Wednesday, November 30, 2011

November 2011 Portfolio Summary and Review

November 2011 will go down as the month where the Euro crisis escalated in severity, as even Italy, Germany and France got into some form of trouble. With no ready solution in sight, it looks as though Mr. Market will remain pessimistic for the foreseeable future, which means it is a good environment indeed to consider the purchase of equities. In the USA, political wrangling also ensured that there was no ready fix to their burgeoning debt crisis, which is threatening day by day to spiral into something as huge and unmanageable as the Euro Crisis. To add fuel to the already raging fire, China has also announced a sharp and unexpected contraction in its purchasing index, which signals a sharp decline in manufacturing activity. With housing in decline as the Government there reins in runaway prices, the prospect of a hard landing has spooked investors worldwide and stoked the flames of panic.

With bad news hogging the headlines almost daily during the month, it’s no wonder markets have been anaemic, and share prices have been in decline. Those who remember the fateful events which led to the 2008-2009 bear market (myself included) can see some parallels, but then again every crisis is different in nature; but will ultimately lead to new measures to tackle it (through austerity, fiscal policies and monetary pain). My take is that the world will find a way out of its mess, but it will take time, effort and a lot of suffering before the wrongs can be righted. Even then, it’s more of a stumble through a muddy swamp rather than walking along a well-paved road.

As an investor, I keep track of the news but generally am dispassionate about it unless it creates good and enticing opportunities for investment. I continue to keep a close watch on the businesses of the companies within my portfolio, and for the month of November three of my companies released results, and these are summarized below. With corporate updates trickling to almost nothing as the calendar year begins to wind down, I can probably expect nothing much more from my stable of companies.

Interestingly, inflation remained high for the fifth month in a row, exceeding 5% (it was 5.5% for Oct 2011) due to the high cost of cars and rising property prices (what’s new eh?). Housing remained out of reach of most ordinary Singaporeans earning median incomes and though asset values kept increasing, there was no direct evidence of Singaporeans getting “wealthier”, unlike what was reported by MAS recently.

Below please find my portfolio as well as corporate summaries for November 2011:-

1) Boustead Holdings Limited – On November 1, 2011, Boustead announced that Boustead Projects, its 100%-owned subsidiary, had clinched a $57 million design and build contract with ST Electronics to construct an integrated manufacturing, technology and office facility. This will be completed in first half of calendar year 2013, and will boost Boustead’s order book to over $380 million. Also, on November 14, 2011, Boustead released their 1H 2012 results. Revenue for 2Q 2012 was down 30%, but gross profit was up 14% as COGS dropped by a larger 44%. Note though that since Boustead’s revenues are lumpy, such comparisons are not very meaningful and year to year comparisons make much more sense. Profit attributable to shareholders improved 13% to $9.1 million for 2Q 2012, and cash balances dipped slightly. I will be doing an analysis of Boustead’s 1H 2012 results in subsequent posts. An interim dividend of 2 cents/share was declared, similar to last year. The dividend is payable on December 16, 2011.

2) Suntec REIT – There was no news relating to Suntec REIT for November 2011. The dividend of 2.533 cents/share was received on November 29, 2011.

3) MTQ Corporation Limited – There was no news for MTQ for November 2011. The company went ex-dividend on November 16, 2011; and it was announced on November 21, 2011 that the scrip dividend issue price would be 73 cents/share. I have decided to choose scrip and therefore my portfolio has been updated with the market value of the additional shares which I will receive (on Jan 16, 2012); and this will be used to compute XIRR returns and compare against the index. I had previously written a detailed two-part analysis on MTQ’s 1H 2012 results, and will be looking towards April 2012 for the FY 2012 results.

