8 Securities: Broker to trade US and Hong Kong Stocks

In my previous post, I mentioned that I am looking for a broker so that I can trade US and Hong Kong Stocks with no holding fees.

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Why look for a broker now?

Now, before I continue, just to clarify…

I currently only have 1 counter which is a non-Singapore market listed stock: Fu Shou Yuan International Group Limited. It is listed on the Hong Kong stock market. This counter only occupies a tiny portion of my stock portfolio.

Well, FYI, in recent times, I always felt that market valuations are either fully or richly priced. Yes, there are pockets of opportunities here and there, but overall, I don’t see the need to invest a lot at the moment.

Nevertheless, recently I did make some buy moves for some Singapore listed stocks (read here).

So why bother (to find a broker to trade US and HK stocks) you might ask. Well, for one I can never predict when opportunities will come knocking. It could be months or years before the markets correct (or crash)… Simply said, it is not a matter of ‘if’ but ‘when’. And when it comes I like to be prepared for it.

When I study the tabulation of my net worth, there are 2 components that are relatively variables. Eg. My cash and SRS holdings vs my Stock holdings. The other components are more or less fixed (not changing much / less dependent on market situations).

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At the moment if I am to compare these 2 components (Cash & SRS vs Stocks):

  • My cash and SRS holdings: 43%
  • Stocks: 57%

Actually, I would say that historically, for me personally, this cash holding is rather high. It is not easy for me to increase my cash holdings, as I do believe in staying invested for the long term. And I rarely sell my stocks. After all, we should ride our compounders.

In the near future, I do hope to keep this proportion fairly fixed (or try to increase cash proportion by a bit). Nevertheless, if there are opportunities, I will still seize them.

Anyway, back to why I am looking for a broker for US and HK stocks. As I mentioned earlier, I felt that I should be prepared when opportunities come knocking. And one way of being prepared is to have an account that is able to have zero holding fees.

As mentioned earlier, I am a buy and hold investor. A really passive one who like to ‘collect’ stocks for the long term. And the last thing I would want is a ‘holding fee’ or an ‘inactivity fee’ – no matter how small the amount is.

As I have been using local brokers to trade US and HK stocks, these stocks are held in a nominee account, and for each counter, I would be charged a holding fee of approx. $2 per month (base on current rates).

Come to think, on second thought, I shouldn’t have used the word ‘trade’ (even in the title). I seldom trade….  (Unless the market is really crashing).

That is not a big deal if I only have 1 counter eg. the total holding fees for 10 years is only S$2 x 12 x 10 = S$240. The daily value fluctuation of that 1 counter in my portfolio would probably be more than that amount.

However, what if all of a sudden I increased my US / HK stock portfolio to 10 counters, in my aim to have a diversified portfolio? The holding fees alone per month would be approx. S$20, and in a year, it would be S$240 (no matter if I have unrealised gains or losses, and no matter how small each counter is). Now, why would I want that? And by the way, I still get taxed 30% for dividends from US stocks.

I don’t think I need to pay anyone to hold my stocks for me. Do you? What ‘value add’ service is the broker providing anyway?

Anyway, no harm getting the system set up now.. and wait for the storm to come. When it starts pouring, bring out the buckets. The buckets shouldn’t have holes in them.

Asia’s First Free Stock Trading App

In my previous post, a reader, “Green cow”, suggested that I try 8 Securities

  • Commission-free stock trading by year-end? (read here)
  • Asia’s First Free Stock Trading App (read here)

What initially attracted me to 8 Securities was the below 3 key points:

  1. Stocks in 8 securities will be held in a nominee account without any holding fees. 
  2. No minimum trading activity fee.
  3. No minimum deposit requirement.

Details of the commission for trading US and HK stocks can be found below.

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Funding of the account is also fairly easy eg. via Internet banking (read here).

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By the way, I am not keen on their Robo-advisor ‘Chloe‘ service.

 

What’s the Catch?

If you study in detail their fee, you would notice that for the Hong Kong stock dividends, there is a fee of HKD 0.8 / Lot (Min HKD 28). By the way, 1 Lot is the same as 1 Counter, and HKD 28 is SGD 4.88.

In comparison, there is no such stock dividend fee if you are using Standard Chartered Online Trading.

So yes, that to me is a loophole (in the case of 8 Securities)…  However, Standard Chartered (SCB) charges a fee for trading for their Personal Banking Clients (read here), while 8 Securities doesn’t:

  • Minimum Fee: $10 if shares are traded in AUD, CHF, GBP, SGD & USD currencies ($10.70 with 7% GST)

In addition, I would also need to first have a banking account with them (SCB) as well. Consequently, I would then need to maintain a min. deposit amount. As mentioned earlier, I don’t particularly like having to maintain a min. deposit (directly or indirectly). There are various types of SCB banking account, however, the min. deposit amount I need to maintain is S$1000. This to me, makes SCB online trading rather unattractive. I don’t need another bank account (to park my cash), and I don’t see many SCB ATMs around nor do I need their credit cards etc.

Pertaining to 8 Securities, another point is I am not sure of is their currency conversion rates. I do understand Standard Chartered’s rates are not that favorable compared to other brokerages (guess this is how they earn).

However, nevertheless, I think looking at these two brokerages (8 Securities and Standard Chartered), their fees are pretty close. And the major point is having no holding fees for US and HK stocks.

The Tricky Part

However, to open a trading account with 8 Securities from overseas (which I am, since I am staying in Singapore and 8 Securities is located in Hong Kong) is a bit tricky (see below).

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I need someone to witness me signing the documents since I can’t be at the 8 Securities office in Hong Kong. And that someone can’t be anyone.

“Qualified witnesses include a bank branch manager, lawyer, public accountant, justice of the peace or a notary public.”

When looking at the list above, I decided that a bank branch manager seems the most approachable :p (My last choice is probably the justice of peace hehehe).

So I went to the local bank (I have stated my local bank account in the 8 Securities application form) and showed the counter staff the portion that requires the witness signature.

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After waiting for a while, she came back and informed me that the bank branch manager does not sign as a qualified witness. However, for S$20, the bank will provide a Letter of Reference (LOR) to be attached to my application so that the HK brokerage can contact the bank for any inquiries pertaining to my details.

I checked with 8 Securities, apparently, this is not feasible. By the way, I realized that 8 Securities response time to emails is pretty prompt. I was able to send the email (at the bank branch), have a quick lunch in between, and received the reply within half an hour (or more like 10 minutes :p).

So my next option was to get a notary public to witness me signing the documents. By the way, there are quite a number of notary public offices in Singapore. I reckon they are basically law firms (lawyers with a certain min. no. of years of practice experience).

The fee for a notary public to witness me signing the document is S$115.

Oh yeah, FYI, I have never been in a law firm before. The Notary Public office which I went to, was a small law firm. The lawyer was having a meeting with a couple, who are probably in their 40s or 50s (I guess), when I reached there. I guess the lady was having a problem with his ex-husband and they were discussing their options (pertaining to the divorce probably). Interesting discussion – I reckon it is great when you can converse in Mandarin, English, Hokkien all in one sentence….

So with that, I was able to mail my application. Oh yeah, if you are wondering, it costs me S$2.20 to mail the letter to 8 Securities in HK. And I did drop 8 Securities an email with an attachment showing that signed portion by the Notary Public lawyer before I mail it out… ‘looks good’ according to them. As usual, 8 Securities’ email reply was really prompt. I didn’t have to wait for long.

See how it goes from here.

Posted in Hong Kong Shares, Portfolio, US Stocks | 2 Comments

Finding a Broker to trade US and Hong Kong stocks

I came across this article by the Fifth Person: “How to open a brokerage account in Singapore (and how to choose the right broker)” (read here).

In the article, it mentioned the following:

“I’ll assume you plan on trading in the local stock market since you’re to looking to open a brokerage account in Singapore. But besides the SGX, you may also be interested in stocks listed in foreign markets like Malaysia, Indonesia, Thailand, Hong Kong, the U.S., etc. If that is the case, you probably want to check if a broker offers you access to the markets you want.
Do note that foreign shares are not held in your CDP account, instead they’re held in a nominee account with your broker. Most local brokers charge S$2 per month per counter for foreign stocks. This can add up to quite a bit if you invest quite a bit overseas (in which case you may prefer to go direct to a foreign broker to save on fees).
For U.S. markets, I personally prefer to use a U.S. broker as their commissions are much cheaper at around US$5 per trade (Interactive Brokers goes as low as US$1 per trade). A few U.S. brokers like OptionsXpress and thinkorswim have Singapore branches which can come in handy in case you need any support.”

Basically, I do trade US and Hong Kong listed stocks using the local (Singapore) brokers here. And yes, they do charge approx. $2 per counter (UOB KH’s rate is $2 per counter per month while Phillips Securities’ rate is S$2.14 per counter per month).

Hence, I did a quick application and checked online with some of the overseas brokers.

