Review of Current Portfolio – August 2017

In the past month, I have capitalized on the opportunities to divest counter that has reached its target price as well as to add counter that showed some price weaknesses:

  1. Divestment of Shell – With the recent price run-up of Shell, I’ve taken the opportunity to divest my entire holding at US$57.2 and recognized 14% capital gain. Inclusive all dividend received, it would be slightly above 19% return for a holding period of around 12 months. Not bad, Chris. Not bad.
  2. Average down Teva Pharmaceuticals – the recent price drop was unjustified. On August 3rd, Teva has announced an ugly earnings result for second quarter 2017. It has declared EPS of (US$5.94) due to goodwill write-off of its recent acquisition on Actavis. Indeed the company has overpaid its Actavis acquisition (US$33B cash + 100 millions of Teva shares worth approx. US$6B at that time of acquisition). However, the market seems to have overreacted by judging that the entire Teva company is only worth US$17B. Teva’s share price has dropped over 50% this year alone, reaching 10 year low. The company itself is doing fine. It remains the number one generics drug manufacturer in the world, and its products are always in demand. Since I believe generics drug will be doing just fine, I have decided to capitalize this opportunity to add more positions. Teva is now holding the largest share in my portfolio.
  3. Decrease of warchest – With the recent purchase of Teva, my cash level has now dropped below 10%. Will have to look for more opportunities to increase this to at least above 10%.
  4. Acquisition of M1 share – the market seems to be concerned with the upcoming 4th telco company in Singapore. There’ll be some impacts to the pure local players such as M1 and Starhub. We have decided to nibble a bit of M1.

20170817 Aug2017 review

This is one of the rare months where as an investor, I have to make my stand & decide against what the market says. Not an easy feat, because you are swimming against the tide. Warren Buffett himself once said, “Be greedy when others are fearful, be fearful when others are greedy.” Psychologically, when market feels fearful, we also feel that. It is not an easy feat looking at your portfolio being crushed to the extreme. There are only two choices: either you get out or average down. Staying still doing nothing would not cure the misery.

Review of Current Portfolio – July 2017

This is my second month doing portfolio review. There’re some additions into the portfolio table to make this review more meaningful.

20170715 July2017 review

First addition is the year of establishment & company age. As mentioned in the previous post, one way to check whether company’s business is sustainable is by looking at how long it has been operating. Generally speaking, companies with long history of operations (such as Shell and Teva) tend to be more stable as they have gone thru the ups and downs of the industry. Keppel is also considered having long history knowing that it was established back in 1968 – just three years after Singapore was founded.

Second addition is the portfolio gain/loss. It is incomplete to analyze without knowing how well our portfolio performs. Overall, it is a mixed bags of gains & losses across the various counters. Recent spike-up in Hotung share price has made its weightage swell to 14% of entire portfolio. Partially, this is due to new coverage and analysis published by few brokerages. One broker is even putting $3.38 as the target price. Market is so bullish!

20170715 Hotung
Recent run-up of Hotung share price

Looking at the portfolio table above, there are three significant changes I made:

  1. Divested most of Lippo Malls Trust (LMIRT) – after recent share price run-up, I decided to divest most of it at $45 cents and recognized 28% return (or 14% annualized return, excl-distribution) over period of two years. Including distribution, annualized return would be in the north of 20%. I think this is a good selling price, considering the NAV of LMIRT as per 31 March 2017 is $37cents. With current P/B of 1.2, there’s not enough margin of safety left. There’s more downside than upside at this point. This is in spite the trust giving high yield of close to 10% based on my entry price.
  2. Chipped in New Toyo – as the counter experienced slight pull-back. The company has tremendous exposure to growing market in Indonesia after its acquisition last year of  PT Bintang Pesona Jagat (Bentoel Group’s packaging manufacturing arm). Bentoel itself is part of British American Tobacco plc (BAT)
  3. Increased the cash portion – to 18% after the LMIRT divestment. This is in line with my objective to “keep the power dry and keep some bullets ready”. There is no specific cash level that I prefer. However based on past experience, it would be a pity to just stand on the sidelines when suddenly there’s a market action just because you have no more bullets left.

In summary, there are more opportunities to do portfolio rebalancing in the upcoming months – by looking at the current winners and losers. Psychologically, letting your winners run is equally as difficult as cutting your losers. This is where having the right trading strategy plays a part by taking the feeling out of the equation & let the mechanics take full control.