4) Kingsmen Creatives Holdings Limited – Kingsmen released their 3Q 2011 results on November 9, 2011. Revenue for 3Q 2011 increased 27%, while net profit attributable to shareholders increased 76% to $4.45 million. For 9M 2011, revenue was flat but net profit increased by 9.4% to $10.3 million, and this was a pleasant surprise since 1H revenues were actually lagging year-on-year. A breakdown of revenues showed that all four divisions experienced strong growth year-on-year, and with 4Q usually being the busiest this bodes well for Kingsmen. The Company was awarded contracts of $254 million, which was higher than the $233 million (a 9% increase). Balance Sheet remained strong with $30.2 million of cash (net cash stood at $27.1 million); and 9M 2011 cash flows showed a FCF of $9.2 million. This should be more than sufficient to support a projected final dividend of 2 cents/share (assuming unchanged from FY 2010) as they would only need to pay out $3.8 million (based on 190 million issued shares net of treasury shares).

5) SIA Engineering Company Limited – On November 29, 2011, SIA Engineering announced that it had secured a 6-year TSP contract with Airbus to maintain SIA’s additional fleet of fifteen A330-300 aircraft being acquired from Airbus. SIAEC will provide a wide range of MRO checks, including transit and light maintenance checks, defect rectification, cabin maintenance, fleet management and heavy maintenance checks at SAIEC’s facilities in Singapore. I had also posted up a two-part analysis of SIA Engineering which explains its prospects moving forward. The counter has gone ex-dividend on November 11, 2011 and the dividend was received on November 29, 2011.

6) VICOM Limited – VICOM released their 3Q 2011 results on November 10, 2011. For 3Q 2011, revenue was up 5.6% while profit attributable to shareholders increased 11.6% to $6.2 million. For 9M 2011, revenues increased 7.2% to $67.6 million and net profit increased by 10.9% to $18.2 million. The Balance Sheet remains debt-free and cash balance stands at $46.3 million as at Sep 30, 2011. For cash flow, 9M 2011 saw very strong operating cash inflows of $19.6 million, while capex was only $9.5 million (note that this includes the spending on the new facility for SETSCO, if not capex will usually hover even lower at $2-3 million); therefore FCF of about $10.1 million was generated. The outlook for vehicle inspection is expected to remain “strong” for 4Q 2011 and 2012; while there will be sustained demand for non-vehicle test and inspection services. This is expected hold up VICOM’s revenue and earnings and hopefully we can see a 10% rise in net profit attributable to shareholders for FY 2011, and a correspondingly higher final dividend as well compared to last year’s 6.6 cents/share (note: a special dividend of 3.2 cents/share was also paid out for FY 2010).

Portfolio Review – November 2011

Realized gains have increased to $69,500 from $67,400 as a result of dividends from Suntec REIT, SIA Engineering and Boustead.

For the month of November 2011, the portfolio has decreased by -4.5% (using XIRR in MS Excel to compute) against a -15.3% fall in the STI; thus my portfolio performance has outperformed the STI by +10.8 percentage points. This was a better performance compared to October 2011, when the portfolio out-performed the STI by +6.5%, as there were several blue-chip components which announced worse-than-expected results (Noble Group comes to mind) and hence had their share prices beaten down (which dragged the index down). Cost of investment has increased from remained at $242,600 and unrealized gains stood at +3.8% (Portfolio Market Value of S$251,800).

December 2011, being the final month of the calendar year, should be somewhat dull with many companies’ staff clearing leave and going for holidays, hence I do not expect that there will be many significant corporate announcements or events.

I will be doing my usual monthly portfolio review on December 31, 2011 (Saturday), and there will also be a special year-end review of my performance, what I had learnt as well as a discussion on my strategies as we move into 2012.

Saturday, November 26, 2011

MTQ – 1H FY 2012 Analysis Part 2

Part 2 of this analysis will focus more on the qualitative aspects of MTQ – the sections which many analysts find tough to quantify, but which I feel is also extremely important for any analysis to be complete. Note though that these observations were made from a combination of interactions with Management, articles/interviews with The Edge Singapore and my own opinions and conclusions drawn out from the facts and data.

