Cheap! Cheap!

For a long time now, I have not bought Ferrero Rocher chocolates because I refuse to pay 40c or more per piece. Today, I went on a rampage:

My precious!

Price: S$ 4.80 for 5 packets (3 pieces per packet). 32c a piece! Cheap!

This is a National Day deal at The Cocoa Tree.

If you have a weakness for chocolates like I have, must be fast hands fast legs hor. ;p

(Not an advertorial but it is a fantastic deal!)

Related post:
7 money habits of AK71's

Perennial China Retail Trust: 1H 2013 DPU 1.9c.

Here are some numbers I pulled out:

NAV/unit: 74c
Gearing: 23.74%
Debt Service Ratio: 3.2x

So, what do I think? I did a rather detailed blog post back in February and my view of the Trust has not changed.

Buying into PCRT is really buying into the story that Chinese domestic consumption, at only a third of GDP, will grow and that the Chinese economy will stay strong. We are buying into the Trust's potential to deliver in future.

Right now, I would say that investing in PCRT is still relatively risky although the level of risk is much reduced compared to the time of its IPO.

People who invest for income must realise that much of the distributable income is made up of money from earn-out deeds. It is not cash flow generated from operations of the buildings per se. It is money that is being paid out from guarantees while we wait for the buildings to generate more cash flow.

Based on the earn-out deeds currently available, the Trust is able to continue distributing income to unit holders for another 18 months. Translated, it means that its properties must pick up the slack by end of 2014, everything else remaining equal. Of course, it is unlikely that things will not see any progress and just stand at where they are now.

A more pertinent question is how much improvement can we see? This is really something we cannot say for sure and this comes with the territory when we invest in start ups which is also why I insisted that the distribution yield must be higher for PCRT compared to CRCT for it to be attractive to anyone investing for income. Investing in PCRT arguably is not mainly for income but for growth.

Investors will want see stronger occupancy and evidence of improved cash flow from operations over the next few quarters. The management has to show better results and fast.

See slides presentation: here.

Related post:
Perennial China Retail Trust: DPU 1.96c.

Soilbuild Business Space REIT (Soilbuild REIT).

This REIT's full name is a mouthful. Reminds me of Sabana REIT and AA REITs' full names. Maybe, based on that, I should be interested in it.

Soilbuild gave a range of unit prices from S$0.77 to S$0.80 and had to settle for $0.78. This gives me the impression that Mr. Market might not be too keen on the IPO.

"Soilbuild Business Space REIT (Soilbuild REIT), which owns two business parks and five industrial properties, is offering 586.5 million units. The placement tranche comprises 524 million units and the public offer 62.5 million units.

"At S$0.78, the REIT offers a dividend yield of 7.7 per cent based on projections for fiscal 2014.
Soilbuild and founder Lim Chap Huat will hold an interest of about 27 per cent in the REIT post-IPO, the company said.

"The IPO closes on Aug 14, with listing scheduled for Aug 16." (Source: TODAY online)

At $0.78 a unit, it is at a slight discount to NAV of $0.80 a unit and gearing is approximately 30%. The weighted average lease of its portfolio of properties is 50.5 years.

While seasoned investors in REITs might say that it is possible to get a higher distribution yield from Sabana REIT, with Soilbuild REIT, we wouldn't have to worry about expiring tenancies until much later. Also, Sabana REIT's gearing is closer to 40% than 30%.

Of course, the longer weighted average lease of its properties might make Soilbuild REIT a preferred choice for investors worried about land lease renewals.

Is this a buy? Well, investors for income should be attracted to this IPO. I do not see any red flags in the numbers. However, given the current cautious mood towards REITs, if we are expecting big capital gains, we could be disappointed.

Could it not do a 10% price appreciation on its debut like SPH REIT did? Although that would send its distribution yield for 2014 to under 7%, it could happen. Who knows? Frankly, if that should happen, AIMS AMP Capital Industrial REIT, with its redevelopment plans and AEIs, would look more attractive then.

So, I do not see how Soilbuild REIT is significantly more attractive than other industrial S-REITs for Mr. Market to pay much more for it. I feel that the IPO is pricing Soilbuild REIT at a fair price.

STE's story: The Millionaire Next Door.

Thanks to a reader, Sun, who reminded me of the fact that STE is a "millionaire next door", I remember that there is a very good book that shows us how common people can become millionaires.







