A Path to Forever Financial Freedom

Author:   |   Latest post: Thu, 18 Apr 2019, 9:47 PM


Apr 19 - Portfolio & Networth Update

Author:   |  Publish date: Thu, 18 Apr 2019, 9:47 PM   |  >> Read article in Blog website

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Starhill Reit
Netlink Trust
First Reit
The Hour Glass
Far East Hospitality Trust
Ho Bee Land


Greetings from JB!!

We are on a long weekend for the Easter week so I decide to bring my family to a nearby getaway to our neighbouring countries for some quick hit shopping, eating and playing time.

I was just catching up with fellow bloggers Thomas from 15 Hour Work Week and Chris from Tree of Prosperity two days ago over lunch and we talked about M Bison from the Street Fighter series and look what I've got in our Airbnb apartment! A Game Console!

Muahaha, I am surprised I still remember the special moves by all the character, including the famous M Bison
Back to the portfolio updates now.

April has been a very good month for investors because the stock market continues to go up and most if not all my portfolio has benefited from the upward trend moves.

Two of my biggest holdings, Starhill and Vicom, have been doing superbly well this year so they are the main contributor to the increase again this month.

I have divested Manulife Reit at USD 86.5 cents because I think the general valuation overall is rather fair and I wanted to reduce my over-dependence on Reits which is taking the majority of the portfolio before the divestment. Looking at how Kep KBS reported good Q1 results and outlook recently, it seems like there are still room for the US commercials to go up.

With the proceeds, I took an interesting position at The Hour Glass, which I averaged a couple of times from 70 cents all the way to 74 cents, accumulating a total of 106,900 shares in the process. This is after the big move which seen big institutional play coming in on this stock a few weeks ago.

This is a relatively short term play because YTD results have been doing really well with margins marginally up to 25% from 24% last year but revenue line also increases. My estimation for FY earnings is THG will end the year with EPS around 9.3 cents which if we give a valuation of 10x PER, the target price will be around 90+ cents. 

The share price has been up a few good times this week so my position is already up around 9% as it closes at 80 cents today, but between now and FY results I suspect there is another 10% upside.

On a smaller update, I took the DRIP for my Far East Hospitality Trust last quarter dividend which is priced decently att 63 cents. This is the reason why you see I have 3,000 shares in my portfolio. Since the amount is too small to make any action, I'll just leave it there for now.

Networth Update

The portfolio continued to do well this year, which is up again from the previous month of $900,096 to $932,505 this month (+3.4% month on month; 29.8% year on year).

This is the 16th consecutive record month that the portfolio has broken a new record high.

I am coming due soon for my sabbatical D-day in May so I've got to make every returns count now while the bull lasts.

The hardest part being involved in the bull market is the expectation as investors we are giving ourselves to be performing better than the index.

To date, the return has been satisfactory as it is performing better than the index so I can't ask for much more (i.e, if the stockscafe statistic is correct. I've had friends in my chatgroup who disputed the ES3 returns to date to be incorrect).

Next month will be interesting because we are in for a "Sell in May and Go Away" period so we don't know if the market will fall for that legendary trap but we'll have to cope and see.

Meanwhile, have a great long weekend and enjoy and celebrate the Easter this weekend.

Thanks for reading.

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How Do You React When Your Companies' Share Price Goes Up or Down?

Author:   |  Publish date: Tue, 16 Apr 2019, 7:43 PM   |  >> Read article in Blog website

I received an email from a reader (whose name I've concealed) who asked for my opinion on his recent purchase of stock which leads me to write this article. 

In the email, he mentioned that he initially bought OCBC at a share price of $11 with the intention of holding it long term. However, as the stock market continues to go up in the past recent weeks, he is now sitting on a decent capital gain over a short period of time, which I assume he did not initially expect, and now faced with a situation if he should sell his stock to lock in the capital gain. 

Now, for the purpose of this article, I will be focusing more on the logic behind his action rather than the company itself so I won't be discussion any of the company's fundamentals. 

In today's bull market where share price continues to go up despite some scare news in the market, it is common to see people getting uneasy over their decision especially if they are holding on to winner stocks. 