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Min. Monthly Activity Fee & Inactivity Fee

Basically, I do understand that Interactive Brokers, have this policy for minimum monthly activity fee requirement (if you do not meet the min. monthly trading quota, fees will be imposed, unless you have more than 100,000 USD in equity in your account).

If you don’t trade for any given month, the fee would be USD 10 (eg.  USD 10 – commissions).

  • For Interactive Broker – read here.

In the case of Saxo Capital, no fees are charged for holding an account with Saxo, unless the account has been inactive for a prolonged period of time, in which an inactivity fee applies.

  • For Saxo – read here.

For accounts with no trading activity during a period of 6 consecutive months (180 days) an inactivity fee of USD 100.00 or equivalent in the account currency will be charged.

 

This ‘inactivity fee’ requirement is a big deal to me as a passive investor, as I am basically a buy and hold investor. And for some counters, I do hold them for many years.

Or put it in another way, I do not like to be compelled to trade (due to inactivity fees). If there are no good reasons to buy or sell, then why should I do any trades?

 

Fees imposed for having stocks in a Nominee Account: Is it such a big deal?

Yes, the fee amount involved may not be big ($2 per counter per month). Especially given that most people don’t hold their stocks for long and they don’t really have that many counters.

For instance, to hold a counter for 10 years, it would probably cost me only $240 ($2 x 12 x 10), provided that the rate did not change in the future. I do doubt that the rates won’t change within 10 years. How much it would change, I have no idea.

From another angle, this amount ($240) would probably be lower than the unrealised values of the stock holding daily fluctuations.

However, being the ‘cheapskate’ that I am, there is this nagging feeling as to why I need to pay for this inactivity fee (no matter how small the amount is).

 

On further inquiry, I noticed that OptionXpress and TD Ameritrade do not have such inactivity fee requirements.

More on the above-mentioned brokers later.

 

Minimum Deposit for New Account

Most of the US brokers require a min. funding to open an account. For instance, Interactive Brokers require a min. deposit of USD 10,000 (read here). Similarly, for OptionXpress, they require a min. deposit of USD 10,000 (read here).

I did notice that TD Ameritrade (read here) does not have a min. deposit requirement.

Now, I am quite concerned about the initial wiring of USD 10,000 to an overseas US bank account. USD 10,000 is not a small amount to me. And then there is the fee involved to wire money (which makes the purpose of eliminating holding fees with a local broker kind of pointless).

 

Non-US Citizen not residing in US opening a US brokerage account (likewise for opening a Hong Kong brokerage account)

Nevertheless, I tried applying for a new account with the following:

  1. TD Ameritrade (US brokerage): To trade US Stocks
  2. OptionXpress (US brokerage): To trade US Stocks
  3. Phillips Securities (Hong Kong brokerage): To trade HK Stocks

 

For item 1: TD Ameritrade (US brokerage). When I tried applying online, I was directed to the TD Ameritrade (Singapore brokerage) upon partial completion of the application, and after I stated that I am a non-US Citizen not residing in the US.

This got me curious again. Would there be holding fees (eg. the US stocks are held in a nominee account) should I trade via the TD Ameritrade (Singapore brokerage). Upon inquiry with the Singapore branch, I was told that there is no holding fee. See below reply.

“If you live in Singapore, you can only open an account with the Singapore office. We do not charge any custodian fees for holding your stocks. We currently only offer US markets, so you will not be able to trade Hong Kong stocks through us.”

So currently, I am in the process of applying for an account with TD Ameritrade Singapore.

 

For item 2: OptionXpress (US brokerage). I tried applying online, and enquired via their online chat. I was informed that they have stopped accepting new applicants until the ongoing company integration is completed. I was not informed when this integration will be completed (despite asking).

The below is what I found on their website:

Do you open accounts for people outside the U.S.? 
Yes, upon our review and at our discretion we accept unsolicited accounts from non-U.S. residents. Although our account opening process is geared toward opening accounts for persons with a U.S. domestic address, we will review and open foreign accounts depending on the country of residence and at our discretion. Please note that we are a U.S.-based broker. We offer only U.S. exchange traded products and we accept only U.S. currency in our customer accounts.”

I think many like OptionXpress due to their low fees. Anyway, for the time being, I wasn’t able to open an account.

 

For item 3: Phillips Securities (Hong Kong brokerage). I have a Phillips Securities Singapore brokerage account. However, Phillips Securities Singapore and Phillips Securities Hong Kong are two different entities.

I was informed of the below by the Hong Kong branch for opening an account to trade Hong Kong stocks.

“For Overseas Customers, if you cannot open an account in person, you can open an account by post and should enclosed the following documents:
 
(a) Hong Kong Identity Card OR Travel document with photograph (i.e Passport)
(b) Proof of residential address issued within the recent three months; e.g. Recent utilities bills, bank statements
(c) Completed Account Opening Form and W.8 Ben
(d) For non face-to-face client, the additional document is:
 (i) *a cheque of HKD10,000 issued by authorized bank in Hong Kong; (A crossed Personal cheque of HK$ 10,000. Please make the cheque payable to “PHILLIP SECURITIES (HK) LTD”.) which can be drawn on a Local Bank.  Deposit can be used for stock trading and is refundable when close account.
     OR
(ii) **document issued by governmental body
 
*The cheque or document bearing client’s full name and signature must be the same on the Account Opening Form.
** All of the above mentioned (a,b,c,d sections) should be of Certified True Copy (The documents should be verified by suitable certifier, such as our Company’s employee, licensed representative, authorized insurance agent, bank manager, CPA, lawyer etc. The certifier should sign and date the copy documents with his position / capacity, contact detail, and state it is the true copy of the original.) and mail to 11-12/F United Centre, 95 Queensway, Hong Kong .”

Currently, I am still trying to understand through them what they meant by item (d)(ii). I wonder if a certified true copy of passport would work (which is basically a repeat of item (a)).

 

 

Posted in Portfolio | 5 Comments

Buy moves after a long while

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I recently bought some stock. Yes, I know that market valuations are not cheap and that there are relatively more risks involved to invest now. My long term goal is, ultimately to increase my war-chest.

  • Iconic hedge fund manager Seth Klarman says investors are missing huge risks (read here)

However, I do believe that in some situations, these warrant a second look. And perhaps a buy move. One such situation is when the company management made a blunder which indirectly affects the future revenue prospect of the company as a whole.

Yes, the price trend could be down in the short term and you could be catching a falling knife when the trend is down. However, personally to me, as long as the price offers a margin of safety to my intrinsic price calculation and trailing PEG estimates, it doesn’t really matter. And really, I do sucks at timing the stock price.

However, often the stocks I bought, are stocks which I have wanted to buy prior to the price drop. These were always on my ‘shopping list’ so to speak. And when the opportunities come knocking (be it in a good market or bad market), I would often consider them. If the long-term fundamentals are intact, I do not see why I shouldn’t be buying. Sure, prices might be cheaper when markets crash, but then I probably would buy more if all other factors remain the same. I can never be sure if the price would bounce back up, stay up (even during a general market crash), or fall lower…

It is like I am eyeing this T-shirt for the longest time. When it is on sale, I buy it. Sure, I could wait for the Great Singapore Sale.. but what if that T-shirt wasn’t on sale during the GSS? There are infinite ‘what if’.

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“Buying early on the way down looks a great deal like being wrong, but it isn’t. It turns out you won’t be able to accurately tell who’s been swimming naked until after the tide comes back in.” Seth Klarman

Then there are other situations, whereby the valuations of the company did not factor in the future growth prospect.

Yes, again there are risks. There are people who studied every bit of information they have about a stock/company so as to eliminate all ‘risks’ before they place an order. Yes, nothing wrong with that, but we all know that investing is part science part art.

“I think that the analysis [valuation] is actually the easy part. When I speak to business school students, I tell them investing is the intersection between economics and psychology. Economics, the valuation of a business, is not that hard. The psychology – how much do you buy? Do you buy it at this price? Do you wait for a lower price? What do you do when it looks like the world might end? Those things are harder and knowing whether you stand there and buy more or something legitimately has gone wrong and you need to sell, those are harder things and that you learn with experience and you learn by having the right psychological make-up in the first place.” Seth Klarman

This reminds me of the concept of first and second level thinking from Howard Marks. Marks uses this line of thinking to show how great investors operate:

“First level thinking says, ‘It’s a good company; let’s buy the stock.’ Second level thinking says, ‘It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.’

First-level thinking says, ‘The outlook calls for low growth and rising inflation. Let’s dump our stocks.’ Second-level thinking says, ‘The outlook stinks, but everyone else is selling in a panic. Buy!’

First-level thinking says, ‘I think the company’s earnings will fall; sell.’ Second-level thinking says, ‘I think the company’s earnings will fall less than people expect, and the pleasant surprise will lift the stock; buy.’ “

However, having said that, I can frankly tell you, that I will never be “SURE” that this stock purchase is a sure bet. I think in today’s world, information is easily obtained.

