23 June 2014

Union Pacific - Choo Choo Train, Ran Away

[Source: Union Pacific]

When Berkshire Hathaway swallowed up BNSF Railway, it also disposed all its shares in Union Pacific that it had previously held. The reason for doing so didn't seem to be a case of negative views on Union Pacific, but rather, to avoid complications over anti-monopolistic concerns from regulatory bodies arising from Berkshire owning two big railway companies. The rail business seem to be experiencing a boom of late.

Can't buy BNSF, but Union Pacific is certainly available. So I looked at its financials.

Its debt levels seems low at the 40-50% bracket, compared to most US companies.

Dividend yield isn't yet great at below 2% with a payout ratio of 32.35%. But its DPS has been growing steadily year on year. In fact, its DPS has more than doubled over the last 5 years. In addition, its DPS has remained significantly below its EPS each year. Looks like it has a lot of room to continue on this trajectory of DPS growth.

Margins look great with gross margin at 73.47% and net profit margin at 20.25%. Which suggests that this is a very profitable business. PE ratio may be a bit on the high side though.

My previous impression was that the rail business is a capital intensive business. Seems like that doesn't detract from its profitability. I was probably influenced by the situation faced by our very own SMRT. After years of being seen as a great defensive dividend stock, all it took was one wonderful massive train breakdown incident and voila, end of party. It went south rapidly and stayed that way for much of recent years.

Rails are sticky business. It's difficult for new entrants to come in. One has to lay lots of line to create the network and invest in a lot of assets (trains, switching systems) to get going. I don't think there will be any new competition anytime soon in the US. For a large country like the US, rails make more sense than airlines and shipping lines to move large volumes of goods around. Airlines can move stuff fast, but they are notoriously difficult to make the margins and can't carry much. Ships need a lot of upkeeping and fuel, and can't reach land-locked areas. Rails appear to have that significant niche.

Ratios & Other data
ROA (%) 4.62 6.52 7.47 8.55 9.06
ROE (%) 11.72 16.09 18.12 20.51 21.35
DPS (USD) 0.5400 0.6550 0.9650 1.2450 1.4300
EPS (USD) 1.8683 2.7640 3.3606 4.1375 4.7102
[Source: POEMS, as at 12 Jun 2014.]

Looks like a great buy right? So I did. A couple of days later, I discovered to my horror that the value of the shares I had bought had dropped to half the price I paid! Holly crap. What happened? 

A couple of frantic checks later, I realised that it had undergone a 2-for-1 split, effective the day I bought the shares. Such coincidence! I hadn't thought to check if there were any news on such things then. A couple of frantic e-mails with the online broker, it was subsequently ascertained that I had indeed been credited with the split shares. So it was all good in the end. I had not stupidly paid double the value for my Union Pacific shares. Phew. Bodoh bodoh.

Lesson learnt: Check for news of stock split, merge and dividend ex-dates before diving into a buy.

Choo choo! She'll be coming round the mountain when she comes ...

Related:

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14 June 2014

Investopedia, the Secret Millionaires Club and MyMoney

Many blogs on the subject of Personal Finance and Investment provide wonderful introductory explanations of these topics.  Investopedia is probably the most comprehensive, the ultimate Wiki for the investment peons.

I just came across another website which does a decent job of extending the educational materials further.  You may want to give it a go: Orcam Group Educational Resources.

For a kids friendly version, you may want to try the Secret Millionaires Club for a cartoon web series hosted by Warren Buffet.  Warren shares a piece of wisdom in each episode.  Guess he gave up on the adults and decided to start working on the kids instead!

For Singaporeans, the best available source is probably the serious of talks organised by SIAS MyMoney series to educate Singaporean investors:

Happy reading.




Related:
Investopedia
Orcam Group Educational Resources [Orcam Group]
Secret Millionaires Club
MyMoney [SIAS]

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G K Goh - who is this guy?



Came across this company recently and the financials sure look interesting.  The company is an investment holding company.

DPS (SGD) 0.0150 0.0300 0.0400 0.0400 0.0400
EPS (SGD) 0.0172 0.0916 0.1778 0.0609 0.0685
[Source: POEMS.]

Debt level below 40%.  Not over-leveraged.

High gross and net profit margins above 40%.  Looks like a business that doesn't suffer from competitive pressures. Possible moat?

Dividends above 3%.   Its 5-year trend shows that the dividends payout (DPS) have been steadily increasing from 0.015 (FY09) to 0.04 (FY13) while consistently maintaining its DPS below earnings (EPS).  

P/E ratio below 15.  P/B below 1.0.  Which means it is valued below its current worth.

From the information at its website (http://www.gkgoh.com/), the company owns brokerage businesses in Singapore, invests in various retirement services in Australia, with smaller stakes in networks in European cities, property and hotel businesses in Malaysia. 