Oilfield Engineering – Bahrain Operations

As early as Jan 2010, MTQ had already announced their plans to expand into the Kingdom of Bahrain, and steps and processes had been put in place to gradually ease their way into the Middle Eastern country, from the purchase of equipment to the hiring of staff and the engagement of a main contractor to carry out construction of the Facility for their Phase I expansion. At the time, very good reasons were provided (which, I should add, are still relevant today) and it seemed all smooth-sailing with financing being locked in at good rates and building costs being at a low because of the low construction pipeline at the time. However, with any business, any plans for expansion into a new territory are always fraught with risks; and these came in the form of riots stemming from the “Arab Spring” movement in the Middle East which saw many countries having their leaders toppled. Some coups were peaceful (Tunisia) while others were savage and bloody (Libya), and for Bahrain it was somewhere in between with riots and deaths and destruction of property but nowhere on the scale of a civil war or anarchy.

The rapid unravelling of events took Management by surprise and as a result, electricity supply was hard to come by and was only restored in recent months; while many oil and gas principals and vendors had fled the country due to the instability. Thus, it was only recently in October 2011 that MTQ managed to get its certifications and specifications from API (American Institute of Petroleum) and thus commence business. So the entire 1H 2012 did not see any contributions from Bahrain, but instead took the full brunt of start-up losses from the depreciation of machinery and for staff salaries for new hires and training required to get them up to speed. 2H 2012 should see healthy contribution from Bahrain, though the level of business activity still remains a mystery as MTQ does have several competitors in the Middle East. It is indeed good news that Kuah Kok Kim sees good potential and healthy enquiries for MTQ’s services and product offerings, and the BP Deepwater Horizon disaster also had a positive impact on companies such as MTQ as this meant more stringent checks and frequent repairs required for equipment such as BOP (Blowout Preventers) used on oil rigs in order to prevent accidents of a similar nature and scale.

The new facility is 430,000 square feet and is more than twice the size of MTQ’s Singapore Facility at Pandan Loop. With oil production expecting to rise as a result of spending by UAE and Bahrain’s Government, MTQ can be assured of continued business in the medium-term. Assuming full capacity utilization at their current Singapore facility, and using simple proportion, we should expect MTQ’s Oilfield Engineering revenues to more than double once the Bahrain facility is chugging along at full utilization as well. As to whether gross margins can be maintained at the current high levels, that is open to question; but we have already witnessed some erosion of gross margins due to the introduction of PSL into the picture, though whether this will eventually sort itself out due to corporate integration and increased efficiencies is unknown at this point in time. Suffice to say that efforts are indeed underway to ensure smooth integration and to ensure good cross-selling opportunities. This should definitely come under close scrutiny when the 2H 2012 results are released.

Oilfield Engineering – PSL

There is a little overlap in terms of discussing PSL as I had already mentioned PSL in bits and pieces under the Bahrain section, but nevertheless I shall attempt to elaborate more here. MTQ announced the acquisition of 100% of PSL on July 6, 2011, and the final purchase consideration is US$21.9 million. Of this amount, US$13.51 million is financed by additional bank borrowings (which explains the sharp increase in the gearing ratio) while the remainder was funded by internal cash reserves.

The rationale for the acquisition was that PSL offered a complementary range of products and services which would enhance MTQ’s total offering to customers. PSL also had its own set of customers and acquiring the Company would mean that MTQ could broaden and expand its customer base, thus allowing for more opportunities for bundling of products/services and cross-selling. In addition, PSL also has a machining and fabrication business called PEMAC which will add to MTQ’s capabilities and expand the equipment range which MTQ can repair. Moreover, PSL also holds API certificates which will boost MTQ’s Oilfield Engineering capabilities. As mentioned previously in a blog post about the AGM, MTQ managed to acquite PSL because its parent wished to divest it as it was not forming a core part of the previous parent’s operations, which were mainly based in North America.

According to the article from The Edge Singapore, PSL contributed about $10 million to topline and this was only about two months of revenue and profit contribution, so the potential for higher revenues and earnings is very high. But PSL’s business has lower gross margins as compared to MTQ’s main oilfield engineering business but Mr. Kuah intends to improve them by streamlining its business and selling mud coolers to MTQ’s network of clients. As Bahrain takes off, he is also optimistic that PSL can contribute more and create greater value and synergy for the Group.