We get flooded with news every single day, hour, minutes… The analytical advantage for a retail investor like me (as compared to many professional investors) is simply not there. As Howard Marks would usually tell his son when his son proposed to buy some stock base on some news he read, “Who doesn’t know that?”. The fact is, a deeper understanding of the news is needed, and perhaps the risk is the main ingredient for a good stock buy. As investors, we have to see things and interpret risks differently.

Investors, in general, do not like uncertainty,  the murky gray which they can’t forecast. In situations like these,  stock prices often stay low or fall. What people perceive as untouchable stocks, great investing legends buy into them. If all known factors (and even unknown factors) are already priced in, what margin of safety will there be?

When I look at the buy and sell moves of some of the iconic value investors in the US (this is relatively easy – as their 13F filing is known publicly). I still find that these investors continue to make some buy moves despite the general market being at ‘not cheap’ valuations (well, on the other hand, Charlie Munger did not make much ‘moves” I noticed). And when I look at their specific buy purchases, I can see the reasons behind why they buy each of these stocks. Each is a special situation on its own. 

They are still invested substantially in this market. And as mentioned by Monish Prabai in one of his talks, if current interest rates stay low for a substantial period, current valuations are actually cheap.

There will always be pockets of opportunities (despite the ups and downs of the markets).

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  • Seth Klarman’s latest trade will surprise you (read here) and Value investing giant who takes after Buffett just bought big stakes in two Apple suppliers (read here)

Personally, I have great respect for Seth Klarman.

He is a very private person, but under that private demeanor, is a man with many great ideas.

His moves are often not that easy to understand (and hence, to many, his moves are not easy to replicate or put it in another way, one would need strong conviction). The companies he invests in, are often very specialized (eg. pharmaceutical, LNG, tech stocks, etc). One needs to have a very deep understanding within a very narrow band to fully understand the business moat. To copy his moves, one needs to have a very strong faith.

He doesn’t normally have a very good timing I noticed, but he is extremely patient and often make very bold moves (extremely high amount for a few companies). He is willing to take on companies with little earnings and often at the critical point of a turn around (eg. Cheniere Energy, Keryx Biopharmaceuticals, and Qorvo). These are extremely long term plays, and are often companies, many fund managers fail to invest in.

 

  • Mohnish Pabrai Buys AerCap Holdings NV, Sells Seritage Growth Properties (read here) and AerCap Holdings Is A Value Investor’s Dream Stock (read here)

Monish Pabrai is unabashedly frank about his tendency to copy other great investors’ moves. He proclaims that he has little originality and ideas of his own. However, don’t let that fool you, his track record is remarkable.

He aims to hold on to great compounders over the long term, and I can clearly understand why he buys certain stocks. He likes bargains (eg. buying $1 for 50 cents). However, he does know his own weakness in not paying fair value for great companies (but he has the humility to mimic the moves of other great investors).

 

  • Here’s Why Buffett Bought Store Capital (read here)

Warren Buffett is one person who needs no introduction. As compared to Seth Klarman, the companies (and the reasons behind), at least to me, in comparison, is more forthcoming (straight forward). It is not difficult to understand the business models of many of the companies he has chosen.

However, he does sometimes focus on dividend stocks, which I felt (as someone investing from outside the US), is not really to my advantage (tax 30%). I tend to look for growth stocks in building up my US stock portfolio.

Without a doubt, he is extremely good at finding companies with deep and strong moats (that seems to withstand the onslaught of disruptive trends).

 

 

Posted in Investing methodology | 1 Comment

Would you give up your bike for oBike?

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I don’t particularly use oBike a lot. When I go out with my family I can’t really use the oBikes. My kids are too young and my wife does not know how to ride a bike.

However, I do use it occasionally after work and during the weekends, especially when there are free rental promotions. I could use some exercise when the weather is not too hot or when it is not raining.

I don’t own a bike myself, but I do wish some time that I had a lighter bike with multiple gears. I reckon I would need to use less effort to cycle (especially uphill). And if I had a foldable bike, I could bring it into the MRT train and go somewhere further.

So it came as a surprise when I talked to 2 guys whom I knew from work. Let’s call them A and B.

A is in his 50s. He is a hardcore cyclist. What do I mean by hardcore… well, he wakes up at 5 am (or earlier) every morning to cycle a few kilometers on his bike (which probably cost a lot).

He wears the cycling apparel and can easily cycle from one end of Singapore to the other end, during the weekends. Actually, when he showed me the photograph of himself in the attire, I could not recognize him. Well, he did have a pair of shades on.

Heck, he is much fitter than most guys half his age. He is definitely fitter than me. BTW, the guy in the picture below is not him.

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So it came as a surprise when he mentioned that he uses oBike to travel from the MRT station to his home after work occasionally.

He uses his own bike every morning for his exercise. However, he does not cycle to work due to 2 reasons. Firstly, the vehicular and pedestrian traffic is really bad during the morning rush hours (which is why he wakes up at 5 am to cycle). Secondly, there is no shower facilities at his work place.

He would take the public transport to work. He doesn’t mind using oBike to get home from the MRT station after work because there is less traffic when it is late and he is in no real rush. Also, he can shower at home.

He doesn’t like the idea of leaving his expensive bike out in the open for an extended period even if it is securely locked to a bicycle stand. It is also more prone to wear and tear.

With oBike, it is convenient (he can park it at any bike parking stations without worrying that it would be stolen) and he can easily find one. Also, he does not need to worry about maintaining it. Seems like expensive bikes (like the one he has) need a lot of maintenance. He just spent $1200+ repairing it.

 

B also owns his own bike. B is in his late 20s or early 30s. According to him, he seldom uses his own bike. He especially likes the fact that he can park almost anywhere and not worry about finding another bike to use.

He cycles from the MRT to his wife’s workplace after work. And from there, both of them cycle back home. His wife’s workplace is near their home.

Yes, he does agree that oBike is heavier than his current bike, and he has to pay to rent an oBike. However, he really likes the convenience and the fact that he does not need to maintain it.

He came from the US. He has a racer bike – that at one time, has no brakes (recently he installed a front wheel brake). He felt that it is not really suitable for the urban environment here.

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BTW, the guy in the picture above is not him.

 

Love it or Hate it

There has been a lot of complaints about the indiscriminate parking of these bicycles from the bike sharing companies (Mobike, Ofo and Obike).

However, despite the complaints, seems like many people like using these bikes. Mainly due to the conveniences. Which unfortunately could be a contributing factor to the issues…..After all, technically, one should not park Anywhere.

Nevertheless, seems like even people with their own bikes are starting to fall in love with these bikes from bike sharing companies.

I think there are many good things to like about these bikes. However, actions should be taken to address the nuisance caused by the indiscriminate parking. Love it or Hate it… looks like these bikes are here to stay.

Posted in Bike Sharing | Leave a comment

The Unequal world of Interns

 

 

 

Well, you know, things aren’t always what they seem to be. What can I say, cosmetics does wonder.

 

The ZERO dollar Trainee

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I do believe that law graduates get paid higher than most other graduates from other faculties (well at least during my time – when I graduated in the early 2000s). Yes, I know the hours are hard and the work is punishing, but hey, at least they are paid well… right? There are after all jobs that are punishing and you get paid peanuts.

In fact, looking at this recent article (see below), law graduates from SMU and NUS still earn some of the highest if not the highest salary among all the graduates – Average Gross Monthly Salary being $4,915 and $4,898 respectively.

  • Graduate Employment Survey 2016 (Published 2017) (read here)

However, has the glut of law graduates in Singapore gotten so serious that trainees are only able to get a placement if they do not receive an honorarium during their stint?

By all means, work for something you are passionate about. However, this is really a stretch – to be paid nothing…. (worse so if you fund your overseas studies via a student loan and has no financial supports from your parents or elsewhere).

Given the fact that both foreign and local law graduates are required to complete a six-month practice training contract at a Singapore law practice before being called to the Bar – law firms here will always have a ready supply of trainees given the glut of law graduates. For some other courses, internships are optional.

  • More local law firms willing to take in trainees, but without pay (read here)
  • The Big Read: As supply of lawyers lurches from shortage to glut, spotlight falls on policies (read here)
  • Law grads hit the barriers (read here)

In fact, according to this article in Aug 2014, it highlighted that “although the number of recognized overseas universities has remained at 35 since 2006, the total number of Singaporeans reading law in the United Kingdom has more than doubled to 1,142 between 2010 and last year, based on the Ministry of Law’s estimates”.

On hindsight, I reckon this increase in lawyers started in 2001, when the Second Committee formed by the government on the Supply of Lawyers, found that demand had outstripped the supply of lawyers. The NUS law school subsequently increased its annual enrollment from 150 to 200 over the next few years while law graduates from 10 more overseas universities, including Australia and New Zealand, were allowed to practise here should they meet the academic cutoffs.

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The 5-figure per month Intern

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On the other hand, if you are an intern working in Facebook in the US, you can expect USD 8,000 (or SGD 11,000) a month.

Or if you are an intern working in investment banking or sales and trading roles, in one of the global banks in Singapore, like Goldman Sachs or J.P. Morgan, you can expect to be paid around SGD 10,000 per month.