  • G. K. Goh Financial Services (S) Pte Ltd (100%), a futures and foreign exchange brokerage in Singapore;
  • G. K. Goh Strategic Holdings Pte Ltd (100%), which invests in liquid markets;
  • Habitat Assets Pte Ltd (100%), which invests in retirement living assets primarily in Australia;
  • Boardroom Ltd (81%), an SGX-listed company, one of Asia’s leading providers of corporate and advisory services, providing clients with an integrated suite of Smart Business Solutions, namely Accounting & Finance, Corporate Secretarial, HR & Payroll, Internal Audit & Risk Management, Shareholder Services, and Taxation services in Singapore, Malaysia, Hong Kong, China and Australia;
  • Domain Principal Group (48%), an Australian aged care provider with 56 facilities totalling more than 4,800 bed-spaces in the states of New South Wales, Queensland, Victoria and Western Australia;
  • Eastern & Oriental Bhd (6%), a KLSE-listed property and lifestyle group;
  • euNetworks Limited (9%), an SGX-listed company which owns and operates fibre networks in 14 European cities.
Interestingly, it expanded its ownership of Boardroom and now owns 81% of it.  Boardroom itself is a SGX-listed company that provides support services for many publicly-listed companies and gives out regular stream of dividends. Looks like a very stable line of business.  Many letters that I received from SGX companies carry the Boardroom letterhead on their envelopes.  

    Domain Principal Abbey Garden
    There was a negative cash flow for FY13 and that was likely due to an investment in a 47.6% stake in Domain Principal Group, an Australian aged care services company, as indicated in its 2013 Annual Report. This investment was funded by a combination of cash and loans. Despite which, its gearing has maintained below 40%.  Seems sound and not a red flag.



    Its Malaysian hotel and property investments are centered in Penang and Iskander Region. A touristy place and a growth region. Holds potential.

    A bunch of very different businesses. But each with an interesting story which suggest prudent and stable income streams. Owners pay themselves handsomely, but also collectively own a large chunk of its own stocks.

    In recent weeks, GKG Investment Holdings appear to be buying quite a bit of this stock. On 3 occasions in Jun 14, they have bought 23000, 121000 and 29000 shares. Insider buying is always an interesting indicator for me.

    [Disclaimer: This is not a call to buy this stock. I am only recording this as a reminder to myself why I bought this stock.]
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    Maximising returns with minimal risks - for the ultra conservative investor

    Most of us probably are guilty of unnecessary 'expenses' that could have been avoided with a little bit more education and interest.  And you don't have to avoid that cup of Starbucks coffee to do so!

    Tax Avoidance


    Not the illegal kind of course!  But one could easily avoid paying tons of tax by establishing a Supplementary Retirement Scheme (SRS) account and maxing out the annual contribution of $12,750.  Contibutions to your SRS are tax deductible.  If you were at a tax bracket of 17% for instance, this translates into a tax avoidance of $2,167.50!  In addition, that $12,750 should be further invested to achieve higher returns. 

    The catch: SRS cannot be withdrawn till after retirement age (62-65 years old), and has to be extracted over a period within 10 years thereafter, taxable at half the amount.  That means that if one had no other sources of income by then, withdrawal of $40,000 annually would be tax free since the first $20,000 of taxable income enjoys 0% tax.  This assumes the taxation system remains unchanged.

    Caveat: My take on the subject of SRS is that it may not be meaningful to do so if your tax bracket is still very low.

    More Tax Avoidance

    If your spouse is earning less than $2,000 a year, you could contribute up to $7,000 to your spouse CPF-SA (Speical Account) which is then tax deductible for you!  That's a further $1,190 of tax avoidance at the 17% tax bracket - i.e. an immediate 17% yield!  Consider in addition that the $7,000 in your spouse's CPF-SA would be benefiting from 4% returns as well.  Of course, there is no guarantee the interest rate for CPF-SA would continue to be 4%, since officially it is now benchmarked against SGS 10-year bond + 1%.

    The catch: CPF-SA is of course not withdrawable till after 55 years of age, subject to any balance left after the minimum required transfer to CPF-RA (Retirement Account).  Check out the CPF website for more information.

    Risk-free Investments

    Aside from low risk but rather hopeless options of putting our money into savings account (earning a pittance of a return) or fixed deposits (equally miserable returns), other options would be Singapore Government Securities (SGS) Bonds and Money Market Funds. 

    SGS Bonds can be bought off secondary markets such as from Fundsupermart. The yield is in the region of 2-3% for 10-20 year maturity. Not bad, compared to 0.5% in savings account. These days, SGS Bonds are publicly traded on SGX.

    Money Market Funds (MMF) on the other hand are unit trusts that invest in short-term (<1 year) maturity and probably yield about 1% right now, although it could well be 2-3% over the longer term.  MMF are however very fluid.  While it carries slightly more risk than savings account, the risks are relatively low given the short term maturities and AAA-rated holdings.  I view MMF as 'equivalent' to a savings account, but with a latency of 1-2 weeks when the money needs to be cashed out.  Such funds would include LionGlobal Money Market Fund, Philip Money Market Fund, and Pru Cash Fund.

    There are various Singapore Corporate Bonds, including from government or statutory boards, which may well offer better yields than SGS Bonds.  Unfortunately, these are not easily accessible for the typical retail investor for now.  But recent news suggest that SGX is looking into opening up this market in the not so distant future.

