As I was pondering over the markets recently. We start to see very quality assets that are starting to emerge.
Investment Themes that will do very well over the next few years are
1. Big Data (and its storage)
2. eCommerce (and its storage)
3. Frontier Markets (Myanmar)
4. Clean Energy (and its various components)
5. Urbanization of cities
Pointing to Theme 2 in particular - eCommerce
One particular company that caught my eye is Global Logistics Properties (GLP). GLP is a market leader in China with a large footprint worldwide in USA/ Japan/Brazil. Interestingly, GLP was a company born from the global financial crisis in 2008. It succeeded with the a management buyout of prologis assets with the backing of GIC.
Fast forward 8 years. The company was listed, and continue to flourish as a builder, asset manager and operator with high occupancy of its high tech logistics (glorified warehouse).
3 questions always come to mind when investing.
1. Does the company have a strong investment theme?
Yes. Being right in the heart of china where eCommerce is booming (think Baidu/Alibaba/JD.com/Tencent) - there is much opportunity to support all these companies who require the logistics know how as they advance towards selling their products
2. Does GLP have a moat?
Yes. The network effect has been much touted by the company itself. The network effect is the strength of a company that grows as its community grows larger. In this case, the network effect is relevant for the customer if he wants to say sell his product in different parts of China. GLP can help to provide a different cost package or an assistance to move the goods accordingly to different places.
3. Is the company highly leveraged?
To the contrary. No. Debt gearing is about 30%. Which is pretty reasonable and gives ample gunpowder should opportunity arises. The company also exercise prudence in terms of development - they cut back on capex from 1.7bln to 1.4bln (warehouse developments) as they are seeing logistic occupancy fall below 90%. Should it rises above 90% again (i.e. economy picks up). They will increase capex once more.
What is the worse that could happen?
China debt bubble implodes, causing a freeze up of capital flow, consumer shock, massive cutback on spending and job cuts - Financial Armageddon. Share price may fall to about 1.20.
Likely hood: Pretty low, but some adjustments within china are currently in place to mitigate this issue.
1.20 price is an even better price to buy a wonderful company.
Target price: 2.47
(Provided by DBS Vickers - https://www.dbs.com.sg/treasures/aics/EquityArticle.page?dcrPath=templatedata/article/equity/data/en/DBSV/012014/GLP_SP.xml)
(The author is vested with 3300 shares as of the time of writing)
Saturday, June 11, 2016
Saturday, April 30, 2016
Update on Ascendas H Trust
Reflections.
Ascendas H Trust plunged some 13% in one day post management announcement that it is ending all talks with takeover interests.
There I was sitting on a significant loss account. Basically you have 3 options when you are purchasing a stake.
1. You keep your entire stake
2. You sell your entire stake
3. You sell part of your stake
When I entered this trade, it was solely on the basis of a takeover offer. Which when it failed to materialize, a trader would decide to get out asap. So this likely accounted for the sharp plunge.
As I entered as a trader, I was quite ready to get out.
But then, to take a large loss is not easy. What should you do then?
You evaluate the scenarios and the assumptions you went through earlier. This is to avoid bounded rationality where one does not seek full information but make do with the most recent or available information making sub-optimal decisions.
I evaluated my choices and went with choice 3.
I sold down a small portion, and kept about 80% of the stake. I evaluated this on a total portfolio basis as well as I sold down my capitacommercial trust stake concurrently.
This is the following reasons:
1. This is a yield accretive move. 7.6% on my purchase price vs 6% from capitacommercial
2. Office reits are in a precarious position as a large supply of Grade A office are coming in
3. The recovery story of Ascendas H trust is very much intact, AUD is rising, australia economy has a certain attraction and strength
4. Management's commitment to enhancing returns to shareholders - saying no is just as important as saying yes. If an offer undervalues the asset, the management should act in the best interest of their shareholders and keep the faith.
Why then did I sell down 20%?
This is to manage the overall portfolio, certainly there are better opportunities down the road. Think when the Fed raise interest rates again or if china devalues the yuan or if the bad debt of china implodes or if Britain suddenly goes Brexit.
Anyone of the above 4 factors can cause a 20% plunge in blue chips. The volatility is very excellent for traders. But even for long term investors, one should rejoice in the sight of a sale.
Did I make a mistake?
I did my valuations the consideration that the PE and acquirers were all conducting their valuations independent of the valuator's final calculation. This is definitely something to learn from.
