Friday, April 30, 2010

April 2010 Portfolio Summary and Review

April 2010 started out boring, but ended up being somewhat interesting and filled with significant doses of news – well, enough to keep me occupied and my mind churning anyhow. Add to that the news of the Icelandic volcano disrupting air travel in an unprecedented fashion, and you really end up with one of the more intriguing months thus far. The weather was also strangely wet, considering it was April and close to the traditional dry season in Singapore. It was practically raining (thunderstorm, not drizzle) daily and I was careful to have my umbrella on hand wherever I went to.

Before I start out on summarizing some economic and business news, first of all I must state how thankful I am for the opening and commencement of the Circle Line, which has managed to cut short my travel time by about 40%. Even though I am not a shareholder of SMRT, I can still appreciate the social good which they are bringing to ordinary, working-class citizens such as myself. The time savings can be used for more research, which in turn translate to more money and also additional quality time with my family and friends. In time to come, I foresee that Singapore will become a very well-connected country via MRT lines which are in the midst of sprouting up like mushrooms, with the current Downtown Line being constructed followed by the Thomson Line. In 8-10 years time, there are more plans for an Eastern Region Line and also other lines which will probably make Singapore’s route map look like that of the London Tube!

The most mind-blowing business news in recent weeks was the civil suit brought against Goldman Sachs, and now Britain is also launching a probe into Goldman’s affairs to see if there was any fraud involved. This may, in turn, precipitate further actions against other “errant” Wall Street Banks which knowingly sold CDOs and CDS to an unwitting public and withheld important details about the counter-party. Of course, the banks took the brunt of the news with their share prices tumbling, as the SEC would probably go on a “witch-hunt” to root out more wrong-doing and to pin the blame of the financial crisis on one or more parties. On another note, Greece and Portugal’s debt was also downgraded by Standard and Poor’s, resulted in a major sell off as there were fears of another debt contagion infecting the economics of the Eurozone.

China’s economy continued to expand at a sizzling 11.8% in 1Q 2010, thus raising concerns about over-heating (I am sure this was brought up every single time by the USA, especially on the RMB reforms, but they always fall on deaf ears anyway). The whammy came in the form of even more draconian measures implemented by the Government to control and rein in runaway property prices, which had risen far faster than incomes in the last 2-3 years. Just Google to find out more about the measures which were taken to cool the property market, and you can tell that the Chinese mean serious business this time. Whether or not these measures will have a long-term impact to cool prices remains to be seen, though.

In Singapore, our own property market continued to sizzle, with private home prices rising 5.1% in 1Q 2010. The URA Index is 1.9% below the peak achieved in 2008, but “experts” believe this level will be breached in a matter of time. The prices of EC (Executive Condos) also shot up 70% from 1Q 2007 to 1Q 2010, compared with just 39.6% rise in mass market home prices. Developers sold 1,761 homes in total for March 2010, which was 47% more than in Feb 2010. From the looks of things, the recent Government measures to curb speculation and cool prices have failed to rein in the buyers, who are continually pushing prices to new highs. HDB resale prices remain at all-time highs and COV was last reported to be S$24,000, putting a lot of newly wed couples in misery as they search for a house which is more “affordable”. In spite of what the Government says, affordability is seriously becoming a challenge and many Singaporeans face the prospect of being indebted for more than half their lives, judging by the lofty HDB and private home prices. Unless prices come down somehow, a lot of Singaporeans (and PRs) are going to spend most of their lives fattening the pocketbooks of the banks which are granting them their mortgage loans.

For this month, FSL Trust and Suntec REIT released their 1Q 2010 results, and these were largely within expectations. Both had declared dividends as well and this will add to my cash stash for May 2010. I continued to build up my cash reserves and there were no transactions made during the month of April 2010. Currently, I may be looking at one or two potential companies for investment, though valuations at this point can be said to be “fair” or “expensive” (depending on which company you looked at), hence making the selection process all the more difficult as I insist on obtaining a margin of safety for the purpose of capital preservation. Below is a snapshot of my portfolio and associated comments for April 2010:-

1) Boustead Holdings Limited – Boustead was relatively quiet for April 2010, with only a minor announcement that they were liquidating a 30% associated company called Optivest Investments Pte Ltd. They will be releasing their FY 2010 results some time in late May 2010.

2) Suntec REIT – Suntec REIT released their 1Q 2010 results on April 27, 2010. A distribution per share of 2.513 cents was declared (down 13.9% from same period last year), and based on my cost of S$1.11, this represents an annualised yield of about 9%. The dividend will be paid on May 28, 2010.