    There is a good video presentation from Mah Ching Cheng to explain this subject (a SIAS event): Investing in Bonds.

    In Summary

    For the ultra conservative investor therefore, the above would reap immediate benefits in maximising the little cash that we could put to better use, avoiding unnecessary wastage, and simple solutions to getting better returns, rather than leaving our money in the bank idling away.

    We start off by working hard for our money.  It's time to make our money work harder for us.

    Retirement:
    Supplementary Retirement Scheme [IRAS]
    Investing in Bonds [SIAS MyMoney investor education]
    SRS & CPF Cash Top Up Schemes [Nexia Pulse]

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    02 June 2014

    Soup Restaurant - Slurping with a Discount


    Soup Restaurant can be found at quite a few shopping malls. My family like their Samsui chicken, soup and various other dishes. It is not particularly pricey. I discovered that they have a scheme where you can get a 15% discount card if you are a shareholder of at least 2,000 shares. They call it the "S Card". So, some years back, I bought a few thousand shares in order to apply for the discount card.

    I figured that since I frequent the restaurant that often, buying the shares to get the discount was as good as paying a membership fee. Many restaurants offer membership schemes, but I have never encountered any that linked it to share ownership. Soup goes one step further by allowing you to own a part of the business to boot!

    Turned out, it was an even greater blessing in disguise. Over time, I bought more shares, eventually averaging at a price of $0.123. Recently, the stock has run up to $0.23. Its historical P/E has gone through the roof - 152x! I figured, it's time to sell and promptly did so, keeping the minimum share holding only to maintain the Soup Restaurant Discount Card. Meantime, it remains a good dividend stock at 3.13%.


    Ratios & Other data
    ROA (%) 15.24 18.64 5.88 1.11 2.13
    ROE (%) 18.21 22.64 10.00 1.66 2.82
    DPS (SGD) 0.0035 0.0085 0.0018 0.0070 0.0075
    EPS (SGD) 0.0098 0.0127 0.0055 0.0010 0.0016
    [Source: POEMS]

    It's rather hard to make the margin for such a labour intensive business. There just aren't enough workers to go around the service industry. It has started selling its special sauce as another line of business. Regardless, Soup does have a good brand and a decent product. I hope it continues to thrive - maintain the quality of its dishes, innovate new dishes, optimise its supply chain and maintain its cost structure.

    You can pick up the Discount Card application form from the cashier counter at any Soup Restaurant outlet or at their Investor Relations website (Soup Restaurant - Investor Relations). Chomp! Chomp!

    Related:
    Soup Restaurant - Investor Relations [S Card application form downloadable at this link]

    [Disclaimer: This is not a recommendation to buy or sell. It is only a reflection of my personal view and actions that I have taken. I continue to own shares in Soup.]

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    CPF - a lifeline for retirement, or till death do us part

    The subject of CPF has been a hot topic of late.  I guess a lot of that comes from the sense that one's money contributed to the CPF is constrained to only certain things that one can do with it.  Some individuals will always have issues with all things compulsory that the government imposes.  But in reality, there are plenty of things that one can do with your own CPF funds.


    Minister Tan Chuan Jin gave a good go at explaining what the CPF scheme is all about: Tan Chuan Jin on AsiaOne.  CPF Board is of course the authoritative source on CPF Life.

    Blogger SG Young Investment also weighed in to explain All About CPF Minimum Sum and CPF Life.

    For an estimate on how much CPF Life would provide, try CPF Life Estimator (tool).

    An article from MoneySmart.sg discussed about the adequacy of CPF to Cover Home Loans

    There's more than one can do with CPF money, and Cheerful Egg (Blog) elaborated on What You Can Do About this CPF Thing.

    Pay for housing, support your child's education, prepare for retirement for a lifetime post-retirement and pay/or for hospitalisation insurance.  Invest or do nothing; leave it in there to collect small but risk-free interests.  There're just so much that one can actually do!

    Going beyond CPF, Epsilon Luxe addresses Inflation and Tackling the CPF, SRS and other Tax Saving Tips.  CPF/SRS, these are conceptually not very different from the US Social Security/Roth-IRA, the UK's Pension/ISA or the Aussie's Superannuation.  Every country has similar systems, albeit with implementation differences. The differences tend to be on whether you are paying to a pool or paying to your OWN account. The earlier has generally seen a lot more problems due to politicking and under-funding, resulting in future generations bearing the cost of an inadequate system.

    Alas, some individuals choose to take the lazy way out, remain ignorant and just complain and complain and complain.  Sheesh.

    Investment Moat Thought CPF Life Gave a High 8.4% Return but realised that it wasn't quite so. The $155,000 minimum sum is taken out at age 55 to contribute to CPF Life which is effectively an annuity scheme. Given 10 years to age 65, that means the future value at a growth of 5% would grow this capital to $252,479. I did the same maths for varying growth rates and produced the following result:

    Growth Future_Value Yield
    4.0% $229,438 5.8%
    5.0% $252,479 5.2%
    6.0% $277,581 4.8%
    7.0% $304,908 4.3%

    I would expect a growth of 6.5% from investment returns to be realistic. That would produce an annual yield of 4.5% for the subsequent payouts which I view as reasonable when we compare against the expectation of 4% withdrawal rate for a "perpetual" retirement income.