Engine Systems Division

Not much was mentioned about Engine Systems division, and I guess that is a blessing in disguise because in the prior financial year, there were already three acquisitions relating to this division which sought to expand their reach in Australia. Rather than chase after acquisitions which may drain cash and make the division look like a serial acquirer, it is better to slow down to integrate these acquisitions into the main business to ensure synergies and alignment of sales strategies, product lines and processes/procedures. It was mentioned that operating profits had increased for Engine Systems, but no detailed breakdown was given with regards to the operating margin; and I am also in the dark about how the three acquisitions are performing (i.e. loss-making, cash-flow positive?). However, it is gratifying to know that revenues are, at least, increasing, and the last communication I had with Mr. Dominic Siu at the AGM told me that the Group will be working to increase the margins for this division (known historically to be rather dismal).

Perhaps I can provide more updates on this division once the annual newsletter arrives from MTQ, but I can make no promises on this.

Investment in Neptune Marine Services (NMS)

MTQ had announced an investment of $12.93 million in NMS back on March 4, 2011 by purchasing 200 million shares in the Company (in a restructuring exercise) at A$0.05 per share. Over the course of 11 trading days, MTQ accumulated another 68.455 million shares in NMS, for a total stake of 268.455 million shares (about 15% of the Company), lowering their average cost from A$0.05 to A$0.0467 cents per share. Total cost of investment comes up to about A$12.5 million after the open-market purchases. As the time of writing, NMS traded at A$0.031 cents/share.

Clearly, NMS is intended to be a strategic, long-term investment for MTQ, as mentioned by CEO Mr. Kuah Boon Wee back during the AGM. The Company does subsea work and it has proprietary technology called NEPSYS which it can use to market itself not just in Australia but also South-East Asia where its focus will be. The Company has just released its Annual Report for the financial year ended June 30, 2011. In it, it outlines the corporate restructuring which had taken place and how it has taken efforts to not just de-gear the Balance Sheet, but to divest off unprofitable assets and divisions in order to beef up their cash reserves and to realign their corporate strategy for sustained growth. Interested readers may download their AR at

More importantly, the Company has stated its strategy to grow the business along three paths:-

1) Organic growth and growth of service lines in established geographic regions

2) Integration of services and focus on creating awareness of the “Total Service Solutions” provided by Neptune

3) Developing strategic relationships with key partners

It will be interesting and informative to follow the progress and fortunes of the Company, as Mr. Kuah Boon Wee had also been elected as an independent director of NMS. Of course, this investment cannot be directly compared to MTQ’s previous successful investment in RCR Tomlinson, but I would assume that with his father’s wise counsel with regards to investments in potential turn-arounds, Kuah Boon Wee would have combined it with his own years of experience and made an informed decision. Since it would not be possible to assess the financial impact of this investment in the short-term, it would be better to check back again next year once NMS releases its 1H FY 2012 results in late February 2012.

Hot from the oven: NMS had just announced on November 16, 2011 that it had clinched a contract for the provision of geophysical and geotechnical surveys for the Equus Gas Fields Development Project, and that they had formed an alliance with Greatship Subsea Solutions Australia Pty Ltd to complete the project. The contract value is estimated at A$14.5 million and NMS’ share will be about A$7.35 million, and is expected to commence in late November 2011 and last for 75 days. So apparently, no. 3 on the list is already being rolled out as this is one of the strategic alliances which NMS hopes to hammer down to forge long-term partnerships in order to grow their recurrent revenue stream.


MTQ can rightly be classified as more of a growth company than a yield play, as it has aggressively leveraged itself to expand its business, not only beyond Singapore and into Bahrain, but also through acquisitions (PSL and NMS) which are supposed to be earnings and cash-flow accretive and which will add long-term value to shareholders. Father and son had both commented that MTQ had been too conservative in the past, and now a little leverage would be good to propel the Group to another level. Of course, risks are definitely present as the Group operates in the current environmental of economic uncertainty and turmoil; but with proper stewardship and good control of cash, the Group may yet sail out from the storm unscathed and emerge stronger.

Monday, November 21, 2011

SIA Engineering – 1H FY 2012 Analysis Part 2

Part 2 of this analysis shall focus more on the operational and qualitative aspects of the Company, and will be shorter (thankfully!) than Part 1. I will touch briefly on operational performance, major events (for MRO and JVs) as well as talk a little about prospects for SIAEC in a new untapped consumer segment for airlines.