As long term investors - Its all about consistency, longevity and a sound process of execution. Rinse and repeat.
After all, "Not everything that counts can be counted, and not everything that can be counted counts."
- Albert Einstein
Ascendas H Trust plunged some 13% in one day post management announcement that it is ending all talks with takeover interests.
There I was sitting on a significant loss account. Basically you have 3 options when you are purchasing a stake.
1. You keep your entire stake
2. You sell your entire stake
3. You sell part of your stake
When I entered this trade, it was solely on the basis of a takeover offer. Which when it failed to materialize, a trader would decide to get out asap. So this likely accounted for the sharp plunge.
As I entered as a trader, I was quite ready to get out.
But then, to take a large loss is not easy. What should you do then?
You evaluate the scenarios and the assumptions you went through earlier. This is to avoid bounded rationality where one does not seek full information but make do with the most recent or available information making sub-optimal decisions.
I evaluated my choices and went with choice 3.
This is the following reasons:
1. This is a yield accretive move. 7.6% on my purchase price vs 6% from capitacommercial
2. Office reits are in a precarious position as a large supply of Grade A office are coming in
3. The recovery story of Ascendas H trust is very much intact, AUD is rising, australia economy has a certain attraction and strength
4. Management's commitment to enhancing returns to shareholders - saying no is just as important as saying yes. If an offer undervalues the asset, the management should act in the best interest of their shareholders and keep the faith.
Why then did I sell down 20%?
This is to manage the overall portfolio, certainly there are better opportunities down the road. Think when the Fed raise interest rates again or if china devalues the yuan or if the bad debt of china implodes or if Britain suddenly goes Brexit.
Anyone of the above 4 factors can cause a 20% plunge in blue chips. The volatility is very excellent for traders. But even for long term investors, one should rejoice in the sight of a sale.
Did I make a mistake?
I did my valuations the consideration that the PE and acquirers were all conducting their valuations independent of the valuator's final calculation. This is definitely something to learn from.
As long term investors - Its all about consistency, longevity and a sound process of execution. Rinse and repeat.
After all, "Not everything that counts can be counted, and not everything that can be counted counts."
- Albert Einstein
Thursday, March 31, 2016
Special Situation - M&A - Ascendas Hospitality Trust
BUY Call (Deep value with 25% upside over an 8 month horizon)
Current Price: $0.75
Target price: $0.93
Upside value 24.6%
 |
| Relative valuation of Ascendas H Trust (data obtained from SGX Reit Data - ReitData.com) |
Value = [Graham ratio (20%) + DBS valuation (15%) + NAV (50%) + Worse case scenario (15%)]x 1.10 (buyout premium)
Background:
I have observed Ascendas H Trust since its announcement on 23rd December 2015 that it received an unsolicted offer to buyout the reit position. This perk my interest and I began tracking this stock.
The lack of movement above $0.75 range appears to show that one of the offer was probably in that range. I expect additional offer(s) to come in as there appears to be a possible bidding war (helps to be the buyout target - think of F&N buyout in 2012-2013).
Management brought forward independent valuation of properties to evaluate offers - emphasis on the plural form.
Assumption
1. 10% buyout premium is used
2. Upward revaluation of assets to $0.842 (from $0.72) shows significant value and consideration of tabled offer by management (strategic review) will be completed soon
3. Comparison was used with gearing, yield and book value
Background:
I have observed Ascendas H Trust since its announcement on 23rd December 2015 that it received an unsolicted offer to buyout the reit position. This perk my interest and I began tracking this stock.
The lack of movement above $0.75 range appears to show that one of the offer was probably in that range. I expect additional offer(s) to come in as there appears to be a possible bidding war (helps to be the buyout target - think of F&N buyout in 2012-2013).
Reasons I am buying Ascendas H Trust
1. Several buyers have tabled offers (Starwood Capital / Fosun / Gaw Capital / Blackstone)
2. Upside of 25% is 3 times downside of 8%
3. Defensive nature of reit structure being 90% dividend payout and 7.73% trailing yield + Australia tourism continues to pick up
Risks
1. Substantial shareholder - Tong Jinquan sells out at 0.765
2. Australia RevPAR fell 5% year on year (crown jewel)
3. High gearing at 38.2% / All in interest rate 3.4% / 2.3 years to maturity
Addressing risk concerns
- Gearing is lowered given the upward revaluation - gearing should be reduced to around 33%
- Nature of Australian financing loans tend to be higher (interest rate is high in the country)
- Improving tourism and the relatively weaker AUD should help push up RevPAR over time
- Ascendas looking to do refinancing of 2016 loans
Only risk that I cannot pinpoint is the reason why Tong Jinquan sold out. It is possible that he holds the asset for income yielding asset tool, given the privatization nature, he doesn't need it anymore.