Generally, there are two types of people:

1. "Under-accumulators of wealth (UAWs)": This type of people spend everything they earn as soon as they get it.

2. "Prodigious accumulators of wealth (PAWs)": This type of people are frugal. They save and invest. They become millionaires.





People sometimes think that high income earners are wealthy people. This might not be true. In fact, in the book, it is revealed that most high income earners are not wealthy. They make a lot of money but they don't keep much of it.

To become wealthy, we have to own income generating assets which will appreciate in value over time.

STE's story shows us, once again, how common people can become millionaires. He has done it and so can you! (You must be tired of hearing "If AK71 can do it, so can you!". So this is a change.)






I have found some bargains for anyone who doesn't mind pre-owned books:


Paperback:
15 copies in Very Good condition at US$ 6.48 each.



Hardcover:
US$8.98 each.



Free shipping worldwide.

Related posts:
1. STE's story: Personal finance.
2. STE's story: Investment strategy.

STE's story: Investment strategy.

In this second instalment of STE's story, he shares his investment strategy. Here, we see how he frankly admits that luck plays a part in the grand scheme of things.

Like I found out the hard way, never trust anyone who says that his success is due to foresight and that luck has nothing to do with it.

Someone who is humble and admits that he was lucky as well is the more credible investor.

..................................................

My investment philosophy is simple. We only need to know two things:

1) Margin of safety
2) Mean Reversion

In the long run, the stock market trends upwards and, of course, it is hard to catch the bottom. However, one should try to avoid hype and enter the stock market when things are hot. If we had invested in tech stocks when their share prices were chased sky high, I think we might not have recovered even now.

Most of time, the stock market is stable and doesn't move much. Although stock prices will fluctuate, big fluctuations are rare and maybe happen on less than 5% of days.

"Mean reversion is a mathematical concept sometimes used for stock investing, but it can be applied to other assets. In general terms, the essence of the concept is the assumption that both a stock's high and low prices are temporary and that a stock's price will tend to move to the average price over time."
Source: Wikipedia.

I suggest that we study and understand the market by reading some books on behavioural finance and economics. This, I believe, is more important than any books on investment. They help us to understand market psychology.

I was lucky to buy some shares during the 1998 Asian Financial Crisis. I bough a lot of Malaysian banking stocks back then. I skipped the dot com bubble. I also bought stocks of many blue chip companies like IOI, Perlis Plantation and Genting, making a few hundred thousand dollars soon after.

As we decided to switch citizenship in 2007, we disposed of all our assets in Malaysia, including our house in JB. On hindsight, we were really lucky because the sub-prime crisis erupted at the end of 2008 and we had the cash to take advantage of the situation.

At that time, I wondered what to invest in. Since the property market was badly hit, I thought it must be a good bet and since I needed some margin of safety, I decided to invest in REITs which generate stable income. Most REITs were giving double digits distribution yields then. I bought into Suntec REIT, K-REIT, Mapletree Logistics Trust, Cambridge Industrial Trust etc. I am still holding on to some of them now.

Another reason why I invested in REITs was because of "price stickiness".  Rents might be adjusted downwards but I believe they will not go to zero especially in Singapore which is such a small country with high population density. Although interest rates might increase in the next few years, inflation will still be a problem.

I would usually try to maintain 10 to 20% in cash BUT this time round I bet BIG and invested all, including my CPF money. I might be wrong but who knows for sure?  Anyway, every 2 to 3 quarters, we will have more than $100K collected from dividends. Since we are both still working, we can save all the dividends collected.

We plan to retire by age 50 and that is 7 years away. Using the magic of compounding, our investment portfolio should have added another $2 million by then without any fresh injection of capital. I believe that we will be able to retire comfortably if we are not extravagant, keeping our life simple. We are happy and contented with what we have.

I hope to inspire others with my story that we could achieve financial freedom through our own efforts even without anything in the beginning.

Read the other blog post on STE:
STE's story: Personal finance.

Related posts:
1. To be richer, be comfortable with being invested.
2. REITs: For those who have paid higher prices.

AK71 is watching Fairy Tail!

My all time favourite anime is Naruto. Now, I am still watching Naruto Shippuden which is ongoing.

Recently, I started watching Fairy Tail! I really like the music:







Very Celtic and at the same time, it has some Oriental tones. Fusion!

