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Tea with Mike: UOB KayHian Holdings.

Saturday, October 5, 2013

Getting a sense of a fair price to pay: UOB KayHian Holdings as a case study.

I was screening for companies with decent yield and growth for the past 5 to 10 years, using a Google screener, and I decided to do some in depth study of UOB KayHian.

UOB KayHian pays out about 50% of earnings as dividends for almost a decade. In the earlier years, the payout was more than 50%. So there is certainty of payment, and it has been profitable for the past 12 years, and last year was actually the weakest year in a decade.

I use the spreadsheet to churn out important numbers such as revenue, NP, margins etc for the various markets, such as Singapore, Hong Kong, Thailand. I wanted sustainability of dividend income. So, I want to know what income I can expect going forward and I gave myself a few scenarios:

Click to enlarge.


At its peak, net profits is almost 3 times of what it is in 2012, if you take the average of $100 million over 12 years, it is still higher than 2012.

1H2013 results has already recovered, its 1H EPS of about 8 cents, is already almost as high as full year EPS of about 9 cents in 2012. Assume full year EPS to be 16 cents, they will pay out about 8 cents, giving a yield of 4.8%. That is my best case scenario.

If you take the average of 12 years, EPS is about 13 cents, so payout will 6.5 cents, giving a yield of 3.9%. This is my conservative scenario.

Although Singapore contribution is in decline, it is generally in line with SGX trading income revenue, which reflect the prevailing market conditions and not loss of competiveness. The “other” and Thailand operations have been bucking the trend and is contributing more despite market weakness, this could be due to its expansion bearing fruits.

Next,

Click to enlarge.


I want to get a sense of market valuation of the counter throughout the years, so I use the highest price, lowest price and average price of each year to calculate the corresponding yield and PE.

If I take away the super exceptional year of 2007, the average lowest yield is 5% and average highest yield is 9%, and the average lowest and highest PE is 10 and 17 respectively.

If I take conservative EPS of 13 cents, and DPS of 6.5 cents. I would like a yield of 6% and a PE as close to 10 as possible, and what would that price be?

To give a yield of 6% based on EPS 13 cents, price will be about $1.09 and PE 8.4.

If I am content with PE 10, I need the price to be $1.3.

To give a yield of 6% based on EPS 16 cents, $1.33. And a PE of 10 at EPS 16 cents will be $1.6.

Now, I know I will not touch this company at price above $1.6, unless I believe the next few years will see EPS growing to its peak soon. But there were not many years in which the company had above average results. So, most probably I will only start buying at $1.6 and below.

Other considerations like market share, gearing level and positive average FCF are also looked at, they are not significant enough to offer a further discount or premium.

I do like its profit resilience and rather undemanding valuation as compared to SGX and GK Goh, but given the amount of competition and my estimated calculation of only 10% Singapore Market share, I would not allow myself to pay a premium above $1.6.
 

UOB Asset Management: Lost money and still losing.

Friday, October 4, 2013

Many years ago, I bought into a few unit trusts. I recently received reports from two which I have been a unit holder of since their inceptions:


Lost and still losing money. I would have been better off managing my own money.

Related posts:
1. Nobody cares about our money more than we do.
2. Tea with Solace: Common Sense Investing.
3. Is investing in stocks suitable for you?

Where to buy a shoebox apartment for investment?

Thursday, October 3, 2013

If we are going to buy a shoebox apartment (506 sq ft in size or smaller) as an investment property, make sure to buy in CCR or RCR (central region). 

Don't buy one in OCR. 

As developers tried to move their stock more quickly, they introduced shoebox apartments in OCR in the last couple of years. 

As investment properties, National Development Minister Khaw Boon Wan cautioned not too long ago that this was an untested market.

According to Square Foot Research, out of 50 projects with shoebox apartments completed since 2012, 38 are located in the central region and these saw a higher rental take-up rate compared to those in OCR. They also rented for as much as $3,400 a month or about $6.72 psf (based on a unit of 506 sq ft in size).


There is also an interesting observation that short term leases of 6 months are on the rise. 6 months is the shortest lease period allowed by the URA for private residential properties.

Square Foot Research said that the high replacement rate is yet another indication that rental demand for such units is strong.

Related post:
Smaller apartments' prices more resilient.

AK and "Full Metal Alchemist: Brotherhood".

Wednesday, October 2, 2013

I watched Full Metal Alchemist many years ago. That was the first anime adaptation of the manga in 2003. I didn't know they had a second anime adaptation in 2009.





Another time guzzler. Lots of catching up to do! Yeah!

I like this anime. 

There is no free lunch in this world!

Believe in the principle of equivalent exchange?


My afternoon tea break.