Analysis of investment in Accordia Golf Trust

Accordia Golf Trust (Accordia) is a business trust which assets are golf courses across Japan. It forms a small portion in our portfolio. Accordia’s financial year ends on 31 March. For the latest financial year (FY16/17), it distributed S$ 6.04 cents DPU (distributable Income per Unit). Based on current price of $ 69.5 cents, this represents a distribution yield of 8.7%. The ultimate questions here are:

  1. Is the DPU sustainable?
  2. Based on current price, is there any possibility for capital gain?
  3. What is its future prospect?

20170624 Accordia 01

Company Background

Accordia owns 89 golf course (and related assets) located across Japan, valued at approximately S$1.9 billion. Close to 90% of the initial portfolio golf course are located in three largest metropolitan areas in Japan. An investment in Accordia provides exposure to Japan golf course industry. The increase in number of senior golfers in Japan and the coming Olympic Games 2020 in Tokyo are two main factors that will enhance Accordia value. Another catalyst would be the potential for privatization as Accordia’s sponsor (Accordia Golf Co.,Ltd.) was recently taken private by South Korea private equity firm MBK Partners in late 2016 for US$760m (its stock got delisted from Tokyo Stock Exchange in March 2017). The business strategy of Accordia is primarily focused on the middle class, loosening the strictures of golf in Japan and encouraging the “casual golfer” with the promise of a cheaper day out.

Revenue and Cost Structure

Accordia derives its revenue from three sources: golf course revenue (~65%), restaurant revenue (~25%), and membership revenue. While majority of its costs incurred are labour & outsourcing expenses (~37%), golf course management fee & maintenance fee (~20%), SG&A (~18%),  and merchandise & material expenses (~8%).

Listing History

Accordia Golf Trust was listed in Singapore Exchange (SGX) back in August 2014. Ever since it got listed (IPO price of S$ 97 cents) till today, its share price has dropped 28% (~S$ 27.5). On the other hand, those IPO investors have received S$ 18.38 cents of distribution from IPO to date. Hence overall, IPO investors are still 9.4% underwater. The lesson learnt here is IPO may indeed stand for It’s Probably Overpriced. With close to 1.1 billion outstanding units, the IPO valued Accordia Golf Trust at S$1.1 billion.

Distribution Analysis

Income varies based on seasonality.  Unlike the normal REITs which are able to collect rental fees from their tenants rain or shine, Accordia’s performance may be detrimentally affected by weather condition, such as earthquake, heavy rains or typhoons. Distribution is paid on semi-annual basis. The DPU tends to be higher on 2H (Oct – Mar period) due to better weather. The 2H DPU is usually distributed in the month of June. FY16/17 dividend (S$ 6.04 cents) is 8.9% lower than the previous fiscal year FY15/16 (S$ 6.63 cents). A 2.4% decrease of operating income at the same period causes a 25.6% drop in operating profit. Accordia only has 3 year history of distributions – hence it cannot provide sufficient data whether future distribution will be stable.

Entry Price

The decision of entry price can make or break the investment. During IPO times, the company provided guidance of 7.0% distribution yield (~S$ 6.79 cents) based on normalized DPU excluding non-recurring items (based on IPO price S$ 97 cents). Since the latest FY distribution only stood at S$ 6.04 cents, we can’t be sure whether next year distribution can be maintained. Although the company has a policy to distribute 90% of its distributable income, and assuming that SGD/JPY exchange rate doesn’t fluctuate that much (currently it stands at 80.2 Yen vs 81.52 Yen during IPO Prospectus time), we still need to put some buffer assuming our case goes wrong.

Summary

Is current share price worth it to add position in Accordia? At current price S$ 69.5 cents per unit and distribution yield of 8.7%, there’s still likelihood that distributable income may fall another 10%. Looking at how operating profit drops 26% although top line only marginally decreases by 2%, we need to be realistic in setting the valuation. Assuming “stabilized” distribution at S$ 4.65 cents (or equivalent to its EPU) and expecting 9% minimum annual return (purely from distribution), we arrive at calculated entry price of S$ 51.5 cents. Price has to drop another 26% to reach our target entry price. In summary, a prudent investor would wait until the share price has reached or even dropped below his target entry price. Meanwhile for existing unit holders who bought at current market price (S$ 69.5 cents), it may be prudent to exit the position (and forgo the 8.7% yield) while waiting for price to further drop before re-accumulating at lower price.