  • Facebook pays interns $11,000 a month: Report (read here)
  • Facebook pays interns US$8k a month, topping list of 25 best-paying firms for internships in US (read here)
  • The highest paying investment banking internships in Singapore (read here)

I do believe that the business model of the biggest tech firms (which by the way are some of the biggest companies in the USA by market capitalization) is ultra efficient (basically need negative cash to generate cash flow)…. but do the interns working in these firms (Facebook, Microsoft, Apple, etc) generate such high profit for the companies to warrant such high salary?

Or for that matter even some of the global banks based in Singapore.

Frankly, if you ask me personally, I do feel that tech firms and banks (when it comes to the stock market) are over-valued for a long time. Yes not as over-valued as the values prior to the dot.com bust or global financial crisis, but nevertheless over-valued. Whether we are in a bubble or not, I leave it to you to decide.

The recent sell-off in tech stocks has many analysts lamenting that tech stocks have been over-priced for a long time, and the short-term correction is only normal.

  • The five biggest tech stocks lost nearly $100 billion in value on Friday (read here)

 

How we perceive the value of money

Well, come to think of it, for some of these interns, these internships are the first experience they had with earning actual money…. Some have never worked in the ‘real’ world all their life.

“Wow!! First time working and getting 5 figures a month already” vs “So hard to earn my lunch money”

Will this, in turn, create a false sense of confidence for those interns with such high pay?

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And what about those law trainees (who are often graduates who read law overseas) working for literally ‘nothing’? What to show for all their effort and money spent for an overseas law degree?

Will they be unduly demoralized even before they start their career?

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I reckon different people have a different perception of money. In addition, the stage of life you are at currently and what you earn do have an effect on how we perceive money.

I reckon I am still stuck in the teenage stage when it comes to my own perception of money. Well, my wife is at a more advanced stage :p

Not sure about the intern getting S$11,000 per month – what stage will he be at?

  • Have You Ever Noticed How Your Perception Of Money Has Changed? (read here)
  • Age vs Money: How Time Changes Our Perception of Cash (read here)

 

Posted in Uncategorized | Leave a comment

QAF (Intrinsic Value and Trailing PEG)

I have previously written about QAF Limited on 7 July 2016 (read here). If I am not wrong, the stock price then was around SGD 1.08. On 22 June 2017, the stock price of QAF is SGD 1.325.

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Well, I did mention in my July post that I will keep an eye on this stock.

I did a quick study on the financial statistics.

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In comparison to the statistics in July 2016, there appears to be an improvement, namely:

  1. The trailing P/E is now lower at 6.31 while Price/ Book is about the same. At first glance, the stock P/E appears really low (surprisingly given the run up in share price). If we divide the stock price on 22 June 2017 by the FY 2016 EPS, we will get a P/E of 1.325/0.21=6.3. But this EPS of SGD 0.21 was due to the sale of 20 per cent of QAF’s shareholdings in Gardenia Bakeries in April 2016. If we exclude this, FY 2016 EPS would be SGD 0.109 and we will get a P/E of 1.325/0.109= 12.2. Not low but not very high either.
  2. The Return on Equity has improved greatly – reaching 22.47% (some might even consider this a growth stock). However, if we exclude the one-off gains, ROE would be around 13% (read here). That would just be a slight improvement from the 12.69% on 7 July 2016. Return on Asset is a low 6.02%. Not a very cost effective business model – not surprisingly as QAF’s business model is pretty asset heavy.
  3. The Profit Margin and Operating Margin have improved, but still not great.
  4. Total cash and Total debt have increased. However, the resultant cash (after deducting debt is now SGD 38.4 mil. Which is so much more than the SGD 1.87 in July 2016. It is a vast improvement … Hmmm.. are they anticipating a ‘great flood’ or something?
  5. Consequently, the current ratio has also improved to 2.43 (from 1.98). Note:  Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses.
  6. The dividend yield, unfortunately, has fallen to 3.79% from 4.5% – probably due to the run-up in share price. Nevertheless, at 3.79% yield, it is not bad.

The stock is not exactly cheap.

The fundamentals seem to have improved – especially the balance sheet. Unfortunately so did its share price. Consequently, its dividend yield dropped.

  • Are QAF Limited’s Current Valuations High Or Low In Relation To History? (read here)

I reckon the improvement in balance sheet could be due to the exceptional gains from the sale of its 20 percent stake in Gardenia Bakeries as well as fair value gains recognized from its remaining 50 percent, in 2016.

  • QAF’s FY2016 profit more than doubles to S$120.4m (read here)

The company also seems to be in an expansion mode (see extract from FY 2016 Annual Report):

  • The Group is establishing new bakery plants in its core countries to expand its capacity and further capitalise on its economies of scale.
  • In the Philippines, the Group has announced a PHP1,070 million (approximately $31 million) expansion plan to build a new Mindanao plant and purchase land at Luzon province for another plant.
  • In Malaysia, a new RM175 million (approximately $56 million) plant in Johor will come into production this year while another RM178 million (approximately $57 million) plant in Bukit Kemuning, Selangor, will be completed by 2018. 
  • These new plants when completed, will increase the Group’s total bakery plants to 16.

Nevertheless, I am curious about the Intrinsic Value and Trailing PEG of this stock.

Trailing PEG and Intrinsic value

Let’s do a quick study on the trailing PEG and intrinsic value of QAF Ltd.

1) Trailing PEG

P/E: 6.16 (Data from POEMS)
Dividend Yield (%): 3.79
EPS compound growth rate (5 yrs): 13.03%
The trailing PEG will be 6.16/(3.79+13.03) = 0.36. Which is good (> 1).

2) Intrinsic Value

First, let’s look at the estimated 5 years earning growth. We are going to use a time-frame of 5 years from now for this purpose. Given EPS and a PE ratio, the stock price can easily be calculated for any company. Using the below formula.

F = P(1+R)N where:

  • F = the future EPS
  • P = the starting (present) EPS (SGD 0.109) – I am using SGD 0.109 instead of SGD 0.21 as the EPS for 2016, as the SGD 0.21 was inflated due the sale of 20 per cent of QAF’s shareholdings in Gardenia Bakeries in April 2016 (read here).
  • R = compound growth rate (9.26%: Using the 5 yrs CAGR with EPS in 2012 as SGD 0.07, EPS in 2016 as $0.109. However let’s take a 20% discount, and use 7.408% as I am not really sure if growth can be maintained.)
  • N = number of years in the future (5)
    Estimated future EPS: 0.16

I will be estimating the future PE of QAF Ltd to be 12.32 (See below data from Morningstar) – average of the PEs from 2007 to 2016.

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Future Stock Price
P=EPSxPE

P = future stock price
EPS = future EPS
PE = future PE
Hence future stock price of QAF Ltd is 0.16 x 12.32 = 1.9712

Intrinsic Value
P=F/(1+R)N

P = present (intrinsic) value
F = future stock price (1.9712)
R = MARR (15% or 0.15)
N = Number of years (5)
Hence, the intrinsic value of QAF Ltd is SGD 0.98.

Using another method, the intrinsic value I arrived at is SGD 4.88. That is considering factors like Risk-Free Rate, Beta, Operating Cash Flow, Total number of Shares outstanding, etc. See below.

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Given that the share price of QAF on 22 June 2017 is SGD 1.325, there appears to be a margin of safety, if we refer to the intrinsic value of SGD 4.88 using the second method.

However, if we refer to the intrinsic value of SGD 0.98 using the first method, there is no margin of safety.

In Summary

In gist, I still believe that the financial fundamentals of QAF have been getting better in recent years. This is primarily on its balance sheet due to the one-off gains. Its business model is simple. ROE is marginally better, but ROA is still a drag though given its asset heavy business model.

The dividend yield, unfortunately, has dropped.

Stock price wise, not a clear cut as to whether it is undervalued. Nevertheless, the stock price has increased in recent years, so I do feel it might not be undervalued. Hopefully, price will lower to present a better opportunity.

It is one of the stock I am keeping an eye on – and will still be tracking it.

Posted in QAF Limited | Leave a comment

Portfolio Update

This will be just a quick update on my portfolio. Basically, it has been rather uneventful.

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I am still in a net cash holding position in relation to my stock holdings. For this month, I did not divest any of my stock holdings. Personally, I am pretty comfortable with my holdings.

  • Robert Shiller: With stock valuations high, it’s time to reduce your holdings (read here)

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The above table appeared in the 14 June 2017 Business Times. No matter what way I see it, the markets seem over-valued.

I have been doing some internal adjustment to my holdings:

  1. I topped up my SRS account.
  2. Transferred money from my CPF OA account to the CPF Special account.
  3. Bought Insurance: An Enhanced Incomeshield policy (Hospitalisation) and a Whole Life policy for my daughter. (A present from mom & dad, to her on Father’s Day)

I reckon the Whole Life policy is a ‘good to have’ insurance (kids don’t have term policies from what I have gathered). Whole Life policy is really not a necessity.

