Occasionally, from time to time, I would think back as to why I made certain investment decisions. Sure it is easy to look at the price run-up of certain stocks and beat ourselves over it (for not buying them earlier), crying over spilled milk so to speak. The COVID-19 pandemic has created a huge tailwind for certain sectors eg. Tech stocks and Medical stocks (eg. glove manufacturer companies).
Actually, for me, I tend to be more careful and invest in what I know. For many tech stocks, I still feel that they are really beyond my circle of competence, especially if their business model is B2B (business to business). Typical mega tech stocks like Microsoft, Amazon, Alphabet (Google), Facebook, Netflix, Alibaba, Tencent etc have part or most of the business model in the B2C (business to consumer) segment, which makes it easier for me to relate to.
Cramer: Snowflake is too difficult to understand for people who bought the stock (watch here)
The Problem with Snowflake Stock (watch here)
Nikola JUST Admitted to Fraud – End of GM Partnership? (watch here)
I always felt that being in a certain industry does give one an edge.
For example, if I am in the Tech industry, I would be the first to liquidate my Snowflake holdings (if I am vested in it), if I hear about how sucky it is (across the room).
It is something not announced in the news, financial reports or annual reports. And I don’t need to wait for the news to be out. By the time, the financial reports / figures are out, what is inside is already old news. Of course, there is always an itch to speculate in the hottest stock.
So yes, back to the topic.
Let’s go back to what I mentioned at the start.
Yes, so now we are in Sept 2020, whereby many countries are still witnessing 2nd or 3rd waves of COVID-19 outbreaks, and have not fully emerged from the pandemic. For me, being in the construction industry, it has provided me a front row seat as to how the pandemic has impacted the industry here in Singapore.
The contractor in my project (which by the way, is considered big by its contract value), faced an uphill task in resuming work on site. With the prolonged lock down and out breaks in the dormitories island-wide, the contractor is starting to face cash flow problems. And there is the constant fear that smaller sub-contractors will go belly up.
One issue faced by the contractors, is the disruption to the supply chain worldwide. From Italy to China to Malaysia, they faced difficulties in getting the materials here on time. This has been a recurring theme now for many months. Let’s face it, Singapore doesn’t produce much (and for the project which I am involved in, none of the materials are from Singapore). Factories for that period of time, had difficulties in restarting, as their workers need to go for swab tests, and there are lots of glitches in the systems.
Then there is the constant fear of subsequent lock downs.
After witnessing first hand the deep financial implications caused by a lockdown in Singapore or elsewhere (eg. China), the contractor and developer are already spooked. For them, it is not just ONE project in Singapore, being MNCs, it is multiple multi-million projects all around the world that are affected. They are already seeing unprecedented losses across the board.
Malaysia to reimpose lockdown if new cases hit above 100 a day (read here)
As with any businesses, in time of crisis, people will find ways to profit (from material suppliers, logistic space suppliers, even workers themselves, etc). You hear all sorts of stories. To some enterprising workers, this is actually an opportunity…
While for many of us – life goes on as usual.
As developers and contractors, with the projects already in huge delays, a 2nd or subsequent lock-down imposed by other countries would prove disastrous to the projects and their stakeholders. With the projects already in delay and already in financial losses, what they can do is to minimise the losses moving forward. To write off 2020 from their log book.
Penalties would be imposed if buildings or spaces are not delivered on time. The government has set up rules & regulations to help mitigate in the first round of the Singapore “Circuit breaker” (and in many ways protecting the down-stream contractors), but what excuses can developers / contractors give for subsequent lock-downs? Didn’t they learn from their lessons and take pre-emptive steps to mitigate the issues?
Stakeholders will not be as forgiving for future delays and mishaps.
One way to mitigate the issue of the disruption of the supply chain is to store materials here in Singapore as soon as they are ready for shipment from overseas. Hence, the race to ship out ASAP.
However, once they ship to Singapore, they have to store it somewhere right? And the construction sites are often too small / cluttered to hold so much material.
The only winner I see from this arrangement are the logistic warehouse owners.
The contractor has been bemoaning that logistic suppliers have been using this to their advantage and rental rates has not dropped (but increased in some areas). If one project is affected, think what would happen to all the projects in Singapore (and worldwide).