This is a first world problem that many investors face in the market this year but one that can still make people go uneasy over their decision, especially after seeing some of their investment sitting on double digit gains over a short period of time. There is always a tendency to lock in the gains and make an attempt to get back in when the market prices them lower eventually. 

In case you are wondering, this happens to me (and most likely everyone too) from time to time too, so I am openly sharing how I face these psychological barriers myself and hope it will help others who are facing a similar problem. 

Timing The Market vs Time In The Market

The debate over timing the market versus time in the market has been rehearsed through countless times so I won't bore readers too much with this one. 

The main essence of this concept is that timing the market requires you to be right two times, one with the buying and one with the selling, and it is incredibly difficult to be spot on all the time. 

Still, I am not here to tell or judge that you should not do that. 

If you have good enough justification why you wanted to time the market and believe in your ability to do that, then by all means go ahead. 

For instance, if you think the valuation of the companies you owned are stretched and that you are better off waiting for a more comfortable valuation then by all means do what you think is necessary. Over time, you will have a track record to justify if what you are doing is worth exploring. 

I've seen some friends in my circle group who are extremely good in timing the market so I will not write off folks who can do that. 

Profiting/Losing By Luck Or Design 

I think this is something worth exploring and expanding a bit more. 

In the email, the reader asks for advice on his next course of action that looks like this: 

1.) Sell it now or before the dividend date, which he can lock in for capital gains but forgoing the upcoming dividends 

2.) Sell it after dividends, which means the dividends will be in the pocket but not sure how much is the share price going to drop 

3.) Hold it for long term, receive and take dividends for this round first 

You can see where I have issues with his listing of the actions he wanted to take. 

If I read him correctly, he seems to struggle to come against his own conviction because he initially wanted to keep this for a long term yet he is being tempted and swayed by profits he could gain over a short period of time. 

I think the more important discovery that we can ask ourselves as investors of our own game is if we are able to deduce whether we are profiting/losing our investment by design or luck. 

By design, it means spending a worthwhile effort to understand the fundamentals of the company or designing a strategy through technical analysis of the company you are prospecting. 

Profiting By Design 

This is the best outcome of the lots. 

If you are an investor who consistently make profits because of design, then you are in a good stead because you have established a good foundation of fundamental research and temperamental adjustment that suit the needs of your investment style. 

Perhaps, the only problem that needs to try to be avoided is an issue with over-confidence, simply because winning can inflate a person's ego over time. It is important that we keep our feet on the grounds and be humble about the prospect of making the next decision because it can impact the outcome that you choose. 

Profiting By Luck 

If you found out that you have profited on your investment but it is because of luck, then perhaps it is a good time to sit down and review the overall strategy you have on your hands. 

Like the reader who wrote to me, the important question that he should be addressing is not if he should sell now or sell later to wait for the next dividend payout. The important issues on hand is how he can turn that luck into design so he can continue profiting over the long term. 

Blessed this round, he might not be so lucky the next time round. 

It is a matter of time for a person who profited by luck to face a scenario where he will be losing at some point. 

Losing By Design 

If you buy a company with a strong conviction after doing tons of research but are still losing money at the end of the day, then the key is to be patient. 

Mr. Market can be irrational on many occasions that we don't know why certain companies may be mispriced in a way you think it shouldn't. If you continue to hold that belief, then it is also a good time to be adding on to your existing position to build up a larger position over time. 

Having said that, there are some companies that are value trap by design which track record will usually show some tales so it is important not to be overly biased in one aspect. 

Losing By Luck 

This is the worst of the lots. 

Losing both money and luck on all fronts should tell a conclusive story that something needs to be changed immediately. 

Take the right action now! 

Overall Thoughts 

I can understand that sometimes it is not that easy to deduce if we are profiting or losing by luck or design. 

It is usually only an aftermath on hindsight that we get to review if the previous position we took is the correct choice. 

Investing is a game of marathon and there will be plenty of chances that you get to review all the 4 scenarios I've pointed above. 

If we show any complacent or behavioral contempt, it'll be a matter of time before the results will show and it's a wasted chance to have lost some or all your money. 