Stock Portfolio

Somehow, the high valuations in the stock market seem to like this invisible ‘force field’ that make me reluctant to invest. Yes, I am sure there are bargains out there – but I always felt that the biggest bargains can be found when markets correct or crash.

In retrospect, some of the stocks which I previously studied have gone on to reach higher highs – Cheniere Energy, Chipotle Mexican Grill, Mastercard, Paypal, Straco Corporation Ltd, Heineken Malaysia Berhad, Sheng Siong…..and much more.

And I am sure a lot of investors (who did not invest) would be bemoaning about the missed chance in investing in AEM and Best World. These would give any portfolio an outsize gain, given their outstanding share performance in recent times.

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No point looking backward, opportunities would come again.

My stock portfolio is basically status quo.

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So now it is down to 7 stock holdings. Back in March 2016, I had 14 stock holdings (read here). Quite a number of these stocks have been delisted.

The above percentage gain/loss did not take into consideration the dividends received.

Overall Proportion

However, as stated in my earlier posts: I have been on a mission to try to increase my war-chest. Namely the cash proportion in my portfolio. Note: I do not consider the value of my HDB flat in my net worth calculation. And my wife and I hold separate accounts (so basically it is only my personal net worth).

One thing about having a blog or a diary is that it kind of instil within me a sort of discipline. Yes, I don’t recall all that I have written. However, for those thoughts which I remembered, I do try to follow. It has been pretty consistent.

Yes, there are times when my fingers are itching to pull the trigger to purchase stocks – especially those growth momentum type of stocks – always in the news, and seems to be reaching new high every other day. It is sooooo… easy to just buy stocks. However, I will always remember the posts I did about the high valuations of the stock markets, short term irrational volatility of stock prices and the need to increase my war-chest.

Also, there are many great companies out there whose stocks have been overvalued for a long time. Frankly, my war-chest is just not big enough if there was a ‘sale’.

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Back in Nov 2015, the cash proportion in my portfolio is a pathetic 7%. Perhaps the 2 charts below can illustrate how much the cash proportion has increased from then till now.

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Cash proportion has increased from a mere 7% to 33%. This could be attributed to the divestment of some of the fundamentally weaker stocks, delisting of some stocks and divestment from the P2P loans and Invoice financing.

To me, the cash and stock proportions are the 2 main variables in my net worth pie chart. The rest (namely CPF, Insurance cash value and P2P loans, Invoice financing, unit trusts) either don’t fluctuate much or don’t have much weightage.

I don’t invest the money in my CPF account. I reckon the interest received from CPF holdings are safe and good enough for me. However, I do occasionally use the cash in the SRS account to invest in stocks.

Actually looking at the above chart is a bit misleading, as the overall value of my net worth has increased (since 2015) – in absolute terms.

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My current war-chest amount is reaching close to 3 times my initial target for it (in absolute terms), or approximately 6.5 times the value of the war-chest in Nov 2015.

Not only did the proportion of my Cash/SRS increased, the overall net worth also increased. And oh yeah, in general, the stock portfolio performed well from Nov 2015 through 2016 to now, and of course, there is incremental cash infusion from my full-time job salary. So the reduction in stock value proportionally is lesser than the increase in war-chest.

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By the way, I do not intend to divest/liquidate all my stock holdings. I intend to hold on to most of these stocks even in the event of a market crash (probably add on if prices drop to my target prices). Yup, I am always invested.

My passive income has decreased in comparison to the amount received in 2016, due to the reduction in my holdings in stocks and P2P loans / Invoice financing.

Nevertheless, the Passive Income amount has increased in relation to the amount received in 2015.

That’s it for now. 🙂

Posted in Portfolio | 2 Comments

Which is more profitable? High Dividend Yield Singapore Stocks or Dividend Growth Singapore Stocks?

I was reading some of my old posts and came upon a post, written in May 2016 about the difference between high dividend yield vs dividend growth stocks.

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That post came about because I was then reading a book about Income Investing (Income Investing with Bonds, Stocks and Money Markets by Jason Brady- click here). In the book, Jason highlighted that given the choice, he would choose the latter: consistent dividend growth.

It is easy finding US stocks with a long history of increasing dividends – they are known as Dividend Kings.

  • 2017 Dividend Kings List: Dividend Stocks with 50+ Years of Rising Dividends (read here)

Not that easy in our local stock market context. In fact, to me, normally when I think of dividend stocks, my first thought is about high dividend yield stocks eg. REITs and Business Trusts.

Nevertheless, in my previous post in May 2016, I mentioned about 2 groups of Singapore Stocks. The first group (Group A) consists of local stocks which I consider as high dividend yield stocks, and the second group (Group B) consists of local stocks with consistent dividend growth.

I have two questions that I am curious to find the answers:

  1. Looking at these 2 groups of stocks, which of these stocks are more profitable over an extended period of time (eg. 5 years). This takes into consideration the total dividend payout (assuming we did not reinvest the payout) and the capital gain or loss due to stock price movement.
  2. Which stock has the highest dividend yield in relation to the original purchase stock price (from 5 years ago)?

What matters now may not matter in the future: However, before I continue, I do acknowledge that for the past years, after the 2008-2009 Great Financial Crisis, the interest rates have been held artificially low. Moving forward, we should be slowly going into a higher interest rate environment. Or to put simply, the dynamics would change.

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I am not really sure how this might impact the first group of stocks which are typically REITs and Business Trusts in the next few years. They tend to more leveraged. Generally, I reckon this group of stocks will be affected more by any big spike in interest rates.

  • Do Dividend Track Records Matter? (read here)

Why 5 years? The reason why I chose a 5 years period is that some of the REITs and Business Trusts which I will be highlighting later are not listed more than 5 years ago (or I can’t find their historical financial data beyond the 5 years period).

The approximate 5 year period which I have selected is from 8 June 2012 to 12 June 2017.

Nevertheless, I would much prefer a longer period of say 10 years. This, I feel should give a more conclusive verdict.

So which stocks am I talking about? This is not an easy question to answer, especially for the stocks in Group A (High dividend yield stocks).

Initially, I thought of using high dividend stocks which I am currently looking at (those that I am eyeing at, and would buy if price drop to a level I feel comfortable with). However, I felt that this method doesn’t really address the question – they are not really the highest yield.

Then how about listing those stocks with the highest yield? Again, I felt that these are not suitable (esp. when I first studied these stocks). Looking at the list of REITs from Dividend.sg (see here), I noticed that some of their high yields are not consistent eg. could be due to one-off non-recurring profits (like sale of properties, or revaluation of assets) resulting in one-off high earnings and consequently dividend payout, or it could be due to the fundamental issues with the company business itself which caused the stock price to drop precipitously resulting in a sudden jump in the dividend yield for that year (as dividend payout remain largely unchanged).

I am looking for consistency and quality yield.

Ultimately, I guess it is only fair to pit the best against the best. I have to find the best dividend yield stocks which have generated consistent good yield over a period of time, to compare with the dividend growth stocks.

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In the end, these are the stocks in my list and the respective references which I took them from (See below).

Group A  (High Dividend Yield stocks):

  1. Ascendas India Trust (SGX: CY6U) – Yield in 2016 is 4.88%;
  2. RHT Health Trust (SGX: RF1U) – Yields in 2016 and 2015 are 35.21% & 8.32% respectively;
  3. Mapletree Greater China Commercial Trust (SGX: RW0U) – Yield in 2016 is 6.74%;
  4. Mapletree Industrial Trust (SGX: ME8U) – Yield in 2016 is 6.15%;
  5. Croesus Retail Trust (SGX: S6NU) – Yield in 2016 is 6.92%.

Source: The Best Performing REITs in Singapore (read here)

According to the article above (dated 17 May 2017), the above-mentioned five constituents of the SGX S-REIT Index, have the best three-year total return (data as of 9 May 2017 unless otherwise stated).

Yes, I know, these are not very high yield stocks, but in general, as a group, these stocks have high yields and higher yields than the stocks in Group B.

 

Group B  (Dividend Growth stocks):

  1. Vicom (SGX: V01) – Yield in 2016 is 4.90%;
  2. Raffles Medical Group Ltd (SGX: R01) – Yield in 2016 is 4.90%;
  3. Straco Corporation Ltd (SGX: S85) – Yield in 2016 is 2.84.

Source:

  1. These are the four shares with consistent dividend growth (read here)
  2. Rock-Solid Dividend Shares to Start 2015 With (read here)
Note: The first article is slightly dated – the original source of this article is a February 26, 2014 Motley Fools article. Of the 4 stocks mentioned in the article (CapitaMalls Asia, Super Group, Vicom & Raffles Medical Group), CapitaMalls Asia was privatized by CapitaLand in 2014, while Super Group was acquired by  Jacobs Douwe Egberts (JDE) in 2017.

According to the articles, these companies:

    • Have a track record in growing their dividend;
    • Are able to grow their free cash flow and generate free cash flow in excess of dividends paid;
    • Have strong balance sheets.

By the way, these stocks do not have very low yield. In fact, Vicom and Raffles Medical can be considered as relatively good yield stocks.

