Saturday, July 31, 2010

July 2010 Portfolio Summary and Review

OK, so maybe there’s really not much to say for July 2010 after all; unless you count the “usual” economic troubles with Europe, the housing crisis in USA, and the red-hot (but possibly overheating) property market in China. It’s basically the same old stories and news being churned over and over again for dramatic effect (playing out like a Mediacorp drama serial, no less), where the headlines and presenters are the only things changing. This has the unfortunate effect of making me very sleepy and my mind has the tendency to just “switch off” when any of these news topics come up. I apologize if I had really missed anything of significance which I somehow failed to include in this month-end summary; but then again if it was really that important most people would have known about it without me saying anything (unless you were a hermit living in a cave in the last 6 months).

So with that out of the way, I can focus on commenting on something much closer to home – property market, cars and personal finance! Apparently, HDB resale prices have hit yet another high for eight straight quarters; in the last quarter April to June 2010 prices inched up another 4.1%; with median cash over valuation (“COV”) rising to S$30,000. Some “hot” estates even saw COV rising to as high as S$80,000 to S$100,000 (as reported by Business Times July 24, 2010). This is indeed very preposterous and disturbing and it seems to be a trend of never-ending prices rises which will culminate into increased inflation for all. Private home prices have gone up as well by 5.3% in 2Q 2010 even though sales have slowed. Prices have been up 11.6% since January 2010 and are “expected to climb further”, according to pundits and “experts”. Just two days ago it was reported that a condominium called “The Scala” (located close to the soon to be opened Lorong Chuan MRT station on the Circle Line) was swamped with people trying to get a piece of it, such that a balloting system had to be set up to determine who could ENTER the showflat! Not to mention the blank cheques being waved at the agents. It sounds like a property frenzy all over again.

There are two major worries I have in relation to the escalating property prices, which for HDB resale have surpassed 1996’s peak. One is in relation to income levels, which have not risen by much in real terms despite Singapore reporting red-hot GDP growth of a projected 15%, trouncing even China and India. It was recently reported that a property costs about 22 times a typical China family’s income, and this is presumed to be unsustainable in the long-term and will correct itself. The question is how many times is a property worth in Singapore compared to a couple’s annual income? Assuming the median income of S$2,400 per person (as reported in the news some time back), this translates to S$4,800 per couple and is S$57,600 per year. Assuming a S$1 million condo (for high-end) and a mass market condo costing S$600,000 (incidentally, many resale HDB in prime areas now cost this much too!), this translates to a property being about 17.4 times to 10.4 times a couple’s annual income. Unless the data is somehow skewed in terms of median income, I’d say this is one big red flag.

The second major worry is the potential rise in interest rates some time in the future. Everyone should understand that we are living in an era of artificially depressed interest rates, as a result of the global financial crisis triggered off by the American sub-prime mortgage debacle. The aggressive buying up of properties using financing at very low interest rates creates a risk of being unable to service a higher mortgage amount should interest rates rise substantially in the near future; and this is a potential time bomb for people who leverage thinking that rates will stay low for an extended period of time.

Moving on to cars, COE prices have jumped significantly; for small cars it rose from S$29,500 to S$36,162 while for larger cars it increased from S$36,000 to S$42,889. This trend is set to persist because the number of COEs will drop by 9% every month from August 2010 onwards as the number of cars scrapped will decreased (and based on a new formula as announced by Mr. Raymond Lim – Transport Minister). The increase in car prices will increase overall inflation and will probably bump the CPI up for 2010, and probably many months after as well. It’s now becoming quite inconceivable to even DREAM of owning a car as prices for a normal Toyota Sedan will probably be upwards of S$80,000 for a decent 1.6L; and we are not even talking about the “larger” cars such as MPV which can cost in excess of S$100,000. Second-hand cars are not much better either as they are hovering around the S$40,000 to S$50,000 mark; and the idea is of course not to use financing and to pay for a car fully should you ever need to use one, as the interest rate is computed on a flat basis rather than reducing balance (i.e. mortgage loan type financing).

Much of the month of July was spent poring through the Annual Reports of MTQ, Tat Hong as well as Boustead; as all three companies held their AGMs this month. August should be a little more”relaxed” as I do not foresee myself having to put in so much hard work in reading up and analysing; though some results are expected from Kingsmen Creatives, Boustead (1Q FY 2011), Tat Hong (also 1Q FY 2011) and GRP (FY 2010 ending June 30, 2010). I will be expecting dividend declarations from Kingsmen as well as GRP.