Like it?

STE's story: Personal finance.

There are many savvy investors in Singapore and the majority of them are not in the public eye. They could be our neighbours, our colleagues or even our relatives and we might not even know that they are actually millionaires from their investment efforts.

Recently, a reader, STE, contacted me to share his story to show how common working people could become millionaires without being entrepreneurs. His story shows how hard work, frugality, investment savvy, patience and luck are the ingredients to financial freedom.

He sent me a lot of information and I am thankful for his trust in me. However, I have exercised much discretion as to what is to be published. I think it will be more than enough to inspire.

Don't ever say that common people cannot achieve financial freedom. It is simply not true.

-------------------------------------

My wife and I came from Malaysia. My family is quite big and I have 7 siblings. I am the youngest. We were poor and most of my siblings didn't even have a chance to complete primary school education. I was lucky as I had the opportunity to go to the university on a Malaysian government scholarship.

My wife came to Singapore after her "O" levels and I joined her in Singapore 5 years later. When we first came to Singapore, we worked very hard and even held part time jobs although we had full time jobs in the day. We worked on Sundays and even public holidays.

We keep our money separate but most of the investment decisions are made by me. She is a good wife, very hardworking and takes good care of our family. We have two daughters.

As we were not born with silver spoons, we had to work hard in order to have money for investments. Saving money is very important as how much we save is more important than how much we earn. If we earn $10k a month but spend $11k, we are in the negative.

We were very frugal and, for example, a few years ago, a friend laughed at us because we still did not have a flat screen TV although it was already a common thing. I thought that as my TV, then 9 years old, was still good, there was no reason to change. At that time, I was also still using "dial-up" for internet access while most of my friends had broadband.

Only very recently, we decided to enjoy the fruits of our labour and our family went on a holiday to Alaska two months ago. Although I take the MRT daily to work, I do have a car but a weekend car. This is for the convenience of going back to Malaysia for social visits.

Read part 2 of the story in:
STE's story: Investment strategy.

Related post:
The very first step to becoming richer.

Where to go for this long weekend?

This is not just a LWE, it is a super LWE!

Many have taken the opportunity to go on a short holiday while many more are staying in Singapore because we are patriotic and want to celebrate National Day. No, this is not the reason why you are staying in Singapore? Oops.

Well, if you are thinking of where to go, there is a new ‘one-stop’ food enclave in Singapore! Yes, eating is one of Singapore's national pastimes, isn't it?

The Dining Edition boasts an impressive 50,000 sq ft of dining area!

Where is this place? At Marina Square!

I think most of my blog's readers are Singaporeans but just in case a foreigner is reading this, Marina Square is accessible by both City Hall and Esplanade MRT stations.

You might also get lucky:

Find out more about The Dining Edition at:
http://sg.sharings.cc/AK71SG/share/TheDiningEdition

Another Day In Paradise.

I had such a moment last week when, walking to look at the progress made on the construction of my new home, a man asked me if I had $1.60 because he didn't have the money to take the bus back to his hostel. 

I paused, thought about it for a second and gave him the money.

How likely was it that he was a fraudster? I don't know but I guess giving him the money was erring in the direction of kindness. 

$1.60 was an amount I could afford and it could have meant the world to him.

Related post:
Kindness of strangers.

Tea with AK71: The kindness of strangers.

There is a small part of an email a reader sent to me very recently which I feel like sharing but at the same time, a little corner of my mind tells me that maybe I shouldn't.

The reason why I feel like sharing is because it is something that the boy scout in me has always believed in. I feel that if we can make a positive difference in the lives of others, why not? 

If we can show some consideration to others and make the world a better place, isn't that a good thing? 

In our pursuit of wealth, we should not forget to extend a helping hand to those in need if we can.

The reason why I think I shouldn't be sharing is because I am afraid that I might be accused of self-promotion once again.

Then, I remember something a fellow blogger, SMOL, told me: "Be the mountain!"

Photo taken on a trip to Japan.

Here it is:

"We live in a dog eat dog world these days, and every where I look I see the ugliness of the human spirit. People 你争我夺。People 笑里藏刀。 So it's quite rare and heartening to see that there are people around - willing to share knowledge and help readers. And because of this, I don't just see a rotting world anymore-  I retain a bit of optimism for the future, a bit of belief in the human spirit, a bit of love for the world."