3) First Ship Lease Trust – FSL Trust released their 1Q 2010 results on April 20, 2010. The DPU was 1.5 US cents per share (as expected), and the charter-free value of their vessels had increased 5.5% from US$590.5 million to US$623 million as at March 2010; representing 129% of the outstanding indebtedness of US$484.3 million. The minimum value to loan coverage ratio stands at 100% until the end of 2Q 2011, after which is reverts to 145%. Considering the shipping industry is making a gradual recovery, and that FSL Trust is voluntarily paying down about US$8 million per quarter, this means that at the end of 2Q 2011 FSL would have paid back another US$40 million, which reduces indebtedness to US$444.3 million. Assuming another 10% rise in asset value to US$685 million, this would represent a loan to value ratio of 154%, and would not trigger any loan redemption covenants. But please note that the 10% increase I used is arbitrary, and is just a conservative projection. If the increase is 5%, the value would be US$654 million and the ratio would be 147%, which means FSL would still be “safe”. In the meantime, the Trust also announced that they were finalizing an acquisition with the proceeds from the equity issuance of US$28 million, so this acquisition may be yield-accretive and add to DPU; while at the same time Management have an eye on the debt markets and Asian Banks to assess if more funds can be tapped to grow the Trust.

4) Tat Hong Holdings Limited – There was no news from Tat Hong during April 2010. Their FY 2010 results will be released some time in late May 2010.

5) MTQ Corporation Limited – Since I had already written a detailed post on MTQ back on April 23, 2010, I will not say anything more about recent corporate developments in this portfolio review. However, MTQ released their FY 2010 results on April 30, 2010. Revenue fell by 9%, while gross margin increased from 36% to 41.1%; and net profit went up by 10%. A final dividend of 2 cents per share was declared. I will be doing a full review and analysis of the FY 2010 results in a later post.

6) GRP Limited Unsurprisingly, there was no news from GRP for the month of April 2010. In other words, shareholders are still waiting with bated breath to find out what Management intend to do about their cash stash!

7) Kingsmen Creatives Holdings Limited – There was no news from the Company for April 2010. The AGM was held on April 26, 2010 and the Annual Report FY 2009 made a pretty interesting read, though it did not shed much light as to the future plans and prospects of the Group. Watch out for the 1Q 2010 results, which should be released some time in mid-May 2010.

Portfolio Review – April 2010

My realized gains increased to S$54.0K as a result of the dividend from FSL Trust for April 2010 (to be received in May 2010). The portfolio improved from an unrealized gain of +10.5% to an unrealized gain of +14.9%.

May 2010 should see very important corporate result announcements from MTQ, Boustead as well as Tat Hong, and dividends will start to trickle in from Kingsmen Creatives, Suntec REIT and FSLT Trust. I am also hoping the three companies which are announcing results in May will also, at the same time, declare decent dividends to boost my cash inflows.

My next portfolio review will be on May 31, 2010 (Monday).


Christopher Ng Wai Chung said...

Yo Musicwhiz,

How are you reacting to FSL's recent shocker ? I liquidated 80% of my holdings at about 55cts when the news hit.

Will re-accumulate end-May if prices are below 50cts which will give me about 11% yields.

Sucks to be a shareholder huh ?


Mr ICICI said...

i think b4 u even start buying below 50 cents you might wanna ask some questions. how did u get 11% in the first place? have u done a scenario analysis assuming that if half of the vessels are returned, what will the dividend be? do you know the % of contribution of the 2 tankers to the total dpu? were the 2 tankers recent additions? have they been a change in how fslt assess the credit worthiness of their clients? i personally would have serious questions about how fslt screen the clients they lease to. how come the screening process did not pick up this bad egg?

Musicwhiz said...

Hi Christopher,

Reacted with non-chalance, I guess. This is part of business risk which we are taking when investing in a business trust. The counter-party risk is the most insidious, as there is no way you can pre-empt it.

Holding on for now as they are still probably going to provide me with some cash flows.


Musicwhiz said...


Obviously there are some risks which are hard to pick up or mitigate. FSLT has a risk officer yet she did not pick this up, so I guess it's really part of business risk. Sensing the nature of the business, I will not be averaging down my position.


Christopher Ng Wai Chung said...

Well DBS analysts are pegging the scenario as 1.1 cents per quarter moving forward. I'm not smarter than those guys who have the time to follow the trust as part of their day job.

I intend to buy back at about $0.50 and restore my old position at the counter.

Musicwhiz said...

Hi Christopher,

Well, I don't doubt the guys at DBS have looked at the Trust and come up with their own recommendation. But for me, I'd like to adopt a wait and see attitude and wait for the Trust to give updates. Selling and then buying back incurs brokerage which I would rather avoid.