Below is a snapshot of my portfolio and associated comments for July 2010:-

1) Boustead Holdings Limited – On July 19, 2010, Boustead announced that they have upped their stake in Controls and Electrics (C&E) from 72.75% to 78.75% through the exercise of a Share Sale Agreement. This would be a positive move if C&E can contribute more to Boustead’s bottom line. Other than this minor announcement, Boustead also announced on July 27, 2010 that they had incorporated a subsidiary called GeoConnect Malaysia Sdn Bhd, which is wholly owned under Geologic Pte Ltd. The FY 2010 AGM for Boustead was held on July 28, 2010. The shares of Boustead go ex-dividend (for a 2.5 cent final dividend and 1.5 cent special dividend, paid on August 20, 2010) on August 4, 2010; thus it will not be reflected in the portfolio summary as a realized gain until my August 2010 portfolio review. And just after market close on July 30, 2010, Boustead announced that their 91.7% subsidiary Boustead Projects had won several prestigious awards at Workplace Safety and Health Awards 2010.

2) Suntec REIT – Suntec REIT released their 2Q 2010 results on July 23, 2010. A dividend per unit of 2.528 cents per share was declared; and I will not too much into it as my stake in Suntec is quite minute in proportion to my entire portfolio. At my buy price, this represents an annualised yield of 9.11%. The share went ex-dividend on July 30, 2010 and the dividend will be paid on August 27, 2010.

3) First Ship Lease Trust – The worrying continues (unabated) as FSL Trust has now announced (on July 18, 2010) that it has secured the release of NIKA I after a banker’s guarantee of US$2.8 million was provided as security. The vessel will be deployed to the spot market to earn revenues and cash flows but visibility is poor due to the fact that there is no long-term charter locked in for this vessel as well as VERONA I. Then, on July 22, 2010, FSL Trust announced that they had filed a writ against Daxin Petroleum Pte Ltd. The details are on SGXNet but basically they are trying to salvage what they can from a bad situation and trying to recover as much monies as possible to mitigate the damage. If all this sounds utterly depressing, you are right! FSL Trust went on to announce a DPU of US 0.95 cents, significantly lower than the US 1.5 cents in 1Q 2010 and much lower than 2Q 2009’s DPU of US 2.45 cents. This represents a payout of just 33%, compared to 100% when the Trust was first constituted. I had let my greed for high yield cloud my judgement on whether the yield would be sustainable; and the hangover has been long and protracted for me. At my buy price, the annualised yield based on US 0.95 cents is about 4.62% (which admittedly is still higher than inflation and any fixed deposit). The shares went ex-dividend on July 30, 2010 and the dividend will be paid on August 26, 2010.

4) Tat Hong Holdings Limited – Tat Hong made a surprise announcement on July 15, 2010; it planned to acquire the remaining shares in Tutt Bryant which it did not already own (29.64% to be exact) through an off-market transaction at an offer price of A$0.92 per share; which is a 46% premium above the last traded price of Tutt Bryant on ASX of A$0.62 prior to the announcement. Although this sounds expensive, it’s actually “just” 9.9% above the Net Tangible Asset value of Tutt Bryant as at March 31, 2010; and Tat Hong intends to take full control of Tutt Bryant and delist it from ASX as the trading volumes are thin and the costs of maintaining a listing status can be saved (plus, Tutt Bryant has no need to raise funds through issuance of equity from the capital markets). The acquisition will be funded through internal cash flows and debt; and it will be interesting to see the financial effects of 100% consolidation of Tutt Bryant’s results into Tat Hong Group instead of just 70%; but I believe the effects will only manifest from 3Q FY 2011 onward. Tat Hong’s shares go ex-dividend on August 5, 2010 for a 1.5 cent/share final dividend (paid on August 20, 2010), so this will only be reflected in August 2010’s portfolio review. The FY 2010 AGM was held on July 27, 2010.

5) MTQ Corporation Limited – MTQ held its AGM on July 23, 2010; and its shares went ex-dividend on July 29, 2010 for a 2 cent/share final dividend. This will be paid out on August 17, 2010. Other than this, there was no other news.