20170624 Accordia 03
This year’s EPU is much lower than DPU – there’s a likelihood that DPU is not sustainable

Suggestion: SELL (Accumulate at S$ 51.5 cents or lower)

Review of Current Portfolio – June 2017

The objective is to keep track performance of current fair value of stock portfolio on hand. Doing regular review, half yearly or yearly is a good way to understand how our portfolio fares compared to the market.

The portfolio consists of mostly (~90%) Singapore stocks, while the remaining are US stocks. Stocks listed in Singapore are relatively lesser-known and give higher dividend yield. While stocks listed in US (NYSE or NASDAQ) are generally well-known, bigger companies (market capitalization >$5B). These companies are more stable & tend to be valued at higher P/E ratio.

Table

Based on snapshot above, we can see that:

  1. Most of the portfolio (>50%) are invested in small to medium companies (with market cap <US$1B).
  2. Portfolio invested in US market tend to be of those more stable, larger corporations with higher market cap.

Comments on each counter:

  1. Hotung – is a consistent performer. It steadily gives high dividend year in-year out (>8%yield). I’m treating this almost like a fixed deposit. Mr Market has slowly recognized its value – especially since beginning 2017.
  2. Stamford Land – is an asset play & I was expecting privatization some time back (which didn’t materialize). Yield has been so-so. They cut the dividend a year ago and now it gives $0.01. In the long term, holding cost / opportunity cost might prove too big. Has been holding for >3 years now.
  3. Penguin – is a cyclical stock. All shipping and O&G companies are. I just happend to learnt this a bit late. The share price peaked in August 2014, when it was traded at $0.275 (price before share consolidation).
  4. Lippo Malls Trust – Exposure to Indonesia large middle class population. The counter has been consistently giving ~10% yield annually since 2015 due to we purchased it at low cost base. Need to monitor if the dividend can be maintained. Political situation may detrimentally affect. Especially with the Indonesia presidential election coming in 2019.
  5. New Toyo – is a stable performer. The company is a packaging manufacturer supplying to cigarettes companies. Consistently gives annual dividend since 1998 (>5% yield). Expecting EPS increase due to its recent acquisition of PT Bintang Pesona Jagat (from Bentoel group) in Indonesia.
  6. Keppel Corp – purchased at around $5.2 during the oil price turmoil in Jan’16. Sitting on paper gain. On hindsight, good decision to buy. Plan to accumulate when price dips.
  7. Pollux Properties – was impressed by its property when visiting Semarang 3 years ago during our holiday trip. I also like the Louis Kienne serviced residence in Havelock Road. Like the serviced residence even more after staying there for a couple of nights. The stock is definitely undervalued. However it remains to be unknown when the value can be unlocked. This is extremely illiquid counter with no dividend. Patience will (may) get rewarded
  8. Accordia Gold Trust – attracted by its high yield (>7%). The counter pays dividend semi-annually every June & December. Purchased Accordia when I was taking golf lesson weekly. I like the idea of getting my golf lesson paid by the Accordia dividend.
  9. San Teh – initially purchased based on expectation on one-time large dividend. This is an asset play.
  10. Frasers HTrust – wife’s pick… exposure to hospitality sector with hotels & residences spread across Asia & Europe.
  11. Global Investment – it is linked to Temasek Holdings. Purchased mainly for its dividend. High dividend yield ~10% at our cost base.
  12. Casa Holdings – initially thought to be undervalued stock. The company then decided to expand into property development in Malaysia. With the oversupply situation in Iskandar Malaysia, on hindsight the company should’ve just stick to its expertise as home appliances distributor.
  13. Shell – High yield (7%, before US withholding tax). Dividend has been stable. Big multinational oil & gas company with long history. Expect increasing demand for LNG and energy in the near future.
  14. Teva Pharmaceuticals – purchased as price was close/at 5 year low. Initiated coverage to Pharmaceuticals companies.

Overall, the portfolio is a mixed bag of consistent performers and some counters which can be considered for divestment. Total of 14 counters in the portfolio remains manageable. There is opportunity to reduce the number of counters & concentrate into few strong players.

On a separate note, I’m also on-board the idea of having child’s portfolio. The portfolio focuses on long term. This is meant to be buy-and-hold strategy. Hence, the companies selected is a mixed combination of relatively-safe high yield counters and large companies with high potential or catalyst.

table Savio

The long term objective of this child’s portfolio is to cover 100% full year tuition’s fee with annual dividend. Hopefully, by the time he’s entering primary school age, the annual dividend would be sufficient to cover his school fees. Until then, dividend received will be automatically reinvested into the portfolio.