I think the key message I wanted to drive here is that we should always be reviewing our strategies and temperamental regularly regardless of any of the outcomes because it is the attempt of hard work that will make the difference at the end of the day. 

This is the main reason why I like the investing game. It is a game of self-reflection and one that you can win the game if the process is right.

Thanks for reading.

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What Recently Reminded You of How Fast Time Flies?

Author:   |  Publish date: Fri, 12 Apr 2019, 8:18 PM   |  >> Read article in Blog website

Our elder son is turning 5 years old next week which means for both my wife and I we had him by our side for nearly 5 years of our lives now. 

For a 5 year old, that is his whole 100% of his life together with us but for my wife and I it is a relatively small portion (5/33) of our life experience which is the reason why time seems to fly past so quickly. 

It feels like it was only a while back that he's still learning how to crawl and walk but in a blink of an eye he is able to run at full speed now. One of his favourite pastime is to watch the National Geographic and Animal Channel where he would silently sit in one corner and watch how animals run and hunt for their preys. His favourite animal creature is Cheetah, which explains why he likes to dash around the house in speed that we had to remind him to slow down. Give a few more years, he probably has his own ideas and would ignore our advice. 

To commemorate the time we spent together, we choose to keep the traditional way of album photos of each passing occasion we spent together. For instance, instead of glamorously inviting tons of visitors to our house to celebrate his birthday, we would instead bring him to Legoland and buy him a customize birthday cake. We try to keep such celebration short and simple but memorable and joyous.  
Being the writer inside me, I also love to write and document our experiences in a family and lifestyle blog which I kept separately from this finance blog I am writing. 

It has our fond memories of attending many different events that we attended such as the Children Dinosaurs Festival @ Gardens by the Bay in 2017, Toybox @ Sentosa in 2018 and all our travels moment in the past 5 years. 

Till now, we continue to believe in working hard to pursue and create more memories together. 

Days Are Long But Years Are Short

If you have read a book called "The Happiness Project" written by Gretchen Rubin, you would realize that she has a quote in her book that says like this: 

"The Days We Spent Are Long But The Years We Live Are Short" 

Many of us choose to lavishly spend our days but forget to live our years. 

I used to think that days like this flew by because we're such a busy society in motion. We live a life where busy is king and productivity is lucrative. Our schedules are filled with work life imbalance that we often are not able to differentiate between dawn and night because the sky is always dark when we step out of the office. 

Most of us who are employees of a corporation in this capitalist society are more likely to relate to this. 

We wake up early in the morning getting ready for work only to find the outgoing crowd rushing to the same direction we are going. After enduring most of our time during the day in our prison cubicle attending to our outlook email, we still have to occasionally deal with rude client who demands for unrealistic expectations, who then call for an unproductive meeting only to realize there isn't always a solution provided to the problem. 

Everyday is a battle struggling to get this happiness project right in our lives. 

As the years flew by, I remember what Charles Swindoll once said: "Each day of our lives we make deposits in the memory banks of our children" 

I am full of flaws and I am still working hard in refining them to get better, but I know my heart is in the right place. 

It's the only bank that really matters in the end.

Thanks for reading.

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First Reit FY2018 - My Thoughts On The AGM

Author:   |  Publish date: Tue, 9 Apr 2019, 7:45 PM   |  >> Read article in Blog website

I had the opportunity to attend the AGM which was held this evening at the Mandarin Orchard Grand Ballroom at 2.30pm.

I arrived sometime around 15 minutes and there were already long queues forming for the registration. The AGM was packed and there were a few folks who had to stand when they arrived a bit later.

The door gift was a nice running tracker watch, courtesy of the printed First Real Estate Investment Trust. I think this is a similar model when the government distributed it out last year to the citizens during the health board promotion.

There were new faces across the Board, and one of the prominent ones was Mr. Christopher James Williams, who became the new appointed Chairman and Non-Executive Director in late 2018. This was his first First Reit AGM.

Ok, let's see what I can gather from my notes.

FY2018 Performance and Performance Since IPO

Mr. Victor Tan (CEO) started off by giving us an overview presentation of their full year 2018 performance.