    Personally, I'm glad to see the minimum sum being raised yet again. I expect this to continue with each passing year to keep pace with inflation. It just means that there is more room for me to do voluntary contributions to my wife's CPF Special Account and benefit from the tax deductions for my personal income tax bill.

    There is of course the risk that retirement age will be extended beyond age 65. Hence, if's really difficult for the younger ones, considering that it is so far, far away. Perhaps a softer policy touch is needed to alleviate this concern. Raise the retirement age if need be, but leave the age at which one can touch their CPF (and SRS!) as it is. Or have a 2-step approach, allowing part of the CPF Life payout to begin at a lower amount at age 65, and scale up thereafter. Give people the choice and the confidence that it wouldn't go further and further away. Let's see how this unfolds.

    Related:
    Tan Chuan Jin on AsiaOne [AsiaOne]
    CPF Life | CPF Life Estimator (tool)
    All About CPF Minimum Sum and CPF Life [SG Young Investment]
    CPF to Cover Home Loans [MoneySmart.sg]
    What You Can Do About this CPF Thing [Cheerful Egg]
    Inflation and Tackling the CPF, SRS and other Tax Saving Tips [Epsilon Luxe]
    Thought CPF Life Gave a High 8.4% Return [Investment Moats]

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    Golden Harvests for Golden Years

    The weekend papers on 1 Jun 2014 carried a couple of interesting advertisements.  Thought it was interesting to compare and contrast each offering ...


    Manulife

    The advertisement from Manulife suggested 4 ways to fund a retirement income:
    • Insurance with Income Payout Facilities.  Provides a regular income stream during retirement.
    • Dividend-Paying Stocks and Unit Trusts.  Dividends are used as an additional source of passive income during retirement.
    • CPF Life.  Provides monthly payouts of $1,200 (less for women).  
    • Unlock Property Value. Renting out in full or in part, reverse mortgage or HDB Lease Buyback Scheme (LBS) so as to capitalise on our property.

     Aggregate Asset Management

    On the other page, an advertisement from Aggregate Asset Management featuring Teh Hooi Ling explained the Rule of 72.  It illustrated the returns via various means of investments:

    • Bonds/Unit Trusts @ 3 to 5% p.a. Over 24 years, $100,000 would have become $200,000.
    • Index Funds/ETF/Blue Chips @ 6 to 7% p.a. The same $100,000 would have become $400,000.
    • A Basket of Value Stocks @ 10 to 12% p.a.  $100,000 would have become $1,600,000.

    The 2-3% spread from Unit Trusts compared to ETF probably accounted for the management fees of such actively managed funds compared to index funds.

    Related:
    CPF - A Lifeline for Retirement or Till Death Do Us Part

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    30 May 2014

    SingPost joins hand with Alibaba and the 40 thieves

    In an older post (Stock: SingPost), I noted the progression of SingPost from postal services to logistics. SingPost's traditional postal business is surely on a downhill slide and will remain so.

    Well, have yet to see the 40 thieves, and hopefully wouldn't see any. But, latest news abound on the announcement of the partnership with Alibaba with the later taking up a 10%+ stake in SingPost. Interestingly, this is happening even as Alibaba itself is preparing for its IPO. With SingPost increasingly looking like an e-commerce company, this partnership offers interesting prospects for growth for SingPost. It looks like SingPost as a dividend yielding stock will remain sustainable.

       

    Softbank (Japan) owns a slice of Alibaba (China) while the later owns a slice of SingPost (Singapore). Interesting. Perhaps time to take a closer look at Softbank as well?

    Related:
    Stock: SingPost
    SingPost Investor Centre

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    27 May 2014

    Journey through the ages - is 20% good?

    It has been a fascinating, and at times exciting, journey. Initially, I had only invested in insurance-based schemes. Be it whole-life endowment plans or investment-linked policies (ILP). Work, work, work was otherwise all I focused on. Making ends meet from the salary I earned and saving money into the bank were pretty much the game plan otherwise. Marriage, housing, post-graduate studies and kids pretty much took up everything else I had.

    Had it not been for the early years buying into the various ILPs, I wouldn't have much of an investment to speak of. Interestingly, I had the fortune of having taken up ILPs in the era post Asian Financial Crisis and it had generated quite a tidy sum. It came in handy when I needed the money to complement my CPF to buy my first home.

    Then I discovered Fundsupermart. A small sum in its cash fund gave me confidence to take the next step - i.e. to invest into various unit trusts funds. As I read more and gained a better understanding of the concept of diversification, stocks and bonds, the unit trust funds I invested into became more systematically managed.
    Then I discovered the tax benefits of the Supplementary Retirement Scheme (SRS). Voila! Max'ed out my SRS, minimise the tax I have to pay, and invest the SRS into unit trust funds at Fundsupermart. It's all too easy!

    At the depth of the Global Financial meltdown, I saw my unit trust funds sink miserably. And I mean miserably. But I stayed faithful to the diversification plan with the confidence that the market will generally recover in the long run.  It has not disappointed.

