CapitaCommercial Trust and Ascendas REIT are its top picks.
This blog previously also highlighted deep value REIT in previous entry. For fundamentals to consider when investing in S-Reits, click here. To read gain more knowledge on investing in Reits, i recommend reading "Investing in REITs: Real Estate Investment Trusts"

Hunting for value in Singapore Stocks

This is a post from The Edge June 14 edition. With worry on QE3 tapering, stock markets around the world has been volatile and been falling. Singapore stock market has also felt the impact with STI falling back to where it started in beginning of 2013. In this report, Citi Research points out a handful of stocks in various sectors to look for value in.

IN A REPORT dated June 13, Citi Research points out that the STI is back to where it started in the beginning of the year after having lost some 10% in a month. Meanwhile, Singapore's 10-year government bond yields have risen to five-year average of 2.1%. While talk of the US Federal Reserve tapering its QE programme and a stronger US dollar are the main reasons for the rise in yields here, Citi’s economists have also raised GDP growth for Singapore to 2.3% from 2% previously.
Still, the market’s decline should not be blamed entirely on QE tapering. “Recent concerns about the current-account deficit in Indonesia have increased worries. Singapore’s economy is linked to Indonesia’s via exports, banking (trade finance, wealth management), property ownership, tourism as well as the medical tourism segment,” says Citi Research.

Whatever the case, STI’s valuation based on its price-earnings ratio (PER) is back at 15 times. Citi expects support at a PER 14.2 times, which is the equivalent of 3,000 on the index. The Euro crisis low was at a PER 13 times, or 2,700.

But the problem is that earnings growth in Singapore is likely to be modest. “Within our coverage universe, flat aggregate EPS trends are expected for 2013, growing into a modest 8% in aggregate EPS growth for 2014E,” Citi states. “Our Earnings Revisions Count ratio (ERC or the upgrade versus downgrade count) is in mildly negative zone at –10% versus –16% at end-Feb post 2012 results.”

Citi has a handful of stock picks for when the market settles and investors return to hunting mode. They are Keppel Corp for capital goods, Hongkong Land on valuation basis, ST Engineering and Venture Corp to play the stronger US$, and United Overseas Bank as the most defensive of the local banks.

Keppel Corp is still the world’s largest rig builder despite the rise of Chinese yards. “Our view remains that the rig cycle remains intact despite volatility in oil prices and we believe orderbook momentum can continue in 2H13, with margin resilience,” Citi reckons. The broker has a $13.45 target price based on a marginal discount to its RNAV estimate of $13.58, applying a 20% discount to the value of Keppel's investments in M1, K1 Ventures, Dyna-Mac and K-Green Trust, its 55% stake in Keppel Land at market price. An average PER of 17 times FY13-15 earnings is applied for the offshore and marine business.

UOB has retraced by around 10%. Citi likes UOB for its Asean footprint and growing fee income. Its target for UOB is $20.30 using a dividend discount model assuming EPS of $1.67, dividend per share of 63 cents and 7.1% long-term growth rate.

Hongkong Land is trading at a discount to RNAV of 40% compared to an average of 20% elsewhere.“While there is risk of rising interest rates impacting cap rate valuations, we are already using a cap rate of 5.0% versus the firm’s 4.25%,” Citi says.

Venture Corp too benefits from a stronger US$, and Citi believes it can sustain its dividend yield of 7%. Moreover, its 12-month target of $8.12 is based on modest valuations, of 13.7 times PER for this year’s earnings.

To read other undervalued SG stocks and investing strategy highlighted in previous blog entries, click the following:
SG stock investing strategy
Undervalued stock: Goodpack

Jim Rogers on Malaysia

If you read Jim Rogers original book "Investment Biker" you will know that he has a knack for finding emerging countries ready to boom and investing before the rest of the world figures out what is going on.

Today Rogers is keen on Malaysia. Rogers likes this country because the country is rich in natural resources and also has a government that is trying to create a system that rewards the entrepreneurial and capitalist spirit.

Rogers hasn't always been interested in Malaysia, but today has investments in the country. Rogers has been involved with investments on and off in Malaysia dating back to 1985 so knows the country well.

He likes Malaysia's position in the ASEAN region near China.

To know Jim Rogers's view on Gold, read article here
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