Both operational performance metrics and distributions increased year on year in 2018 as compared to 2017, which capped off another good year for First Reit.

However, share price didn't fare so well.

It tumbled from the high of $1.42 in 2018 to the closing low of $0.92 at one point, which translates to about 40% drop in the share price.

Knowing the share price didn't fare well in 2018, the CEO diverted their attention away from a single year share price and reminded investors that had they held on from IPO in 2006 until end of 2018, they would have earned an annualized return of 15.9%, which is still one of the highest in the S-Reit universe. That alone is one remarkable achievement feat investors should not forget about.

During the period from 2006 to 2018, total AUM has also increased by a remarkable 13.8% CAGR to $1.35b, while Net Property income has risen by 13.7%.

In the last 8 years, they had made yield accretive acquisitions one after another, which includes 10 hospitals, 2 integrated hospitals + malls and 1 integrated hospital + hotel (more updates on these below).

Since IPO, they had also only did one rights issue in 2010 and a small placement in 2012. Both are for yield accretive acquisitions properties they bought.

I'll break into each segment separately to make it neater to organize.

Extraordinary Resolution 4

There was an extraordinary resolution that needs to be passed on the alignment of the admin and logistical operations with OUE after OUE and OUELH become a major stakeholder.

One of the example given was the the current distribution practice which First Reit typically distributes within 60 days after the distribution payment period. To align this with the rest, they will change it to within 90 days after the distribution payment period.

This will be one-off so the next quarter distributions will be slower than normal then the frequencies follow back the quarterly norm payment.

Surabaya Hospital Development

There was a shareholder who asked on the updates on the Surabaya hospital development.

Not many people knows about this but LK is actually building a new hospital, sort of an extension beside the current Surabaya Hospital which is owned by First Reit.

The intended target is to have this built ready by 2019 then have it injected into First Reit portfolio.

There was an incident last year regarding sinkhole which prevents it to be completed by this year and instead this project has been postponed for completion to 2021.

The existing Surabaya hospital will still follow the current lease with LK which expires in 2021, so once the new hospital is injected it will follow a separate lease agreement than the current.

Growth Strategy

The management and Board gave a subtle strong hint of an acquisition target they are working at and it is most likely coming from Japan.

One reason for this is they highlighted Itochu as a strategic partner with OUELH which has pipelines in the Japanese market.

For Japan, we can take reference from Plife Reit when they made acquisitions for Japan nursing homes, which has a net property yield of 6.7%.

They also mentioned the possibility of Malaysia, China and Myanmar in a bid to diversify their portfolio away from the Indonesian geographical so we should see upcoming acquisitions targeted in these areas.

Divesting of Non-Core Assets

The CEO also gave a strong hint on a few potential divesting of non-core assets.

He specifically picked out the Imperial Aryaduta Country Club, one of the 5 properties which have their current lease expiring in 2021. He mentioned that while the hotels are doing well, the Country Club is not doing well as he often see unutilized tennis courts being used.

In addition, this property is currently sitting on a large parcel of land as much as 54,410 square meters, so they are looking into divesting this. The current valuation of this property can fetch them approximately $40.6m.

Another property they are working to divest is also Sarang Hospital in Korea, which is a very small part of their portfolio.

The management also gave hints that they are working on separating the strata title for the 2 integrated hospital + malls and hospital + hotels, so they can divest the malls and hotels portion, but that is still work in progress.

Gearing & Funding Options

They have a total debt borrowings of $503m, which translates into a current gearing of 35%, which is well below the statutory requirement of 45% threshold.

They are currently paying around $17m a year on interest costs at a weighted average cost of debt at 3.84%.

$110m of the $503m debt profile will be due in 2019 while the rest will be due in 2021 and beyond.

The CEO gave an update that they have paid off $10m via internal cash funding while the $100m has been approved by the bank for further extension.

One of the shareholders asked if the management will be reducing or increasing the gearing and Victor said while the long term optimal allocation is to remain the gearing at 35%, in the short term the gearing may rise to 40%. This gives a strong hint of an acquisition coming that would be funded via debt or debt + equity.