    In 2009, I assessed that there were many opportunities to pick up stocks. I must say I had a confirmation bias when I saw a video interview with Warren Buffet where he suggested that he was on the look out for things to buy. So started my stock picking journey.

    ROI

    After 5 years investing into the stock market, I did an analysis recently to see how I've faired. Turned out, not bad. Not bad at all. Using Excel's XIRR function, the internal rate of return showed 20.6% over the 5 year period investing in stocks. The stock portfolio, both from valuation uptick and from cash additions to the investment fund, has grown in leaps and bounds, from zero to hundreds of thousands in that 5 years.

    Significantly, as I analysed the individual stock's performance, it is also clear that the dividends have been significant. Soon, the dividends alone would generate $1,000 per month of income. Of late, as companies try to preserve their capital, several have started offering Scrip Dividends (also known as Dividend Reinvestment) options which I have opted to subscribe to, and thereby increasing the number of shares that I owned of those companies.  I'm doing so with the assessment that these stocks are not going the way of the dodo bird over the next 5-10 years.

    In many cases, the dividend yields have gone way beyond 4% compared to the original cost of the shares as many of these companies have consistently raised their dividends year on year. It sure feels *shiok* to see a stock that cost $1,000 generating an annual dividend of $100 per year and growing. Must say though, that there aren't as many SGX companies that behave like that compared to US stocks on the NYSE. The later have many more companies with a long history and consistent track records. Unfortunately, that also comes along with the 30% withholding tax.

    Happy investing!

    Related:
    Where Lies the Portal to Wealth?
    Pattern of Behaviour - A review of 2013

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    Travelers to the US on visa waiver programme - Electronic System for Travel Authorisation (ESTA)

    Travelers from countries that are on the US visa waiver programme need to submit applications via ESTA for prior approval. An online search will throw up many websites apparently offering this service for a tidy fee. At worst, some are con jobs. At best some provide an actual flow-through application service with little value add.


    Seems the official US government website is at: https://esta.cbp.dhs.gov/esta/.  One can certainly save a couple of dollars by applying online directly instead.  Self help?


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    Crowd Funding and Peer to Peer Loans

    Crowd Funding

    Crowd sourcing has developed into crowd funding in recent times. These have provided avenues for new business opportunities and innovations to thrive.

    crowdbnk.com
    crowdcube.com
    kickstarter.com
    syndicateroom.com

     Peer to Peer Loans

    Another interesting trend has been the appearance of Peer-to-Peer Loan services, allowing the retail investors to became a banker, providing micro-financing. There are several such services in the US and UK. Such loans are not without risk for the lender, and some bad loans are only to be expected.

    fundingcircle.com
    ratesetter.com
    rebuildingsociety.com
    zopa.com
    assetzcapital.co.uk
    lendingworks.co.uk

    When will we see such innovations become possible in Singapore?

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    19 May 2014

    VICOM - what's there not to like about this company?

    Car ownership such a problem in land scarce Singapore.  Especially in recent years with the high price of the infamous Certificate of Entertainment (COE).  With the stroke of a pen (or a paper) and one foots out tens of thousands of dollars before even talking about the cost of the car itself.  And thereafter, there's the cost of road tax, insurance, fuel and maintenance.  Not to forget, the car is a rapidly depreciating asset of 10 years. It's a real money sucker.  So, don't invest in the car.  Invest in something that benefits from car ownership. Who else then but VICOM?

    Vicom Inspection Centre (Kaki Bukit)

    What's there not to like about this company? Every car needs to have its periodic car inspection. It's regulated. That's a guaranteed business.

    Are people going to move away from car ownership?  Naw.  Not even if the MRT lines work well and taxi drivers decide to drive under all weather, all hours.

    Is VICOM well run?  A visit to VICOM would show just how few workers they need to transact each car through its inspection process.  The process is well oiled and highly automated. Keeps churning away.

    DPS (SGD) 0.1180 0.1290 0.1440 0.1500 0.1610
    EPS (SGD) 0.2333 0.2559 0.2865 0.2989 0.3215
    [Source: POEMS]

    Given the above, we can see that it has very good margins, and absolutely no debts!  

    Its dividend payout has been great - currently at 2.72% and deceivingly lower, but would usually be much higher by the end of each FY.  Its dividends has been consistently climbing up from 0.118 (FY09) to 0.161 (FY13).  DPS has also maintained below EPS throughout the past 5 years. Hard to find such companies on the SGX.  Tell me if you know of others with such a characteristic.  I consider this to be one of the high yield and dividend paying stock.  

    There's probably not much room for significant growth though, so don't expect heart-stopping growth. But it should remain steady.  Does anybody actually check how much they pay for each car inspection? I'm guessing probably not. Just pay! And in fact, with more than just a sense of gratitude to get a pass so that you can continue to use the car without needing further work. I could hear the expletives from the truck driver in the next lane whose car didn't.

    P/E ratio perhaps a bit high right now.  But what's there not to like about this stock?  Really.

    [Disclaimer: This is a not a call to buy or sell.  Merely a record of why I invested in this stock.]
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    Breadtalk - a case of over-expanded yeast?