Packed some yummy bread from home for my tea break:


Had it with some strawberry jam:


Which brand of jam? My favourite, of course:


Total cost? Er, less than $1.00 probably.

Related post:
1. How much will my tea break and lunch cost tomorrow?
2. AK71 shows you how to have an extra $1,200 a year.

Smaller apartments' prices more resilient.

Tuesday, October 1, 2013

Predictions such as the recent one by Barclays for a significant correction in housing prices in Singapore by 2015 are getting rather common.

"We believe the risk of a residential property market correction in the next two years is rising, as expected higher interest rates look set to coincide with a large increase in housing supply over 2014-15," Tricia Song, analyst at Barclays wrote in a report on Friday, 27 Sep 13.

In such a situation, can we expect certain segments of the housing market to weather the decline better than others?

In The Business Times today, I read that "prices of small completed private apartments (up to 506 sq ft) climbed for the second month in a row to hit a new peak in August."



SkyVue

CapitaLand's latest project "SkyVue" in Bishan saw 410 of the 505 units released for sale snapped up on the first day with smaller formats being the most popular. One bedroom units at 484 sq ft in size averaged $750,000 in price (or $1,550 psf).

It is all a matter of affordability now. How many buyers questioned if it is value for money? How many have questioned the risks involved?

Almost 95,000 private units are expected to come on stream over the next five years, alongside 25,000-27,000 public housing flats per annum, according to the Urban Redevelopment Authority.

"Total housing supply could average 40,000 units per annum and peak at 47,000 in 2015 - significantly above the historical average annual supply of 12,300 units," Song said.

"Assuming occupier demand of 15,500 units of private housing per annum, we expect the private vacancy rate to rise from 5.6 percent currently to 9.9 percent in 2016," she added, noting that historically when vacancy rates hit 8 percent, rents and prices start declining.
(Source: CNBC)

Bearing this in mind, in a situation where overall housing prices experience significant declines, smaller size apartments' prices could remain more resilient. This is because of their relatively smaller price tags and, usually, higher rental yields.

For people who are adamant about buying a condo as an investment property, shoebox apartments or mickey mouse apartments would, therefore, seem like safer choices. Right or wrong? Time will tell.

Related posts:
1. How big is a 452 sq ft apartment?
2. Will CapitaLand build "almost inhuman" size apartments?

Best deal for Snickers in town!

One of my weaknesses: chocolates!


$1.95 for 124.7 grams of Snickers! Best deal in town!

If you enjoy Snickers like I do, go find this in any ABC Bargain Centre.

Mini size = eat without guilt (unless you eat a few/half a packet/the whole packet* at one go).

*delete inapplicable options (honestly)

Related post:
Cheap Ferrero Rocher!

Tiger Balm Liniment by Haw Par Corporation.

Sunday, September 29, 2013

When I was a boy, I used to wonder why older folks liked to rub medicated oil on their temples. I didn't like the sharp and stinging scent.

You know what they say about how only time can teach us certain things. This is one of those things.

For about 10 years now, I have been using medicated oil regularly. 10 years? Do I keep a record? No, I kept the empty bottles:


First bottle on the extreme left was manufactured in 2002 while the one on the extreme right which is the one I am using now was manufactured in September 2011.

Two lessons from this:

1. Often, we can only really understand why older people are the way they are when we grow older ourselves. We should be more patient when interacting with our elders.

2. I could have bought shares of Haw Par Corporation in the past when it was much cheaper but I did not. A pity. It last traded at $7.45 a share.

Based on its financial statements, I am estimating a PER of almost 15x at current share price. It seems to have a fixed annual DPS of 20c which gives a dividend yield of 2.68%. The stock has a NAV/share of some $10.71 which means it is trading at a discount of 30.5%. Its balance sheet is very strong too.

Some might ask if it is better to invest in SPH. Well, if SPH were to pay a DPS of 21c, at $4.10 a share, we would get a yield of 5.12%. From this angle, SPH wins hands down.

However, if Haw Par Corporation were to pay out all its earnings as dividends, we could see a higher yield of 6.7% or so. Of course, I am not suggesting that it would but, comparing it with SPH thus, it seems stronger compared to SPH.

It is probably safe to say that anyone investing in Haw Par Corporation probably looks at it as an asset play. It does not seem attractive in any other way to me as an investor at its current share price.

Remember, "you could sit on an undervalued situation your entire adult life and the stock wouldn't budge a nickel." (Peter Lynch, One Up On Wall Street.)

Still, all investments are good at the right price and if PER were to decline to 12x or if the stock were to trade at a 40% discount to its NAV while maintaining a DPS of 20c, it could be a very compelling buy! Well, I can always dream.

Related post:
How to be "One Up On Wall Street"?


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