Operational Performance

Line maintenance saw a +4.4% increase in flights handled at Changi Airport, from 54,546 to 56,967 for the half-year. The good news is that four new contracts were signed with established companies such as UPS and DHL (logistics and freight forwarding companies), while three contracts were renewed (Jetstar Asia, Air China and Air Mauritius). The issue I have is that the presentation slides do not show if SIAEC actually lost any customers. If we assume that they are simply building on their base with four new contracts then it would seem like very good news as it would indicate that the Company is slowly but steadily expanding its market and broadening its customer base. Line maintenance revenues were flat at around $194.7 million for 1H 2012.

For aircraft and component services, slightly more “A” checks were done (228 versus 224) but this was offset by fewer “C” checks (54 versus 62) and a slight dip in “D” checks (from 10 to 8). As a result of the fewer checks, revenue for this division dipped by -5.8% to $270.5 million from $287.2 million. On the bright side though, SIAEC announced that they had signed on 11 new contracts, with airlines such as Gulf Air, Air India and Vietnam Airlines. It remains to be seen if SIAEC can sustain the momentum of these contracts wins into the next financial year and beyond, and it would be good if I could attend the AGM to clarify this point with Management.

Major Events and Updates

Apparently, one gripe of mine is that SIAEC did not bother to announce the less significant events which occurred during the half-year ended Sep 30, 2011, preferring instead to rely on a set of analyst presentation slides to appraise shareholders of what transpired. In terms of strategic customers, the SIA Cargo Services Agreement worth $358 million was announced back in June 2011. However, the Transaero Cabin reconfiguration of B777 aircraft in Sep 2011 was not, and neither was the Gulf Air Cabin reconfiguration as recently as Oct 2011. Without further information being provided on these two events, and taking the descriptions at face value, I would hypothesize that these two reconfigurations are being done for existing cum new customers and that this represents MRO work which was probably not significant enough in terms of contract value) to be formally announced through SGXNet.

It was the same situation for strategic partnerships, which I had mentioned before in my comprehensive analysis of purchase that SIAEC relied on such partnerships over the years to boost their profits and cash flows aside from their core MRO and Line Maintenance business. Safran’s JV facility was announced back in April 2011, and SIAEC owns a 49%-stake in this JV; and is the second JV between SAFRAN group and SIAEC. In May 2011, the Panasoci Avionics Corp JV took off and commenced operations at Changi Airport. Recall that this was SIAEC’’s 25th JV and they own a 42.5% stake in this set-up which provides MRO services for in-flight entertainment systems. Thus, these two JVs should boost the share of profits and cash flows once they come fully on-stream in the coming months.

The next two tie-ups were not announced on SGXNet. In June 2011, SIAEC signed a GTA with Aircelle for maintenance of nacelle and thrust reverser systems on A380, A330 and A340 aircraft. Quick research shows that Aircelle is actually a subsidiary of the SAFRAN Group, and is one the leading players in the global nacelle market (; with a staff strength of 3,000. It produces large and small nacelles, thrust reversers and aerostructures. See the announcement here. So it would seem that SIAEC is expanding their co-operative agreement with SAFRAN Group whom they have worked with on two JVs already, to include maintenance of nacelles as well. For info, a nacelle is a cover housing (separate from the fuselage) that holds engines, fuel, or equipment on an aircraft.

In Sep 2011, SIAEC signed a letter of intent (meaning they have not gone to the contractual agreement phase yet; this is similar to a Memorandum of Understanding in that it is not yet legally binding) with Messier-Bugatti-Dowty (another subsidiary of the SAFRAN Group) towards appointing SIAEC as an Authorized Service Centre (ARC) for carbon wheels and brakes. According to its website (, Messier-Bugatti-Dowty (MBD) is the world leader in aircraft landing and braking systems and on-ground movement, partner to the world’s leading civil and military air-framers. Interestingly, on Sep 29, 2011, SIA had selected MBD to supply wheels and carbon brakes for its Airbus A350 XWB fleet. This may explain why SIAEC had signed an LOI with MBD for a potential setting up of an ARC.