    Breadtalk doesn't really need much of an introduction.  BreadTalk, Toastbox, Din Tai Fung are places I patronise and these businesses are buzzing. The rest like RamenPlay, The Icing Room and such don't excite me as much. Food Republic is reasonably well patronised, dependent on locations, but operates in a very commoditised space.


    The figures below show just how much it has moved over the past year alone.  It was hence time to re-examine the company


    Its debt level is horrendous at almost 180%.  The company is heavily leveraged as it seeks to expand.

    Its gross margin is high at 53.01% and is reflective of its branding.  However, its net profit margin is very low at 3.01%.  Its businesses require significant material and manpower.  The later is an especially difficult problem in manpower scarce Singapore.  Given the low margin, scale probably matters to reap maximum economy of scale, and hence its drive to expand rapidly.

    My sense is that it is likely over-priced right now at a P/E ratio of 29 and P/B of 4.21.  Dividend yield isn't great right now either at 1.28%.

    A company with a brand name that I can recognise, but for now possibly over-priced.  Time to exercise caution.

    Related:
    Breadtalk Group Gunning for Growth [Singapore Stock Market News]
    Breadtalk AGM 2014 by Rusmin Ang [Next Insight]

    [Disclaimer. This is not a call to buy or sell. It is only a record for myself on why I bought this company and am maintaining a cautious outlook by selling down to a minimal holding at this time.]
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    13 May 2014

    Positive cash flow without putting any cash at risk! Too good to be true?

    Saw an online video clip on YouTube recently by this lady who was selling her concept of developing wealth. She was schooled in the art of "Rich Dad, Poor Dad".  I've no grouse with the general idea of "positive cash flow" though I guess some of the concepts may run contrary to accounting practices in the way assets and liabilities are normally tagged.

    She gave an example of a Singapore property and asked the audience if they would invest in it.  Essentially it had a negative cash flow due to the high loan payments compared to the rental income.  The obvious answer was no.  But she postulated, what if she had a way to turn this into positive cash flow?  I was intrigued to say the least.

    The concept?

    Idea #1.  Secure an interest-only loan payment.  The argument being that since this is for the purpose of generating income from rental and not for capital appreciation, taking this approach helps to reduce the loan payment and hence shifts the cash flow equation to the positive.  Not bad.

    Idea #2.  Obtain a capital refinancing.  She made it clear to differentiate between refinancing a loan (which I understood) versus capital refinancing (which I had no clue about).  It sort of work like this.  Suppose you could obtain a loan of 80% against a $1,000,000 property - i.e. $800,000.  So you had to put down $200,000 as the upfront down-payment. 5 years later, the value of the property has appreciated to $1,200,000.  Recall Idea #1?  So, the loan principal has remained at $1,000,000.  But since the value of the property has now appreciated to $1,200,000, the capital refinancing would offer a revised loan at 80% giving $1,000,000.  You would therefore have extracted the $200,000 you had put down earlier!  Of course, the loan repayment would have increased.  But she argued that the rental income would likely have similarly increased as well.  Amazing isn't it?  Over 5 years, you have effectively put no cash into the investment and would still generate a positive cash flow from the rental income!  I also want!

    What's the catch?

    Catch #1.  Notice how the assumption in Idea #2 contradicted Idea #1.  She said we should not invest for capital appreciation but to achieve positive cash flow.  But what was the assumption in Idea #2?  Capital appreciation!

    Catch #2.  What happens if the value of the property drop?  The bank is going to come calling for a cash top up!  Do you have the cash reserves to respond when that happens?  Are you still cash flow positive? Companies can die when they don't manage their cash flow properly from month to month.  For the individual, it could mean bankruptcy and a miserable rest-of-the-life.

    Catch #3.  Does the economy remain healthy always and you can be assured of the rental income?  More often than not, when things are getting bad, it just gets worse. The very scenario in Catch #2 is also likely to be accompanied by a poor economy. What happens?  Your rental would also go up in smoke.  Now the ability to service the loan has just been compounded by an amount equal to the lost rental income!  Double whammy!




    Speaking of which, got a call from a friend (person A) recently, asking for the number of another guy I know (person B).  A was trying to get in touch with B over his investment.  Seems A had invested in some gold-related scheme with B.  I happened to know B had been scammed by his business partner (absconded!) and was desperately trying to get his life back.  B was now driving a taxi to make ends meet.  I guess friend A has to kiss his investment goodbye.  Sad.

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    12 May 2014

    Saving more for tomorrow

    This video from TED talk provides an interesting elaboration of behavioural finance:
    Saving for Tomorrow (TED Talks).


    Instant Gratification:
    Take the banana or the chocolate?

    Inertia:
    Opt out or opt in? Which gives you a better outcome? Depends on what you wanted in the first place! Both give you the sense that you have a choice. But with very different outcomes.

    Loss aversion:
    Give a monkey an apple and he's happy. Give a monkey two apples and then you take one away, he's pretty upset.

    Watch the video to understand the above examples.
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    How a penny made me feel like a millionaire

    What's a penny worth?