LK's Rental Leases and The Lease Expiry in 2021

I'm leaving this for the last because I think this is what everyone goes to AGM to find out more.

There are 5 properties that will have their leases expiring in 2021:

- Siloam Lippo Village
- Siloam Kebon Jeruk
- Siloam Surabaya
- Sarang Hospital
- Imperial Aryaduta Country Club

I've detailed the last 2 properties in my above "divesting" section that they are looking to potentially divest so I think we won't be overly concerned with that.

The other 3 is their most matured and biggest portfolio, and has their leases contract with LK.

Currently 82.2% of their rental income comes from LK, while the rest comes from Metropolis (12.4%) and a few smaller ones.

Obviously, the biggest concern is surrounding the ability of LK to i.) pay their rental and ii.) re-negotiation of the lease expiry coming 2021.

LK's Timeliness Payment of Rental

If you look under the Notes 16 of the Trade Receivables portion in page 118 of the Annual report, you will see that the related parties receivables have increased in 2018 from $14m to $23m.

The CEO mentioned that LK used to pay 3 months in advance of deposit for the rental but last year they decided to do away with it. While they still pay their due rental payment, they have never defaulted and Victor believes that 2018 was a year they had problems with their cashflow, which is also all over the news by the way, and that given their recent fund raising activities, that is no longer a going concern (also confirmed by the auditor).

One of the Director also pointed out that the capital market appreciates the fund raising and restructuring of the LK which shows their bonds recovering from a 17% yield to the current par yield at 7%.

The credit rating was also upgraded by Moody in the most recent exercise.

Re-negotiation of Lease Expiry in 2021

This is perhaps the bigger concerns for investors.

There are 5 properties that will have their leases up in 2021, and 3 of them are matured properties lease with LK.

LK provides 80% of income support that they will receive from Siloam to operate the hospitals and pay to First Reit and the concern is if LK can provide similar income support once the current leases expiry.

One of the shareholders highlighted an important point when he mentioned given LK's lower shareholding interest than the now OUE and OUELH whether it gives bargaining power more to LK than to First Reit.

The CEO and Chairman gave a confident answer that First Reit is in no inferior position to negotiate with LK because first the current lease agreement they have in below the market rate and second it is in LK and Siloam's interest to continue operating the hospitals because First Reit only owned the land and building while LK and Siloam have vested interests in the equipment, doctors, nurses that they have invested over the years. Third, the hospitals are also doing very well with operational metrics and occupancies up year on year so LK will want to keep that momentum going.

My Thoughts

First, I will share my thoughts on the LK's concerns.

I don't think LK will go into default simply because while they have $1b liabilities on their books , they also have $5b on their assets. In other words, they can divest their properties like they did in the recent exercise to raise funds should it comes to that stage.

On the renegotiation of the leases with LK, I think it'll come to a stage where it becomes too important to neglect for both parties because LK still ultimately has 10% vested interest in First Reit so as a related party and vested interest in the operations, they would want to make sure they have cakes on the share too. The most likelihood scenario is that they would follow the current lease agreement structure which would continue for the next few years.

Based on the subtle hint they gave during the agm on the gearing, growth and divestment plan, it seems that we are going to see some corporate action soonest.

There are 2 likely scenarios.

Option 1: Divest the non-core assets first at a profit, share price recovers, then do a debt + equity placement (I think debt + rights would be overkilling) to purchase a yield accretive acquisitions.

Option 2: Straight away do a debt + equity placement (since CEO gave hints of a 40% gearing in short term) for a yield accretive acquisition, then subsequently divest the non-core assets to reduce gearing.

The two key words here which I noticed throughout the agm is yield accretive acquisitions and whether the divestment or acquisitions will come first, albeit both will come at one stage after another.

It is Not easy to do a yield accretive deals when your mother shares are trading at 8.7% yield. Chances are you find a 6.7% npi Japanese nursing home then fund it as much as possible with debt. Either that or go with some income support from sponsor to boost the deal. 

First Reit will be announcing their Q1FY19 results tomorrow morning, so maybe there's a good surprise soon now that the resolution on the agm has been passed.