As of 31/03/16. The author owns shares in the above mentioned company.
Sunday, January 17, 2016
Economic Armageddon? Where to allocate your assets now (Part 2/4) - SSB and Reits
SSB
I was analyzing the Singapore Savings Bonds - 5 issues to date.
Here were some interesting points
1. November continue to dominates all the bond issues
2. The demand is tepid but could likely be around 40m monthly
3. Some High Net worth individuals are trying to park more money than permitted (approximately 2+ million of oversubscription without getting allocated)
My takeaway:
1. It appears that fear is entering the market, 10 year bond prices are going up therefore pushing the yield curve down comparing Dec - Feb issue vs Oct and Nov
2. In the short term, interest rate is expected to hike so subsequent issues should be better
3. The rich are beginning to fear the markets, asset allocation to safer assets may be prudent for all investors now (smart money moves)
Appended is the comparison for your use.
I was analyzing the Singapore Savings Bonds - 5 issues to date.
Here were some interesting points
1. November continue to dominates all the bond issues
2. The demand is tepid but could likely be around 40m monthly
3. Some High Net worth individuals are trying to park more money than permitted (approximately 2+ million of oversubscription without getting allocated)
My takeaway:
1. It appears that fear is entering the market, 10 year bond prices are going up therefore pushing the yield curve down comparing Dec - Feb issue vs Oct and Nov
2. In the short term, interest rate is expected to hike so subsequent issues should be better
3. The rich are beginning to fear the markets, asset allocation to safer assets may be prudent for all investors now (smart money moves)
Appended is the comparison for your use.
Real Estate Investment Trust (REIT) and other Trusts
A REIT is a beautiful way to grow your assets and your nest egg. Now I don't advocate you to plonk your entire house (bet the house) in it, but it definitely plays a very important role in times like this.
Here are some interesting facts about REITS:
1. They have to distribute 90% of net income to unit holders
2. They are managed assets with built in inflationary contracts (i.e. revision to rental rates)
3. They can give good yield and are rather defensive in nature (i.e. will not fall much in times of recession)
The following was collated from SG Reits. A fantastic site for getting the latest data. After some data crunching. High Yield assets >7% and Debt Gearing <35% (Total Debt/ Total Assets). I came up with the following 10 cases.
Each has some compelling case and will likely be rewarding to the long term investor.
This is not an advise to invest blindly, but certainly a decent allocation to REIT will help in asset growth.
Caveat emptor. Please carry out individual in-depth analysis on each case.
Economic Armageddon? Where to allocate your assets now (Part 1/4)
Judging from the first two weeks of market movements. Some recurring themes appear more apparent now:
1. Oil prices is not coming back. Not for a while. Expect oil and offshore marine to be badly affected, possibly not coming back till 2018. If you are a long term investor it may pay to hold assets there in a cyclical run - but there is plenty of time to get back in on this trend. Oil is expected to go down to USD20 and maybe even USD10.
2. The interest rate hike in USA appears to have open up a can of worms. How can the Fed hike the rates when the economy does not look like it is on the growth path. Perhaps the rate hike has come a little too late. But that being said, slow hike will allow for gradual adjustments by companies. The debt binge has been a constraint on the US economy. Printing of money will not do when USD is no longer the major reserve. China is putting the CNH/CNY quite firmly on the map with the establishment of the AIIB (Asian Infrastructure Investment Bank) and addition to the Special Drawing Rights (SDR). It will join the euro, yen, pound and dollar in the reserves basket. The yuan will have about an 11 percent weighting in the SDR. This places China in a strong position to become the next superpower.
3. In terms of attractiveness. Europe and USA appears quite attractive in terms of the quality of domestic consumption (or so the economists believe). One thing is for sure, hot capital is flowing out of Asia quite rapidly in the purported 'flight to safety', the flow back to the developed nations should give those countries some needed boost to their economy.