In normal times, it makes more economic sense to store the materials overseas (eg. in China), rather than in land scarce Singapore where rents are more expensive. But these are unprecedented times (ok, yes I know… I heard/read this line like a zillion times).
Would they (contractors) quibble on the amount they pay in warehouse rental or risk suffering a bigger loss if materials are not delivered on time later when another wave of outbreak hits … hard decision. Take it or risk it.
It is like buying insurance. I hate to pay for it (life insurance), but having witness the financial destruction cancer treatment would do to me, I think it would make better sense to buy some.
Or put it in another way, every time the local news announce that the Singapore PM will be live on TV later that day, hoards of people will rush down to buy the essentials / necessities from the supermarkets. Leading to a shortage of rice, toilet paper, instant noodles, etc… empty supermarket shelves. Suddenly for the normal people like you and me, that empty shelf in the fridge or the unused corner in the storeroom becomes valuable ‘real estate’ in the house, which is now used to store all these hoarded goods. In normal times, we can be assured of buying these necessities as and when we want them, from the nearby 24/7 supermarket… but with the pandemic raging, we are now not so sure.
Now multiple that hoarding mentality hundred-fold, thousand-fold or a gzillion-fold.
Prior to the market crash, I actually had a ‘shopping list’ or sort, of the stocks I wanted to purchase during a market crash. And I was glad that I managed to purchased some during the recent crash early this year.
Mapletree Logistic Trust was not in that list. However, it is one of the stocks in my portfolio now.
Looking back, I was rather late in purchasing MLT – only sometime in mid April 2020. I reckon my thesis then was base on what I have encountered at work.
It wasn’t that difficult to see the link. It is also not hard to comprehend MLT business model as well. A check on their properties’ tenants reveal a number of contractor companies.
And it beats reading the IPO Prospectus of Snowflake or understand the intricacy of Tesla business model.
I will probably freak out thinking why Tesla stocks will still soar even after oil prices crash to negative… wondering why would people still find it economically viable to purchase an electric car when it cost cheaper to run a petrol car. To put it in another way, it is like marketing an electric car to an Emirati – where petrol is literally cheaper than water in their country. Burning petrol in a Lamborghini supercar is cheaper there than here.
Then again, one can always argue that Tesla is not just about electric cars, it is a tech company and a forerunner in AI and self driving technology. But ask myself, how much in depth knowledge do I have in that?
6 things I learned from the 2020 Mapletree Logistics Trust AGM (read here)
3 REITs That Grew Their Dividends (read here)
So far, the stock price of MLT has been on an uptrend. It is one of the very few Singapore listed Reits that managed to grow its DPU and increased its dividend payout during this recession; swimming against the flow. And reading the news today, I can see that Warehouse rents in Asia Pacific is holding steady (though not entirely due to construction material storage :p).
Warehouse rents in Asia-Pacific hold steady on e-commerce demand: Knight Frank (read here)
To quote the article above:
“Prime warehouse rents in Singapore generally held steady in H1 2020, declining only 0.6 per cent to S$1.80 per square foot per month from H2 2019, Knight Frank said.
This came despite economic activity grinding to a halt as a result of the April to June “circuit breaker” and the economy entering a recession during the same period.
The performance was supported not only from increased appetite for space from the e-commerce sector, but also the production and storage of essential commodities such as medical and hygiene related products, the report said.”
Covid-19: Travel won’t return to pre-crisis level before 2024: IATA (read here)
With this pandemic dragging out longer than expected, I don’t see this changing anytime soon. For warehouse owners who are negotiating the lease renewals with their tenants (as their leases near expiry), this could be an opportunity to raise the rental rates.
These days, the hype is on the hottest stock like Snowflake, a cloud based digital / data warehouse. While I am still stuck in the pre-historic age of physical warehouses (old industry stock) :p…
Sure I would have made more unrealised profit by betting on Tesla or Top Glove… but well, personally, I would not have the conviction to hold on to them.
Having say that, things are always evolving (and more so, nowadays). Am always keeping an open mind. The fun part is always trying to widen one’s circle of competence and know more about other companies / stocks… Another opportunity or hot stock will present itself when the time comes.
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