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REITs Symposium 2019 - Your Information Guide To Most Reits You Need To Know

Author:   |  Publish date: Sat, 6 Apr 2019, 8:38 PM   |  >> Read article in Blog website

REITs Symposium is back again this year after another round of sell-out in both 2017 and 2018.

I was there at the event back in 2017 and it was an eye opener as I managed to attend some of the information presentation and find out more information on some of the Reits that I owned by talking to their management and Investor Relations which had their booth set up.

This was good because most of the AGMs were held during weekday where most of us are unable to take leave to attend so if there's a good chance to meet some of these management, it is now or never.

There will be 75% participating Reits that will be at the event to answer any of the queries you might have. Even if not, you are at least able to get face time with some of the management that are dealing with your day to day stuff so it is good to be able to see some of the faces.

There will be some prominent speakers who you will see at the event such as Guest of honor, Loh Boon Chye (CEO of Singapore Exchange), Beh Siew Kim (CEO of Ascott Trust), Calvin Neo (Nikko Asset Management ETF Director) and many more. The full lists of the speakers are as follows:

How Much Is It To Attend?

Prices is set at $15 if you are not a ShareInvestor member and you can purchase it online.

If you buy them onsite, it will cost you more at $20 so try not to do that unless you are not aware of the event and happens to be around the area.

ShareInvestor has shared with me a referral link (3fs) that you can use and get an additional mystery gift if you purchased it via my referral link (3fs) than if you purchase it without. I tried to get them cheaper for my readers but it was not successful, so I guess every public gets the same treatment.

The sign up link is here if you are interested.

I might be there at the event so if you are going, drop me a message so I'd know who you are. I'd be happy to meet around if I happen to be in the premise (not sure if I'll be there for the whole day though).

Thanks for reading.

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Genting Singapore Ltd - My Thoughts On The IR Expansion Plan

Author:   |  Publish date: Thu, 4 Apr 2019, 6:48 PM   |  >> Read article in Blog website

This is a follow up from the previous article on Genting which I've written not too long ago. You can view them Here if you have not done so. 

The big news on Genting is finally out of the bag which we've been waiting for sometime.

Redevelopment of RWS Expansion

Resort World Sentosa Pte Ltd, a wholly owned subsidiary of Genting Singapore Ltd, has been granted approval for extension of their Integrated Resort over the next 5 years. This will see the existing IR Property expanded with approximately 50% of new gross floor area, adding 164,000 square metres of GFA of leisure and entertainment space. Development and enhancement of the integrated resorts will also include:

  • Expansion of Universal Studios Singapore, with 2 new highly themed and immersive environment - Minion Park and Super Nintendo World
  • Expansion of the S.E.A Aquarium to be re-branded as "Singapore Oceanarium" 
  • Conversion of the Resorts World Theatre into a new Adventure Dining Playhouse 
  • Expansion of in-resort accommodation with up to 1,100 more hotel rooms at a new waterfront lifestyle complex and within the central zone of the RWS 
  • Enhanced waterfront promenade to be lined with restaurants and retail outlets 
  • Expansion of MICE facilities to bring more events into Singapore 
  • Development of Driverless Transport System which will enhance last-mile connectivity to RWS attractions

The development of the IR expansion will involve the intensification of land and a related grant of leasehold interest and license from SDC. 

The redevelopment is expected to cost Genting approximately $4.5b over the next 5 years, and will be funded by internal working capitals and/or borrowings.

Higher Taxes On Gaming Revenues

The current moratorium expires in February 2022 where Genting currently pays taxes on the Gross Gaming Revenue - 5% taxes for premium gaming and 15% for mass gaming. 

If you'd like to read more on the applicable taxes application, you can read the website from IRAS Here

The new 10 year moratorium will subject the IRs to tiered taxes between 8% to 12% for premium gaming and 18% and 22% for mass gaming so there will be downward impact to the NOPAT. 

While this is a regulatory risk that Genting has to take in, I believe they have the ability to lobby against the regulators because this will impact the overall tourism sector of Singapore. I trust that the Singapore government will not want to kill their own goose that helps them lay the eggs they need.