 

The Benchmark

I will be also listing the data of the STI ETF (SGX: ES3) just for reference – as a sort of benchmark for these stocks.

 

Question 1: Which of these stocks are more profitable over an extended period of time (eg. 5 years).

The profit takes into consideration the share price appreciation (or depreciation) and the total dividend received. I am assuming that the dividend received each year was not reinvested into the same stock.

For simplicity sake, I did not consider the dividend received in 2017. For a number of the REITs, as they were only listed in late 2012 or 2013, there was no dividend issued in 2013. Hence, I am making some assumptions – assuming the dividends in 2012 is the same as those received in 2013.

In very simple terms, I am assuming that the shareholder bought the stock on 8 June 2012 and held it until 12 June 2017. What is the final profit (in percentage terms) in relation to his/her original purchase price 5 years ago?

FYI, I checked out this site for the dividend figures.

Rights Issues (read here): Rights Issues have ‘impact’. I did a check on the stocks in Group A to see if there was any Rights Issue from 2012 to 2017. It appears that was none. I stand to be corrected.

The occurrence of Rights Issues will change the eventual aggregate unit share price (eg. Ex-rights value per share) and the dividend payout/DPU (whether the shareholder subscribes to it or not).

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Actually, the results took me by surprise. I am surprised that Straco Corporation Ltd is the overall winner (and I am not making any assumptions for the dividend payouts in the case of Straco).

The stock price of Straco has been under pressure in recent years. In fact, 2016 was not a year of growth for the company.

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One reason for the stagnant stock price could be this:

The Walt Disney Company opened Shanghai Disneyland last year; many analysts have highlighted that this attraction could potentially pull plenty of discretionary income away from Straco’s Shanghai Ocean Aquarium attraction, which is also located in Shanghai.

Here Are 4 Things To Dislike About Straco Corporation Ltd As An Investor (read here)

Another point to note, even if we include the high dividend yield over the years, Mapletree Greater China Commercial Trust did not perform well – scoring only 30.4% profit.

The results of Croesus Retail Trust (9.4%) maybe a bit unjustified due to the lack of dividend payout in 2013, and my assumption for dividend payout in 2012. Do note that certain assumptions were made for the dividend payouts and initial stock prices for a number of the REITs as they were only listed in late 2012 and in 2013.

The lowest 2 scoring stocks are found in Group A (Croesus Retail Trust & Mapletree Greater China Commercial Trust). The 3rd lowest scoring stock is Vicom (Group B).

The top 2 scoring stocks are found in Group B (Straco and Raffles Medical). While the 3rd highest scoring stock is Mapletree Industrial Trust  (Group A). By the way, their returns over a 5 year period is way more than those of the STI ETF.

 

Question 2: Which stock has the highest dividend yield in relation to the original purchase stock price (from 5 years ago)?

Again, I am considering the total dividend received in FY 2016 as the final total dividend for consideration here. We do not have the FY 2017 dividend amount since we are only halfway through 2017.

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Time is an important factor when it comes to good growing stock (with increasing dividend payout). Theoretically, the eventual yield of a good stock should be higher (and compound) in relation to the original yield.

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From the figures above, it may seem that RHT Health Trust is the winner. However, its dividend payout in 2016 is abnormally high compared to the other years.

This is due to the Special distribution of S$0.248 in 2016, and it is non-recurring. In 2016, RHT signed a MOU to dispose 51% of its economic interest in FHTL to Fortis Healthcare (FHL) for S$300m (INR14.3bn). The disposal of the FHTL stake also resulted in RHT Health Trust declaring a special distribution of 24.8 cents per unit. (read here)

If we exclude this special distribution, the dividend payout for 2016 will be only SGD 0.0742, resulting in the ‘2016 Dividend Yield in relation to 8 June 2012 stock price’ to be only 9.2%.

So the winner here again is Straco (Group B), followed by Mapletree Industrial Trust (Group A) and RHT Health Trust (Group A) at 9.2%, respectively.

In general, for most of the stocks listed here (except for Croesus Retail Trust which has the worst eventual yield), their eventual dividend yield relative to the original purchase price of the stock is higher than the eventual yield of the STI ETF.

 

In summary

They say time will tell if the stock you bought is good or bad. Although we can’t foresee the future, studying the past helps us in forming our judgment moving forward.

Yes, we must always bear in mind that the dynamics in the future might change (eg. Interest rates rise, business fundamentals, new competitors, etc). Investing in stocks is never truly passive.

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Nevertheless, this study is only limited to a few stocks and may not be representative of all the stocks in the Singapore market.  Moreover, certain assumptions were made for the dividend payouts and initial stock prices for a number of the REITs as they only listed in late 2012 and in 2013.

I am surprised that Straco Corporation Ltd came out top in both studies (Question 1 and 2). The winner this time seems to be Group B (Dividend Growth stocks). However, only time will tell which stock will be the eventual winner.

Shall leave with this song. Something to perk you up.

 

Posted in Dividend & Yield, Healthcare Stocks, Raffles Medical, REITS, Straco, Vicom | 2 Comments

Rock Solid Shares to start the year 2015 with – where are they now?

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I have previously written a post in August 2015, about the status of the shares classified as Rock Solid Shares to start the year 2015 with by The Motley Fool (see below article by The Motley Fool).

  • Rock-Solid Shares to Start 2015 With (read here)

According to The Motley Fool as stated in the article above, the Great Ones which have impressive returns on equity without the use of heavy leverage are:

  1. Raffles Medical Group Ltd (SGX: R01),
  2. Silverlake Axis Ltd (SGX: 5CP),
  3. Kingsmen Creatives Ltd (SGX: 5MZ),
  4. Vicom Limited (SGX: V01)

Incidentally, Raffles Medical Group Ltd was also mentioned in the below article by The Motley Fool in August 2014.

  • Great Stocks To Buy And Hold For 20 Years (read here)

See below extract:

“According to Yahoo Finance, Raffles Medical Group Ltd  (SGX: R01), operator of the eponymous Raffles Hospital,  has seen its shares grow by more than four-fold (adjusted for dividends and splits) in 13 years from S$0.71 at the start of 2000 to around S$3.98 currently by providing a crucial and valuable service (healthcare) whose demand will likely never wane.”

In my August 2015 post, I mentioned that except for Raffles Medical Group Ltd, all the stock prices of the other 3 companies have dropped. Silverlake Axis has even requested for trading halts on 14 Jan 2015 and 21 Aug 2015.

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A period of lesser than 8 months in holding on to any stock, to me personally, is relatively short.

I like to hold on to good stocks for many years. It allows for share price appreciation, passive dividend income build-up and a greater understanding of the companies (as I tend to read more on the development of companies which I am vested in). To put it in another way: To let time works its ‘magic’.

I have always been interested in these stocks.

We are coming to the middle of year 2017. Now it has been more than 2 years, since the release of the article by The Motley Fool. What is the status of these companies now? Both in terms of the share price performance and the business & financial performance.

“The big money is not in the buying and selling … but in the waiting.” Charlie Munger

Stock Performance

1) Raffles Medical Group Ltd

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On 9 May 2016, there was a three-for-one share split for RFMD shares (eg. A shareholder that has Raffles Medical’s shares registered under his name on the books closure date will see every share he holds be split into three shares). Read here.

So accounting for the share spilt, the stock price of RFMD on 2 Jan 2015 is SGD 1.307. At the point of writing this post on 2 June 2017, the stock price of RFMD is SGD 1.365. So in terms of share price, there was a rise of SGD 0.058 or 4.4%.

However, as mentioned earlier in my post, one must consider dividend payouts. The total amount of dividend received from 2015 till today is SGD 0.25 (see below).

FYI, I multiplied the dividend received in 2016 and 2017 by 3 due to the share spilt.

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So considering the dividend payout and share price appreciation, the total profit (if you sell at the price of SGD 1.365) is SGD 0.308 per share, and this represents a profit of approx. 23.6%. This is assuming you don’t reinvest the dividend.

Not too shabby for a ‘more than 2 years’ buy and hold strategy.

And out of this SGD 0.308 profit per share, dividend alone contributed 81.1% of it.

2) Silverlake Axis Ltd

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The stock price of Silverlake Axis on 2 Jan 2015 is SGD 1.0625. At the point of writing this post on 2 June 2017, the stock price of SILV is SGD 0.54.

Note: SILV requested for Trading Halts on 14 Jan 2015 (read here) and 21 Aug 2015 (read here).

Just base on stock price alone, there is a drop of SGD 0.5225 or 49.2%.

Now let’s factor in dividend payout. The total amount of dividend received from 2015 till today is SGD 0.083 (see below).

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So considering the dividend payout and share price movement, the total loss (if you sell at the price of SGD 0.54) is SGD 0.4395 per share, and this represents a loss of approx. 41.4%.

Unfortunately, the drop in share price is at such a big magnitude that the dividend payout did not help much (only approx. 8%).