For these two SAFRAN-related events, I guess they are still in the incubation phase and until a definitive agreement is concluded, there will be no official announcement from SIAEC. At least I feel relieved that the Company has been working hard the last few months to expand its reach, as the lack of corporate announcements and updates on SGXNet has caused me to wonder if the Company had started to rest too much on its laurels. However, there is still no news on whether SIAEC is continuing with its pursuit of Line Maintenance contracts; this after opening its sixth line maintenance JV with Vietnam’s Tan Son Nhat Airport back in November 2010.

Prospects – New Segment of Budget Long-Haul Carriers (Scoot)

With SIA ready to launch its budget long-haul carrier called Scoot, there may exist opportunities for SIAEC to capitalize on this trend to increase business. Flights will commence in mid-2012 and Scoot will operate four Boeing 777-200 planes purchased from SIA initially, with fares up to 40% cheaper than full-service carriers. Scoot plans to expand its fleet to about 14 aircraft by the middle of this decade (i.e. by 2015). Since SIAEC is already tied-up with SIA for their aircraft MRO work, this expansion would gradually bring in more business for SIAEC in terms of not just MRO work, but also possibly line maintenance and fleet management work.

But what I am looking at is not merely an extension of SIAEC’s services to cover one additional new airline. Assuming Scoot takes off in terms of passenger numbers and load factor, it will represent a new untapped consumer segment and prompt many other airlines to consider “spinning off” budget long-haul carriers in order to compete more effectively. There are still many routes out there which are popular but which may not be adequately served by existing airlines, so this new segment also allows for such routes to be explored by major players within the industry, thus opening up more opportunities not just for collaborations with airlines (for MRO, Line Maintenance and Fleet Management), but will also drum up additional business for SIAEC’s myriad JVs and associated companies to provide more products and services for a more stratified industry. It remains to be seen if all these will take off, but the next few years should bear testament to this growing trend (of cheaper long-haul travel) and hopefully spur more investments into this segment. I will write more about this once Scoot takes to the skies next year.

Evolving Industry, New Aircraft and Better Components

It is interesting to read up about the airline industry, as it is constantly evolving and the suppliers of parts and services to airlines constantly see the need to upgrade their engines, components and parts to ensure continuous improvement. Air travel is relatively new to mankind, being only about a century old, but already rapid advancements in technology have made flying extremely safe and reliable; and efficiency is also improvement by the day. With such advancements, SIAEC should have a ready stream of opportunities being presented to it in order to capitalize on business opportunities. Its reputation (hinging on SIA) and track record speak for itself, and though it faces a strong competitor in ST Aerospace, it has a much stronger financial footing and therefore can afford to be more aggressive in pursuing opportunities.

SIAEC had also mentioned in its press release that with its current slate of 25 JV and associates, it is well-poised to seize opportunities for new business through its expanded network of long-term relationships, and with major suppliers of components such as SAFRAN Group and Panasonic. This holds it in good stead to slowly but steadily expand its reach and to increase its stable of JVs and associates as it explores opportunities for working not only with existing strategic customers, but also to send out feelers to source for new partnerships.

The next few years should be interesting for SIAEC, as new aircraft such as Boeing’s Dreamliner come on board, and SIA flies its A380 aircraft and introduces its budget long-haul carrier Scoot.

Wednesday, November 16, 2011

MTQ – 1H FY 2012 Analysis Part 1

MTQ released their 1H FY 2012 results on the morning of October 31, 2011, and it capped a long-awaited update from the Company after its recent spate of acquisitions and troubles in Bahrain. Suffice to say that I did wait with some trepidation for the results and had expected it to look very poor due to the high amount of leverage taken up not just for the expansion in Bahrain, but also for financing the deal for the acquisition of Premier Sea and Land (PSL). This analysis will, like SIAEC’s, also be divided into two parts for ease of reading.