6) GRP Limited There was no news from GRP for the month of July 2010 either. I will be expecting them to release their FY 2010 results in late August 2010. Hopefully there will be at least a final dividend of 1 cent/share and I am keeping my fingers crossed for a special dividend as well.

7) Kingsmen Creatives Holdings Limited – There is still totally no news from the Company at all with regards to new contracts for USS Phase 2, or for the Youth Olympic Games. Somehow, I feel the Company could do more to boost its communication to shareholders about the salient aspects of its business, instead of just waiting for the quarterly results announcements. They used to report on their order book back in 2008 but have since stayed silent. I am expecting them to report their 1H FY 2010 results some time in the middle of August 2010; and I am also expecting them to maintain their interim dividend of 1.5 cents/share as per last year.

Portfolio Review – July 2010

Realized gains have increased from S$54.0K to S$56.7K as a result of FSL Trust, MTQ and Suntec REIT going ex-dividend. I had also inadvertently left out a dividend amount of S$1,500 from my May and June 2010 portfolio reviews as a result of Kingsmen Creatives’ 2 cent/share final dividend; and so have added this into realized gains for July 2010. A simple computation reveals that my portfolio had gained just +1% for July 2010 (as there were no additions or withdrawals) against the 5.4% rise in the STI (which implies my portfolio underperformed the index for this month by 4.4 percentage points). My investment cost remains at S$175.4K as at July 31, 2010, my unrealized gains now stand at +9.6% (portfolio market value of S$192.2K).

Note that for YTD July 31 returns, I have adjusted the XIRR function to reflect Dec 31, 2010 to show the true annualised figure, inclusive of future cash inflows resulting from ex-dividend dates of shares. The figure is currently +15.6% against the gain in the STI YTD of +3.1%. I believe this more accurately reflects performance after seeking advice from some helpful readers.

August 2010 will be a pretty busy month too as Kingsmen Creatives, Boustead, Tat Hong and GRP will be releasing results. I will be analysing Kingsmen and GRP as it is their 1H results and full-year results respectively. For Boustead and Tat Hong, I will give a brief update during my month-end portfolio review for August 2010.

My next portfolio review will be on August 31, 2010 (Tuesday).


AK71 said...

Hi MW,

A good read as usual. :)

No intention cutting FSL Trust and redeploying funds elsewhere?

Musicwhiz said...

Hi AK71,

Thanks for visiting!

Yes, actually I do have the intention and am researching one or two potential investments to channel the funds into. If they check out, then I shall re-deploy the funds. But in the meantime, I can still enjoy my somewhat lower yield of about 4+%.


Freedom Achiever said...

Well done :)

Musicwhiz said...

Hi Freedom Achiever,

Thanks for visiting too!


Mike Dirnt said...

Hi MW,

i dont think i agree that you can enjoy the yield from FSL while waiting for redeployment. just take note if there is any negative shock again, the probable capital loss could be much higher than the dividends that you are enjoying. from the verona incident, i learn there is no such thing as guarantee of long term bareboat charter. there could be disruptions in the future cash flows from FSL business perspective. this leads to the high non-systematic risk of FSL which is why it is trading at double digits yield

by the way, im not sure if you realize this. your heading says about annualized returns. but MTD and YTD returns are never annualized. your returns from the XIRR is annualized. just FYI because the basis of comparison is wrong

Musicwhiz said...

Hi Mike,

Thanks, I assure you that I've been thinking about divesting FSL Trust for a pretty long time; and today I finally divested it off. Am planning to channel the proceeds to a more promising investment (which I am currently researching). Thanks very much for the advice.

Ok, MTD returns is simply month to date - no annualization you are right! But for YTD, I annualized it based on the number of months passed during this year so far, so it's a little distorted admittedly. Still, I did use the XIRR function to compute this, so it should be accurate for YTD.


ss88 said...

hello MW,
enjoyed your analysis on boustead...may i ask at current price of 0.85 - 0.90, do u think it is still a good entry point? btw, do u know what happen to Many thanks...ss88

Musicwhiz said...

Hi ss88,

I would think Boustead is fairly valued at this price. They just announced another 2 contracts for Boustead Projects today (Aug 5, 2010), so there's potential for better dividends moving forward, I feel. Just my personal views.

As for Afralug, sadly it's been down since Sat evening.