I am not ashamed to say that, reading this, I was almost moved to tears, especially in the state that I was in.

It is easy to become hard and cynical as we grow older in today's world. We lose our youthful optimism and trusting nature. 

It is hard to believe in the kindness of strangers and for some reason it is more so in Singapore and places like Singapore (example, Hong Kong).

Well, if we find it hard to accept the kindness of strangers, perhaps, we can be kind strangers to others instead. I dream of the day when the kindness of strangers will stop being a strange thing.

How should I end this blog post? Let me borrow from a quotation another reader sent to me and that is we should all "err in the direction of kindness."

Yongnam: A chance to accumulate cheaper.

If anyone is still wondering why Yongnam's share price plunged today, it is due to a 28.6% drop in quarterly net profit, year on year. The weakness in share price now has a reason.

The question to ask is whether this drop in net profit is because of an enduring change in Yongnam's businesses or is it a one off event?

Yongnam posted a quarterly net profit of S$ 8.6 million attributable to shareholders which is lower than the S$ 12.1 million a year ago. This is after a S$ 5.1 million provision for doubtful debt because Alpine Bau GmbH, the main contractor for the Downtown Line 2 MRT project, went bust.

Now, if this had not happened, Yongnam would actually have seen a 13.2% growth in quarterly net profit, year on year, instead. This tells me that Yongnam's underlying businesses are probably still doing well and that this provision, as long as it does not become a regular occurrence, does not have any long term impact.

There are three other points which I want to highlight:

1. Gearing has gone up a notch to 0.45x. This is not a bad thing if the borrowings are able to generate greater returns but we should always keep an eye on gearing.

2. Gross margin in the last quarter went under 20% to 19.4%. Ignoring the provision for doubtful debt, net margin is 11.9% which is still pretty good for a construction company but it tells us of the existence of rather significant cost pressure.

3. First half EPS now stands at 1.59c. Unless the second half results are so abysmal as to be a loss of more than 0.59c, Yongnam is fully capable of paying a dividend this year and going by what happened in the last two years, it would probably happen.

I put in a buy order at 28c last night and the stock also hit a low of 28c a share today. A total of 17 lots changed hands at 28c but, fortunately or unfortunately, my order was not filled.

If Mr. Market should continue to feel rather depressed about Yongnam in the coming sessions, I will make use of the opportunity to accumulate.

See Yongnam's presentation: here.

Related post:
Yongnam: Buy since price is more reasonable now?

China Minzhong: Increased long position at $1.065.

The last time I sold shares of China Minzhong's was at $1.185 a share.  Since then, I added to my long position twice at $0.97 and $1.025. Today, I added to my long position again at $1.065.

Technically, even though there is some volatility in the share price, the MACD is supportive as a higher low was formed even as a lower low in price was seen. Another higher low in the MACD would mean that momentum is relatively strong.

$1.055 seems to be the immediate support which is being reinforced by the rising 50d MA. The 100d MA seems to be flattening at $1.065. Of course, there exists a chance that the 200d MA might once again be tested and it now approximates $0.995. I am willing to hazard a guess that it would bring out the buyers if it should happen.

Apart from the technical picture, why am I willing to buy at $1.065 today? Well, quite simply, I believe that China Minzhong's share price is relatively cheap. Its stock is undervalued even at $1.065. With a NAV/share of RMB7.00 or S$1.47, the stock is currently trading at a 27.5% discount to its book value. At $1.065 a share, if we could simply repeat the last quarter's EPS, we are looking at a PER of some 3.44x for 2013. This is hardly expensive even after taking into account that the PERs of companies in the business of farming seem to be rather low.

On 13 May 2013, I said that China Minzhong reported what I thought to be a good set of numbers. Both revenue and net profit were up. What was also really impressive was the 260.5% increase in cash flow from operation for the first 9 months, year on year. The company is now effectively in a net cash position.

What is the free cash flow? This is what many value investors would say is generally more important than earnings. It is harder to fake cash flow but easier to fake earnings.

For the first 9 months, China Minzhong generated a free cash flow of some RMB 299.9 million. This is about S$ 62.98 million. We will have to wait for its 4Q results to see if this goes up or reduces. As there are about 653 million shares in issue, it means that there is already a FCF of about S$ 0.096 per share.