4. Europe remains a periphery of immigrant issues. The quack-mire mix of massive immigrants / distrust / lack of employment / politics and terrorism will continue to be the biggest risk for those countries
5. For USA, the future looks the brightest with capitalism leading the way. Having either president Trump or Hilary should not have a major impact on the direction of the country (being I believe they are both capable individuals quite befitting of the roles)
6. The biggest risk for Asia remains the mountain of debt among Chinese companies. In addition, given that Asia has huge exposure to the chinese economy in terms of consumption, commodities and manufacturing. It is quite clear that NPL (Non Performing loans) of banks and defaults will occur more rapidly. The clock has turned for Asia and we are already in a recession.
Putting it altogether. Where is a good place to put your money?
Depending on your risk profile, I believe some blue chips value are starting to emerge, I have also begin to see companies that are potential multi-baggers, I will write about these cases on another article.
Part 2 - Discussion on safer/safest assets - Singapore Saving Bonds / Bank Deposits / REITS
Part 3 - Blue Chips
Part 4 - Multibaggers
1. Oil prices is not coming back. Not for a while. Expect oil and offshore marine to be badly affected, possibly not coming back till 2018. If you are a long term investor it may pay to hold assets there in a cyclical run - but there is plenty of time to get back in on this trend. Oil is expected to go down to USD20 and maybe even USD10.
2. The interest rate hike in USA appears to have open up a can of worms. How can the Fed hike the rates when the economy does not look like it is on the growth path. Perhaps the rate hike has come a little too late. But that being said, slow hike will allow for gradual adjustments by companies. The debt binge has been a constraint on the US economy. Printing of money will not do when USD is no longer the major reserve. China is putting the CNH/CNY quite firmly on the map with the establishment of the AIIB (Asian Infrastructure Investment Bank) and addition to the Special Drawing Rights (SDR). It will join the euro, yen, pound and dollar in the reserves basket. The yuan will have about an 11 percent weighting in the SDR. This places China in a strong position to become the next superpower.
3. In terms of attractiveness. Europe and USA appears quite attractive in terms of the quality of domestic consumption (or so the economists believe). One thing is for sure, hot capital is flowing out of Asia quite rapidly in the purported 'flight to safety', the flow back to the developed nations should give those countries some needed boost to their economy.
4. Europe remains a periphery of immigrant issues. The quack-mire mix of massive immigrants / distrust / lack of employment / politics and terrorism will continue to be the biggest risk for those countries
5. For USA, the future looks the brightest with capitalism leading the way. Having either president Trump or Hilary should not have a major impact on the direction of the country (being I believe they are both capable individuals quite befitting of the roles)
6. The biggest risk for Asia remains the mountain of debt among Chinese companies. In addition, given that Asia has huge exposure to the chinese economy in terms of consumption, commodities and manufacturing. It is quite clear that NPL (Non Performing loans) of banks and defaults will occur more rapidly. The clock has turned for Asia and we are already in a recession.
Putting it altogether. Where is a good place to put your money?
Part 2 - Discussion on safer/safest assets - Singapore Saving Bonds / Bank Deposits / REITS
Part 3 - Blue Chips
Part 4 - Multibaggers
Sunday, November 15, 2015
Singapore Savings Bonds (For the less savvy investors) - First 3 issues
I personally subscribed to SSB - both October and November issues. They formed about 12% of my entire portfolio assets. I find them decent yielding instruments given the nature of its monthly redeemable nature. Someone quite rightly called it a '10 year bond step up bond with a monthly put' as it gives you the yield of a 10 year bond with the right to sell back any month without any lost ($2 transaction cost is negligible - don't tell yourself otherwise).
Key in mind throughout this discussion that there is a macro theme of rising interest rate and this would most likely begin in December.
Quick thoughts:
1. November issue is the best of the 3
2. December offering is very dismal in the mid to long term (Nov issue dominates it all the way while Oct issue dominates it all the way from 3rd year onwards - see chart 1 to understand fully)
3. You always have options for this unique asset class (subscribe or redeem or do nothing)
You are likely to be in 2 positions
1. The new subscriber
2. The one who subscribed OCT or NOV (or both)
That being said if your holding period is only 2 years, it makes sense to subscribe now and sell it by the end of year 2. You would have been better off than the October subscriber.
P.S. If you are holding for 2 years, go put it in a fixed deposit instead.
In conclusion, its all about your timing and the opportunity sets - always ask yourself, 'what is your investment horizon and risk appetite?'.
The author expects december to be severely undersubscribed if any (<S$100m probably).