    Feels like a millionaire in some circumstances. It's such a contrast when our upbringings gave us such contrasting experiences.


    What does it take to make us feel the sense of "satisfaction"? Between the $5 cup of gourmet coffee and the $1 cuppa at the friendly neighbourhood coffeeshop, is there sufficient marginal utility to want pay that $4 difference? Not to mention the difference of 300+ calories (kcal) involved!

    Sometimes, there is.  To each his own. Enjoy your cuppa! *slurp*
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    26 August 2013

    China Minzhong

    Once again, the short sellers have targeted a company listed on the SGX. China Minzhong lost almost half its value today after the report was published. A trading halt was called on the SGX. The allegations suggested that China Minzhong had cooked up their sales to their supposed top two customers. The accusations if true would suggest a pretty unethical (and likely illegal) cooking of the books to make their sales look good.

    It's interesting that up till recently, several brokers were making the call to buy this stock. I must say that I have been watching this and another S-Chip (Sino Grandness) for some time but have not yet found the reason to invest into either. I have been looking for a good food company to invest in ever since Hsu Fu Chi was taken private.

    At various forums, some posters were lamenting that they had invested a significant chunk of their money into this company. Strange why they have not learnt from Lehman Brothers, Mini-bonds, and various misadventures of S-Chips? Some even went on to say that they vested in today before the trading halt as they felt that even if the two top customers were negated, the impact would not be significant.

    Who knows if they might be right? But it's a no go by my books - definitely an OB marker! When the management cannot be trusted to be doing the right thing, it is no longer a company I would want to own any part of. History has shown time and again that things would not come to a good ending. Consider Enron and others like it that have gone the way of the dodo bird. Other indicative signs (though not necessarily a show-stopper) - absence of any dividends, high PE ratio.
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    02 June 2013

    Consult your stock broker

    Totally Useless Advice #1

    Was watching an episode related to investment recently, and came across a most useless piece of information.  The question posed was on what stock to pick at this point in time (in the Singapore market).  The advise was to refer to a stock broker.  What crap! 





    Totally Useless Advice #2

    Then there was another question regarding generating income from stocks.  The reply was to buy blue chip stocks to get good dividend income stream.  Rubbish once again!

    Totally Useless Advice #3

    And here's another one: How should one go about building a retirement income.  The answer: buy annuities.  No prize for guessing the occupation of the lady giving this piece of advice.
    Can we have a better show please!?  We're getting horrendous investment advice from TV.  Had a more positive impression from past episodes.  But this one really irritated the heck out of me. 

    [Venting]


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    27 March 2013

    Annuity Plans for Recurring Retirement Income




    Annuity plans offered by various insurance companies:

    http://www.income.com.sg/insurance/Annuity/index.asp
    http://www.aia.com.sg/en/individuals/pro..._plan.html
    http://www.aviva.com.sg/retirement/for-i...ement.html
    http://www.axalife.com.sg/retirement/retire-happy

    An alternative approach to provide a regular income stream during retirement.  This could be used to augment (a) payout from CPF Life, (b) dividend income stream from stocks, and (c) coupon payouts from bonds.

    Acknowledgment: Information was sourced from a post at ValueBuddies.

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    26 March 2013

    Cost of Car Ownership

    Here's an interesting website that offers a calculator to compute the cost of owning a car in Singapore: Cost of Car Ownership.

    With the price of a Certificate of Entitlement outstripping the base value of a car, it has become one of two major cost of living topic that is a regular conversational piece for taxi drivers. 

    The other is of course housing.
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    26 February 2013

    Nest Eggs for Education Funds

    Years ago, my wife set up a savings account for each of our child.  Contributing $50 a month for several (many!) years, these eventually reach a few thousand dollars.  But with the rapidly depleting interest rates at the banks, we finally decided that it wasn't the most optimal approach.

    Reviewing the longer term plans, we decided to build these towards their respective tertiary education funds, should they succeed academically.  We then revised the monthly contributing to $500 a month by investing in a basket for unit trust funds (aggressive portfolio diversified across several regional funds - US, Europe, GEM, Asia ex-Pac).  With the increased earning power, this was viable and sustainable in recent years.  Through this, the respective funds have rapidly built up to $50,000 each through a combination of monthly contributions and growth in valuation.

    Looking forward, I have shifted towards $600 a month contribution towards a portfolio of conservative money market and short duration bond funds.  Coupled with additional top-ups following each Chinese New Year and other miscellenous, it should lead to a nett contribution of about $8,000 a year.  In 4 years, when they would be of age for university, the respective nest eggs would have reached $80,000, an average of $20,000 for each of the 4 years at the university.  A sum that wouldn't be enough for an overseas education, though it would be a big leg up regardless.  More importantly, it should be adequate for local studies.

    Looks like they are set.


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    08 February 2013

    Kian Ann exits SGX

    And so exits Kian Ann:

    http://www.kianann.com.sg/archives/announcements/20130201_00056.pdf
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    04 February 2013

    Pattern of Behavior - A Review for 2013

    I was reviewing a past musing I made in 2011 (Pattern of Behaviour) of several interesting companies that I was invested in and monitoring. 