How Genting Share Price Reacts To This News

The share price of Genting falls to as low as 96 cents today, which is about 9% drop from yesterday closing.

Based on market movement today, it doesn't seem to take this news well for a number of reasons. 

First, it is almost certain that Genting will go back into net debt territory by borrowing to fund the capex on this redevelopment. One of the main reason is because they would want to conserve a good amount of cash in their book for the Japan resort bidding and they have to show that their current liquidity can support that. 

Borrowing is not necessarily a bad thing if the intention is to support growth capex and Genting is doing that. 

In fact, if we rewind the story, this is similar when they first won the earlier IR bid to develop Integrated Resort Sentosa back in 2007 where they had to spend $5.2b between 2006 to 2010 before going operational in 2010. 

They funded via internal borrowings and within 4 years after operational in 2014 they went back into net cash position. (see my previous article spreadsheet). 

That's how strong their cashflow is. 

Based on similar prospect, it will take approximately 4 years after operational for them to break-even on the $4.5b. 

Majority of the $4.5b will be capex, so we will only see the effect of depreciation on the P&L after the project has gone operational in 2025. 

Investors should not expect any bump up increase in the dividends payout during the interim but based on past historical management has been pretty generous with the corresponding increase in payout.

Past 8 Years DCF

I tried to run a DCF simulation to see if the subsequent increase in cashflow from the expansion is worth the amount of capex they have to pay. 

But first let's see what happens to the cashflow when the original IR went operational in 2010. 

What I wanted to show here is that while the upfront capex is high, the maintenance capex thereafter is minimal once they started to run operationally. This leads to a copious amount of cashflow exponentially being generated from 2011 to 2018.

Next 10 Years DCF

The hardest part of this exercise is to forecast the cashflow for the next 10 years, which we had to brew in certain assumptions on the variables.

Here's some of the assumptions I've used:
  • Capex to commence from FY2019 to FY2025 which includes maintenance capex they need to maintain to run the current operations. 
  • Depreciation on the growth capex starts to kick in after FY2025. 
  • Minimal maintenance capex is required once the new IRs expansion has gone operational in FY2025. 
  • We assume capex vs opex to be in the range of 80/20 - Near term P&L impact to be minimal at 20%, divided over 5 years. I have made downward adjustment to the Operating Cashflow in FY2019 by 4% each year until FY2025. 
  • There is a tax impact increase based on the latest moratorium which further impacts the nopat, so I have made further downward adjustment to the Operating Cashflow from FY2022 onwards by 4%. 
  • After going operational in FY2025, I have made upward adjustment to the Operating Cashflow by 50%.

This is what you get.

Then, I tabulate and tally the total cashflow in the next 10 years and then use the NPV formula in excel to discount it to the present value using the discounted rate between 7% to 9%.

I add back the current net cash position they have in their book (i.e $3.3b) to get the equity value.

I divide the following by the outstanding number of shares (12,094,027,000) and I get my intrinsic value of the company.

What the table below is saying is that if you discount them using 8% wacc and assign a multiple earnings of 18x PER, then you get a target price of $1.26. Obviously, the more ambitious you are on the earnings multiple and lower wacc used, the higher value you are going to get.


I can see why the market may not like the news but the way they are beaten down today is a bit of a surprise to be honest. Usually, market loves positive news like this where they are sentiment driven but the impact to which they are beaten down today is rather severe. 

I have a strong feeling that this is work of a shortist in play. 

Neither the tax impact nor the levy increase are significant enough to bring it down like that. 

I wonder if we will see similar reaction if they are awarded the Japan bidding. 

If you are investor waiting to get in, I think patience is key simply because their growth won't materialise that fast anyway. 

Meanwhile, I want to ensure that I am paid well enough for waiting. 

Back envelope calculation shows that at 3.5 cents payout, a 4% yield would point out to 87.5 cents. 

At 87.5 cents, the fcf yield would have been at 9.7%. 

If you want more margin of safety, you can wait until the fcf yield is above 10%. That is pricing it at 84 cents. 

I think that is good enough margin of safety and would be my preferred entrance point to make a conviction buy.

Thanks for reading.

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