Cheers!
Key in mind throughout this discussion that there is a macro theme of rising interest rate and this would most likely begin in December.
Quick thoughts:
1. November issue is the best of the 3
2. December offering is very dismal in the mid to long term (Nov issue dominates it all the way while Oct issue dominates it all the way from 3rd year onwards - see chart 1 to understand fully)
3. You always have options for this unique asset class (subscribe or redeem or do nothing)
You are likely to be in 2 positions
1. The new subscriber
2. The one who subscribed OCT or NOV (or both)
| Year | 1st | 2nd | 3rd | 4th | 5th | 6th | 7th | 8th | 9th | 10th | Issue Amount |
| GX15100F (Oct) | 0.96 | 1.09 | 1.93 | 2.93 | 3.25 | 3.25 | 3.25 | 3.25 | 3.3 | 3.7 | S$413.161m |
| GX15110F (Nov) | 1.18 | 1.2 | 2.06 | 3.1 | 3.4 | 3.4 | 3.4 | 3.4 | 3.44 | 3.83 | S$257.3285m |
| GX15120F (Dec) | 1.15 | 1.15 | 1.65 | 2.41 | 2.81 | 2.81 | 2.93 | 3.08 | 3.29 | 3.64 | Not Avail |
 |
| Chart 1 |
 |
| Chart 2 |
If you are a new subscriber:
In this case - look at the following yield curve (chart 1 & 2) - you would know why this month issue is probably not a good buy as the overall yield is lower than the first 2 issues.That being said if your holding period is only 2 years, it makes sense to subscribe now and sell it by the end of year 2. You would have been better off than the October subscriber.
P.S. If you are holding for 2 years, go put it in a fixed deposit instead.
If you are an OCT or NOV subscriber
Consider your investment horizon. If you are eyeing 2 years before selling the bond, you may want to redeem and take up the December issue. Although consider your opportunity cost given that the yield is increasingly higher the longer you hold the bond. Otherwise, I would advice just to hold on to your bonds (Oct and Nov) and don't touch the Dec issue.In conclusion, its all about your timing and the opportunity sets - always ask yourself, 'what is your investment horizon and risk appetite?'.
The author expects december to be severely undersubscribed if any (<S$100m probably).
Cheers!
Friday, November 13, 2015
Special situations (M&A) in the local SG market
Several Acquisitions stories caught my attention in recent months. Noting that there are no certainty that any of these acquisitions would go through, some of them potentially have a very high chance of going through due to the size and reputation of the acquirer thus removing the arbitrage completely (for example the recent Tiger Air $0.41 offer per share by SIA Ltd). The following are 3 potentially lucrative deals that the market is giving some substantial discount.
Caveat Emptor. Appreciate the comments/discussion.
Note: The author doe not own any stake in any of the companies mentioned.
No.
|
||
1
|
Company Name
|
China Minzhong
|
Current Price
|
S$0.77
|
|
CV
|
S$504.7m
|
|
5 year low
|
S$0.53
|
|
5 year high
|
S$1.85
|
|
Acquirer name
|
CBZ BVI (solely owned by
Chairman/CEO Lin Guo Rong)
|
|
Acquirer current stake
|
0.82%
|
|
Offer price
|
S$1.20
|
|
Offer Valuation
|
S$786.55m
|
|
Upside
|
55.84%
|
|
Required cash outlay by
acquirer
|
$551.05m for 70.1%
|
|
2
|
Company Name
|
Asiatravel.com
|
Current Price
|
S$0.245
|
|
CV
|
S$85.9m
|
|
5 year low
|
S$0.163
|
|
5 year high
|
S$0.485
|
|
Acquirer Name
|
Zhonghong Holdings
(China)
|
|
Offer price
|
S$0.30
|
|
Offer valuation
|
S$105.18m
|
|
Upside
|
22.5%
|
|
Required cash outlay by
acquirer
|
S$93.15m
|
|
3
|
Company Name
|
Saizen Reit
|
Current Price
|
S$1.08
|
|
CV
|
S$311.4m
|
|
5 year low
|
S$0.65
|
|
5 year high
|
S$1.14
|
|
Acquirer Name
|
Triangle TMK
|
|
Offer price
|
S$1.17
|
|
Offer valuation
|
S$337.35m
|
|
Upside
|
8.33%
|
|
Required cash outlay by acquirer
|
$337.35m
|
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