3) Kingsmen Creatives Ltd

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The stock price of Kingsmen Creative on 2 Jan 2015 is SGD 0.95. At the point of writing this post on 2 June 2017, the stock price of KMEN is SGD 0.615.

Just base on stock price alone, there is a drop of SGD 0.335 or 35.3%.

Now let’s factor in dividend payout. To me, KMEN’s dividend yield is on the high side. The total amount of dividend received from 2015 till today is SGD 0.08 (see below).

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So considering the dividend payout and share price movement, the total loss (if you sell at the price of SGD 0.615) is SGD 0.255 per share, and this represents a loss of approx. 26.8%.

Again, the drop in share price is at such a big magnitude that the dividend payout did not help much (only approx. 8.5%).

4) Vicom Limited 

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I am currently vested in this stock.

The stock price of Vicom on 2 Jan 2015 is SGD 6.26. At the point of writing this post on 2 June 2017, the stock price of VCM is SGD 5.690.

Just base on stock price alone, there is a drop of SGD 0.57 or 9.1%.

Now let’s factor in dividend payout. To me, VCM’s dividend yield is on the high side. The total amount of dividend received from 2015 till today is SGD 0.7325 (see below).

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So considering the dividend payout and share price movement, the total profit (if you sell at the price of SGD 5.690) is SGD 0.1625 per share, and this represents a rise of approx. 2.9%. 

In this case, the dividend payout alone was able to mitigate the drop in share price and turn the loss into a profit. Though not a big profit :p.

Summary

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2 of these stocks (Raffles Medical and Vicom) have managed to provide their investors with positive gains if they bought and held these stocks from Jan 2015 till now (if we include dividend payout).

This is better as compared to the case in August 2015, whereby 3 out of 4 registered losses.

Business & Financial Performance

Having looked through the prices, perhaps it is time to think about the business & financial performance of these companies. To be frank, I haven’t been tracking all four companies diligently.

1) Raffles Medical Group Ltd

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Raffles Medical Group Ltd is a healthcare services provider.

It runs a hospital in Singapore, is currently developing a hospital in China (with an expected completion date of 2018), and has a network of medical facilities in 13 cities across five countries (Singapore, China, Japan, Vietnam, and Cambodia).

The company has delivered consistent revenue growth over the past few years.

In 2016, Raffles Medical reported a revenue increase of 15.4%. Net profit for the year stayed flat however, due to higher staff costs (for business expansion and acquisitions) and higher operating leases, among others.

For the recent first quarter 2017results (read here):

  • Revenue dropped by 1.7% over first quarter 2016. The marginal decline was due to softer than expected demand from foreign patients.
  • Profit After Tax and Minority Interests (PATMI) registered a marginal increase of 0.1% over first quarter 2016.

It seems that in recent times, the Group was able to contain costs and maintain its profitability, while still in expansion mode.

Moving forward:

Looking ahead, Raffles Medical expects its business to continue growing in 2017. The company also expects to complete the expansion of Raffles Hospital later this year (the hospital’s area would increase by around 80% after the project is completed).

The Group has acquired a plot of 28,000 square metres together with an in-construction building located in the Liangjiang New Area in Chongqing for the development of a 700-bed international tertiary hospital. When completed in 2018, RafflesHospital Chongqing will be able to serve local and expatriate patients in the western part of China as well as foreign patients from Central Asian republics.

Construction of RafflesHospital Shanghai has commenced and is proceeding smoothly.

2) Silverlake Axis Ltd

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Silverlake Axis is in the business of developing technology solutions for banks, insurance companies, payment providers, and more. Its core capability is in providing banking solutions and over 40% of the top 20 largest banks in South-East Asia run the company’s core banking solution. Notably, one of our Singapore bank (OCBC) are also using Silverlake core banking solution since 1994.

Net profit fell in FY 2016, in relation to FY 2015, despite an increase in revenue.

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Maintenance and enhancement services will remain as a key driver. As Silverlake Axis derives most of its revenue from this segment, as long as the banks keep using Silverlake Core Banking Solution(CBS), this segment would be relatively stable. Against the backdrop of a challenging economic outlook, the maintenance and enhancement service segment is likely to be the key growth driver in FY2017 moving forward.

Core business projects: Silverlake’s software licensing and project services declined 27% and 59% YoY respectively. This was amidst a challenging economy that saw banks looking to cut costs.

For the recent third quarter results (read here), revenue dropped 21% YOY, while profit attributable to shareholders rose 548% YOY to RM398.4 million!

This was due to an accounting gain of RM293.0 million from the initial recognition of retained interest in GIT as a financial asset at fair value as well as the gain of RM105.6 million on disposal of 12.4 million shares in GIT during the quarter, other income rose substantially to RM413.7 million in Q3 FY2017. If we exclude

If we exclude the above mentioned, the profit attributable to shareholders would probably be only RM 0.2 million, which is a drop of 99.7%.

Personally, I find SILV’s financial reports difficult to understand, and tend to stay away from this stock. Also I am not sure that the company has proved that it can grow organically.

Moving forward:

    • Silverlake has fully disposed its intended allocation-for-sale shares in Global InfoTech Co Ltd (GIT) and is to record an SGD267.7m gain while receiving 4 cents per share in terms of proceeds. Given the procedures needed for the proceeds to be transferred, this exercise would take some time to complete.
    • Management plans to put more attention into growing its insurance segment and may engage in some M&A activity in this space in the near term. Organically, this segment is already growing at a rapid 20-30% pa and the company has yet to expand its services across South-East Asia. However, Silverlake has already signed up the majority of the biggest insurance players.
    • Silverlake is in talks with a few Malaysian banks in relation to implement its software solutions to replace these banks’ existing core banking systems. Each of these contracts would potentially range around MYR150-200mil for each bank.

3) Kingsmen Creatives Ltd

kingsmen-300x250.jpgKingsmen Creatives Ltd is a company that provides services such as exhibition setups, interior design for retailers and corporates, and more.

Co-founder, Simon Ong, 62, stepped down as chief executive officer and group managing director on 1 July 2016. Consequently, Mr. Andrew Cheng (previously, the group chief operating officer), assumed the role of group CEO. While, Mr. Ong took up the role of deputy chairman, spearheading the strategic planning and development of the group as well as its creative standards.

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2016 was not a good year for KMEN, Profit net of tax attributable to equity holders of the company fell from SGD 19.068 mil (FY 2015) to SGD 11.896 mil (FY 2016). While earnings per share dropped from 9.71 cents (FY 2015) to 6.02 cents (FY 2016).

The drop in profit of 38% year on year was mainly due to the one-off contribution last year from an exceptional item of $5.9m. Excluding that, the profits would drop lesser at 9.3% year on year.

Net Margin continues to struggle as the company continued to incur higher operating expenses, mainly from depreciation charges and salary charges, which continued to increase at 3.2% as a result of increment wages.

For the recent first quarter 2017 results (read here), revenue increased 7.7% YOY but total comprehensive loss attributable to equity holders of the company was lesser (by 78.8%) YOY at SGD 668,000. An improvement from the SGD 3.1 mil in first quarter 2016.

The better results was due to the increase in revenue YOY by the Retail & Corporate Interiors division and Alternative Marketing division.

Moving forward:

On 21 February 2017, KMEN management stated that, barring unforeseen circumstances, they expect FY2017 to be a profitable year.

Exhibitions and Thematic division continue to see growth as they ventured out to Middle East and China. Retail and Corporate Interiors will be the key to watch out for in coming years.

4) Vicom Limited 

top.jpgVicom Limited is a leading provider of vehicle testing and inspection services in Singapore. The company also provides a wide range of non-vehicle related technical testing and inspection services.

The company is majority-owned by land-transport giant ComfortDelGro Corporation Ltd.

2016 was not a good year for Vicom, revenue dropped 5.2% YOY due to lower business volumes, while Profit  Attributable to the Shareholders of the Company dropped 10.3% YOY.

In the first quarter 2017 results (read here), revenue dropped 4.9% YOY, again due to lower business volumes, while Profit  Attributable to the Shareholders of the Company dropped 6.4% YOY.

Moving forward:

Business conditions are expected to remain challenging for the Group. The vehicle testing business will continue to be faced with the high de-registration rate although this will be offset partially by the increase in the number of Certificate of Entitlement (COE) revalidations.

The non-vehicle testing business will continue to weaken with the general slowdown in the industries that they serve.

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Raffles Medical continues to do well and managed to control its finances diligently while expanding.

For Silverlake Axis, Kingsmen Creative and Vicom, it is still an uphill task.

Hopefully, these Rock Solid shares will do well in the future. And not be like many of the media stars that only fade away into oblivion after a few years.

  • Where Are They Now? ‘Baywatch’ Edition (click here)
Posted in Kingsmen Creatives Ltd, Raffles Medical, Silverlake Axis Ltd, Vicom | 2 Comments

Work is better when you don’t need the money

I first came across the above statement when I was watching this talk by Frugal Guru Pete Adeney (from Mr. Money Mustache blog).