There is intention to pay a dividend in 2013 and with FCF positive, there is a good chance of this happening. The practice of paying an annual dividend could also become a standard because of Indofood which has an almost 30% stake in China Minzhong. Indofood pays out 40% of its earnings as dividends consistently, according to sources.

With China Minzhong's full year earnings possibly at S$ 0.30 per share, a 40% pay out is equivalent to S$ 0.12. Even if FCF bumps up proportionally in the 4Q, this is unlikely to happen as China Minzhong still needs to fund growth initiatives.

I would be quite happy if China Minzhong is able to provide a 5% dividend yield which will move the investment from the growth category to the income and growth category in my portfolio. Based on today's price of $1.065, it would require a DPS of $0.053. Possible?

Well, this could be wishful thinking. I will just have to wait and see.

Related posts:
1. China Minzhong: Good results and long black candle.
2. Tea with Mark Mobius: Focus on long term goals.

Yongnam: Buy since price is more reasonable now?

Yongnam's share price has been declining and in the last session, it closed at 31c. Now, this got my attention.

I initiated a large long position in Yongnam at 24.5c and have collected two rounds of dividends. I have also divested three quarters of my investment in the company by now as its share price rose. As I started divesting a bit too soon, I estimate that only two third of my remaining long position is free of cost.

Including dividends collected, however, close to 90% of my long position is free of cost. Remaining long position still shows a 26% paper gain even after the decline in the last session. All in all, this has been a pretty good investment for me.

So, why do I like Yongnam?

Yongnam is a natural beneficiary of the planned expansion of the MRT network in Singapore. It is a leader in the provision of structural steelworks, specialist civil engineering and mechanical engineering services. It has a proven track record even in Hong Kong, having clinched many contracts in the territory's MTR network expansion, the latest of which was announced on 25 June 2013. Why won't its businesses be chugging along nicely?

Yongnam's competitive advantage is to a large extent due to its massive investment in reusable steel struts. To have such assets and in such quantity like they have at today's price is not easily achievable and this presents a high barrier to any potential competitor. That was also a reason why I thought paying a price slightly above its NAV was acceptable when I got in at 24.5c.

The updated NAV/share on 31 March 2013 for Yongnam was 26.5c. So, my buy price is now at a discount to its NAV. This is a positive development.

I also like how Yongnam has plans for a recurring income base although this will take many more years to bear fruits. An example of this is a joint venture for the construction and management of an international airport in Myanmar. Result of that tender exercise has yet to be released, I believe.

When this news was made known, many people chased the share price of Yongnam and it hit a high of 38.5c not too long ago. This was all based on speculation. There was no certainty that Yongnam would get the contract and even if the consortium it is a part of should get the contract, it would not see immediate benefits. With share price at 31c now, probably, many got burnt.

Isn't Yongnam a good stock? Yes, qualitatively and quantitatively, I believe so. So, why did this happen? Well, even with a good stock, the more prudent thing to do is to wait for a pull back to what is a more reasonable valuation before buying.

Is the valuation more reasonable now at 31c a share since I said it got my attention. Well, it is definitely more reasonable now than at 38.5c! That is a safe answer to give. OK, end of blog post. Kidding!

Let us look at earnings? 1Q EPS was 0.91c. If we annualise this, we get 3.64c which gives us a PER of 8.52x with a share price of 31c. At 38.5c, the PER was 10.58x. Remember that all these calculations do not take in probable improvement in EPS in future quarters.

If we are conservative, buying at NAV is probably a good idea. However, I would say that paying a small premium to its NAV is acceptable. I liken it to paying a higher price for a powerful weapon in a fantasy RPG game that will give me an unfair advantage over others. Evil grin!

As usual, I am corrupted by TA and if we look at the chart, the longer term uptrend is still intact if we take reference from the 200d MA which is still rising. It now approximates 29c. This is a long term MA and is expected to provide stronger support although it does not mean that price might not whipsaw which could see 27.5c as a possible target.

So, I should rush to put a buy order at 27.5c? Remember, TA is about probability and not certainty. A smallish hedge at the 200d MA might not be a bad idea.

Reminder: I am talking to myself.

Results announced on 15 May 2013: here.

Related posts:
1. Yongnam: Investing in infrastructural developments.
2. Yongnam: 1c dividend per share.