    Since then, Adampak, Cerebos, Hsu Fu Chi, Kian Ann all went through one form of general offer or another, and have since delisted from SGX.  Guess my bets were on the righthorses.  The original buys centered around these stocks that paid good and steady dividends.  In some cases, they had low Price-to-Earnings (PE < 15) and/or low Price-to-Book (P/B < 1.0) ratios.

    More recently, I divested Innotek.  Seems like a dead horse.  But I may well have divested at its trough (pun).

    Of the rest, most are still struggling at the fringe, especially M1, CSE Global, SingPost and Sing Inv & Fin.  SingPost in particular faces the challenge of diversifying itself from being overly dependent on a gradually declining domestic market.  Consequently, it has been taking on an aggressive M&A track.  However, these have yet to pan out.  It's all about execution.  For the rest, I remain optimistic for the longer term.

    Of the balance, Teckwah and Zagro Asia have been doing well.

    In nett therefore, out of 12 stocks, 4 exited profitably, 1 exited at a loss, holding 4 that are performing neutral, and holding 2 that are doing well - i.e. 6 wins, 4 draws, 1 loss.  Not too bad.
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    31 January 2013

    Dividend Growth Stocks

    For the past few years, I've been taking the approach of looking for value stocks on SGX with good dividend yield.  The strategy seems to have worked well so far.  Of late, I started examining the dividend growth history of various stocks and it seems that there are a few that stand out significantly:

    - The Hour Glass
    - VICOM

    Interestingly, their dividend payouts in absolute dollars have been consistently rising (dividend per share), supported by increasing earnings (earnings per share).  I view with some optimism that Breadtalk may in time fall into this class as well.

    Examining the NYSE, there seem to be even more options.  These include:

    - McDonalds
    - Yum!  (KFC)
    - Coca Cola
    - PepsiCo
    - Johnson & Johnson [EPS is less consistent]
    - Clorox
    - Kimberly-Clark

    These are all familiar brands with significant global presence.  All appear to have been growing steadily over many years.  Fastfood, drinks and toiletries -   essentials in both good times and bad?


    Looks like good stocks to hold onto for a lifetime of consistent and growing dividend payout?  Sounds like a plan!
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    24 August 2012

    Condo, wife, kids and a taxi

    Earlier this evening, I hopped onto a cab home as I typical do each evening.  I had a fascinating ride in the Mercedes Cab and an even more engaging conversation with the taxi driver.  He seemed young and educated.  He did not look like the typical taxi driver. 

    He was a chatty fellow and volunteered that his wife was a housewife and he had three kids to feed.  I congratulated him for achieving above the national benchmark. 

    Fascinatingly, he was working as a Senior Engineer in an electronics manufacturing company on weekdays. Driving the taxi was his weekend job.  It seemed like he already had a well paying job as a professional engineer.  Why then was he driving a taxi?  I've heard of professionals who had lost their jobs in times of poor economic conditions and turned to taxi driving as a last resort.  But this certainly wasn't the case here.

    To my further surprise, he said he was living in a condo.  Now highly curious, I asked him why he was driving a cab given that he was living in a condo and was a professional engineer?  To which, he said, "That's precisely the reason!". 
    Apparently, in order to meet the lifestyle demand of a singe income family, a condo (someplace at Marine Parade) and a family of four dependents, he was working weekdays as a professional engineer.  The taxi income was to supplement his regular salary.  He drove on Fridays and Saturdays nights.  As an added benefit, he then had the Mercedes for his family weekend activities on Sundays.  Not bad.

    It must be tough living such a busy lifestyle working six days a week to sustain the lifestyle that he had.  But it was apparently one he had come to terms with.  He seemed jovial and happy.

    He had an interesting view on economics too.  He said that ever since the two Integrated Resorts opened, taxi business had picked up significantly.  Elaborating, he said that Singapore used to receive about 7 million visitors a year.  But eversince the Integrated Resorts opened for operations, the number of tourists had increased to 10 million a year.  Therefore, the demand for taxis had similar increased.  Taxi drivers were therefore earning 50% more than they used to.  It was quite a eureka moment for me.

    I thought I already had enough surprises from this interesting gentleman.  But there was more.  When asked how much he could make as a two-nights-a-week taxi driver, he shared that he was making an average of $500 per weekend.  And that was after deducting all his taxi operating expenses!  He was making an additional $2,000 a month just driving about eight nights. 

    Fascinating insights from a taxi ride.  What a wonderful Friday!  I hope you have the opportunity of meeting this jovial Mercedes taxi driver one day too.
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    01 August 2012

    Delisting of Cerebos

    More bad news as far as I'm concerned.  First it was Meiban.  Then it was Adampak.  Now, it's Cerebos.  Sigh.  While in all cases I have or will be making a tidy profit from the delisting offer that were way above what I paid for these shares, I am in no way celebrating. 

    Each of these companies have been giving out consistent dividends and I have benefited from these passive income (which were re-invested).  So I have benefiited both ways in terms of appreciation and dividend income.

    They have been consistent sources of regular income that I am going to miss.  The loss opportunity of the future income stream is going to be sorely missed.  Au revoir!
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