All my life after graduation, I have been in a job. In my 20s and early 30s, I worked really hard. Managed to pay off my student loan, HDB mortgage, got married and have 2 kids.

I did not really think much about whether I like my job or not. It was satisfying at times, shitty plenty of times…(kind of remind me of the relationship with my kids)…. but when you are busy, you seldom think about how much you love (or hate) your job.

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Not too long ago, I came across these wo posts by fellow financial bloggers:

1) Is Your Work A Necessary Evil? (read here)

2) The Maths behind being Financially Independent with $1 million by Age 40 (read here)

And then there is this post:

3) Don’t do what you love for a career—do what makes you money (read here)

With reference to the 1st post from cheerfulegg (Is Your Work A Necessary Evil?), he asked the following question:

“So here’s the dilemma I’ve been pondering:

If you see work as a necessary evil, wouldn’t it be easier to simply find a more meaningful job than to struggle for many years towards financial freedom?

And if your work already has a meaningful purpose and you find fulfilment in it, why would you want financial freedom which is the option to quit your job?

I’m curious to hear from you:

How do you view your work – as a necessary evil, or having a deeper purpose? In either case, why is financial freedom still a goal for you?”

I reckon to me, the answer to the above question is found in the 3rd post (see below for extract from the post):

“And are we really so sure that the best thing to do with passion is attempt to monetize it, anyway? Why assume it’s easier to turn passion into money than it is to turn money into passion? Why not side hustle for love, and keep the filthy hands of commerce off our art or beloved hobby?

What if you don’t have a grand passion, anyway? Lots of people don’t. Hell, just keeping the lights on is a tall enough order for a vast majority of people.”

1st Question (Wouldn’t it be easier to simply find a more meaningful job than to struggle for many years towards financial freedom?)

  • Are you a zombie employee? Over half of Singapore companies have them (read here)

If you ask me, wouldn’t it be easier to find a more meaningful job? This word “meaningful” to me is relative. For instance, a doctor’s job to many may be more meaningful as compared to a banker’s job. A social worker’s job to many may be more meaningful as compared to a teacher’s job…. There is no end. There will always be a job that is more ‘meaningful’ than your current job. But then again, that is other people’s definition of ‘meaningful’ which I think is secondary.

Then there is your own perspective of what is meaningful. Or put in another way, your own passion (what is meaningful to you and the people around you).

However, what if you don’t have a grand passion (or meaningful work at least to yourself)? And even if you do, is it easier to turn passion into money than it is to turn money into passion?

  • If I like to draw. Would it be easier for me to make a living as an artist (A) than to have the money to draw whatever I like, whenever I like (B)?
  • If I like to teach: Would it be easier for me to make a living as a teacher (A), than to teach whatever I like, when I like and to whom I like (B)?

For (A), you can start right now, and do it until the end of your life. For (B), you would have to struggle first, build up your capital, become financially free then do what you like. (A) is fast with instant gratification, but life is beyond personal gratification (or having a meaningful job). (B) is slow, but you get much much more gratification at the end (well, at least more meaningful to you personally).

Which is easier? There is no right nor wrong in either way. Why complicate life (isn’t life already complicated enough)?

“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” Warren Buffett

As mentioned in the 3rd post“Most of the life’s problems are intractable. Money is that rare problem that’s possible to (mostly) solve.”

Life is simply unpredictable. We fall sick, get into accidents – likewise for people around us whom we love …

Many things in life are unquantifiable. We can’t do an excel sheet and forecast what we will ‘get’ in the future (unlike cash deposits). We can write a thesis on having a ‘meaningful job’.

Must the word meaningful end with the word job anyway? I find the phrase ‘meaningful job’ kind of an oxymoron. Just have a meaningful life – period. Must ‘meaningful’ come with a price? Get price out of the equation. Price, sort of make a lot of things ‘meaningless’. Life does not equate to a job.

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In the whole question above, there are 3 key phrases: “Meaningful”, “Job”, “Financial Freedom”. All are not easy to achieve. Yes, there are PEOPLE who are grateful just to have a JOB – where got the ‘luxury’ to ponder on whether it is a meaningful job or not, or think about financial freedom.

  • Unemployment could rise further as Singapore faces structural changes: Lim Swee Say (read here)

Among the 3, the hardest to achieve in life is “meaningful”. It is the hardest to quantify. It takes a lifetime to find meaning in life. You can start off your life like Forrest Gump; travel around the world (starting with Tibet) throughout your whole life to find meaning (and still don’t get it).

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Why not tackle the solvable problem (like money) first? After all, a journey of a thousand miles begins with one step. And from a rational compounding point of view, the sooner you have money, the less money you need….. You know like in exams – you solve the easy questions first, before tackling the tough ones.

Likewise, if you work for money now, as opposed to passion, you’re generally in a better position to pursue your passion later on with no financial stresses.

This cannot be better illustrated by the 2nd post (The Maths behind being Financially Independent with $1 million by Age 40) from Investment Moat.

2nd question (If your work already has a meaningful purpose and you find fulfillment in it, why would you want financial freedom which is the option to quit your job?)

Back to the beginning of my post…. isn’t the feeling different if you work like you don’t need the money. Yes, your work has a meaningful purpose and you find fulfillment in it. But at the end of the day, who is the real boss here? In any endeavor, whether you are your own boss (self-employed) or you are an employee, there are bound to be bosses/clients/customers etc… There will always be a bigger fish.

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Personally, I know how it is like to work when you have a 5 figure student debt and a 6 figure mortgage vs how it is like to work with ZERO debt (in exactly the same job).

When I am in the former (eg. in debt) my first thought wasn’t about meaningful or fulfillment ….Noooo….My first thought was about stopping the unnecessary ‘leaks’ and paying back the money. I may love my job, but I do need to rest when I NEED TO REST (like if I can’t work because I am sick for an extended period or if the people I love, got into trouble)… I am human after all.

When I am in debt, even if I am not doing anything, I am bleeding cash (in the form of interest payment – compounded more over time if I do not pay). I would much rather use the money for something more enjoyable like watching a show, having a nice meal, etc…

“When you make it back to zero, you’re like “I can join the Peace Corp. right now, nobody’s gonna track me down. I got choices again.”     Chris Sacca (who went from a US$4 million negative balance trading stocks, to a net worth of US$1.21 billion)

Of course, there are people who started out with no debt, was never in debt, never had the need for money (ever)…. rich parents, a big inheritance, great paying job, marry rich, etc…so they might not know the difference.

Indeed, we do need to think about the quality of life, beyond the meaningful purpose in work. Life is not just about working. The quality of life has everything to do with financial security and independence – a roof over our heads, healthy work-leisure balance, the means to fund our retirement and healthcare, the time and opportunity to pursue our dreams and passions – even as we provide for our families and help them realize their potential.

And oh yeah, there are parents who would literally kick their kids out of the house once they are out of school. Tough love, I guess. Or their parents have no house, to begin with…. :p

So basically, you are then forced to think about the quality of life first before having a meaningful job. On one hand, your choices are now more limited (basically one option – to find food and shelter), on the other hand, it sort of simplifies your life (no need to ponder about finding fulfillment first).

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  • How long can millennials keep living with their parents? This isn’t sustainable (read here)

Life is also not just about ourselves. Life is bigger than that. Financial freedom isn’t just about the option to quit your job. Financial freedom is also about the ability to take care of others. Eg. I can have a fulfilling job, but if I can’t even pay for my aging parents’ medical bills to keep them alive and well, I think my life, in general, is not meaningful. When you are not free (financially), you might even drag the people around you down (when you are in financial troubles). Even though you did not intend it to be that way.

And if you managed to finish watching the talk by Frugal Guru Pete Adeney (which I mentioned at the beginning of my post), near the end of his talk, Pete mentioned about Elon Musk — and the word “Authenticity”. I think if you have no financial freedom, people and even yourself, at times might question, why are you doing what you are doing. Are you doing this out of love or money?

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By the way, to me, this “Authenticity” isn’t about looking rich. Yes, you can appear rich eg. drive big cars, live in a landed property, go on expensive overseas trips multiple times a year, have lots of branded bags etc…. Sure people may gravitate towards you, but it won’t last. You may end up attracting the wrong kind of people anyway.

Indeed, it is about having enough financially. It is when your cash flow exceeds your expenses. Actually, you can sense some of the local financial bloggers who have this air of ‘authenticity’ eg. have more than enough and just want to help others.

With financial freedom, this question (why are you doing what you are doing) is simple to answer (even from an outsider). Financial freedom simply forces you to be truthful to yourself. It is ultimately better for you and for the people around you.

“Why am I am doing this Shit, when I don’t need the money… I am gonna do something I reallyyyyyyyyyyyyyyyy love. Something which I will feel fulfilled”

And oh, by the way, it takes a lifetime to find fulfillment.

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As mentioned in the 3rd post: “Financial independence is an inherently rational goal—the “fuck off fund” carried to its logical conclusion. To a greater extent than most of us want to admit, you’re only as principled and independent-minded as your bank account allows you to be.”

Posted in Cash, Uncategorized | 2 Comments