Part 1 will dwell on the usual financial numbers and key ratios (which have sadly deteriorated), as well as discuss on cash flows and dividends; including financial effects of recent corporate developments. Note that since 1H results did not include a detailed segmental breakdown of revenues and operating profits/margins, information could only be gleaned from the press release and associated notes to the financial statements as found in Section 8 of the SGXNet announcement. I will try my best to make sense of the information provided and draw conclusions from thereon. Part 2 will talk about MTQ’s divisions (Oilfield and Engine), plans and prospects (including Bahrain and PSL), industry outlook and also provide some summary of the key initiatives the Company is planning, based on an interview with Chairman Mr. Kuah Kok Kim in the November 7 issue of The Edge Singapore.

Income Statement Analysis

From the financial numbers above, it can be immediately noted that there was a significant jump in revenues of 40% to $62.6 million for 1H 2012. This can be attributed to the acquisition of PSL which was first announced on July 6, 2011. Therefore, there would have been about two months of consolidation of PSL’s results into MTQ Group’s results, and the positive effects are already showing in top line, though not in the bottom line as yet. For MTQ’s next report for FY 2012 due by end-April 2012, there will be a full additional six months of revenue cum profit contribution from PSL, so it will provide a better indication of how well that division is performing and contributing to overall Group profitability.

It would seem from the performance review that PSL is considered a separate division by MTQ and is not part of the Oilfield Engineering division, as the results were stated separately. This is rather puzzling as my understanding was that PSL was supposed to be acquired in order to complement the current business of Oilfield and provide a boost to earnings and revenues from the introduction of a more complete suite of products for customers (refer to previous The Edge Singapore’s interview on acquisition of PSL). Anyhow, I had broken down the numbers in the table above in order to provide more clarity, and perhaps I will drop an email to the CFO to further clarify certain numbers (especially operating profits) which were not disclosed.

For the last half-year (1H 2011), Engine Systems overtook Oilfield Engineering’s share of revenues, taking up 52.3% against 47.7%. The gap has further widened in 1H 2012 as Engine Systems now takes up about 45% versus 40% for Oilfield Engineering. However, assuming we combine the revenue contribution from PSL into Oilfield Division, the % will then jump to 55%. Considering Bahrain has not even started contributing yet, it would seem that future revenue growth would focus more on the Oilfield Division compared to Engine Systems.

Looking at the numbers, it would appear that PSL’s contribution to the total revenue pie is rather significant, as it constitutes about 15% of the enlarged revenue base. Considering this represents barely two months of revenue (and profit) contribution, it would be interesting to observe what the numbers would be like when PSL is recognized on a full-year basis. Nevertheless, a good indication should be given at MTQ’s next results release for FY 2012 by end-April 2012. An interesting fact which was mentioned during the AGM by Mr. Kuah Boon Wee was that PSL was currently at the bottom of its cycle, as its earnings were bottoming out, and with the upturn in commodity prices and the still-booming oil and gas exploration industry, this will eventually bode well for PSL. The key, of course, is integration of PSL’s operations into MTQ’s such that there are synergies and better opportunities for cross-selling and bundling services/products to customers. More on this in Part 2.

Unfortunately as well, no information was given regarding the breakdown of operating profit or profit before tax of the various divisions, therefore it would be impossible to provide a detailed breakdown and analysis in this post. What I can merely do is to discuss some qualitative aspects of each division in Part 2 and summarize the efforts made since the last AGM to grow each division organically, and the fruits of those efforts in broad and general terms. When FY 2012 results are released, segmental information should be provided, and it will then be possible to give a more detailed and insightful breakdown.

Balance Sheet Review

Moving on the Balance Sheet, it can be noted that there have been significant changes since the last reporting date six months ago (as at March 31, 2011). This is due, in part, to the acquisition of PSL and the associated debt taken up as a result to fund the acquisition. One would note that fixed assets, goodwill, receivables and inventories have increased significantly, and can all be traced to not just the acquisition of PSL, but also the investment in the Bahrain facility. On a more dour note, cash and equivalents fell from $23.8 million to $15.7 million, and will be covered in greater detail in the next section.

Though current assets increased to $73.9 million, current liabilities doubled to $54.6 million, resulting in current ratio falling from 2.99 to just 1.35. If we factor in inventories and prepayments to compute the quick ratio, it looks even worse as the ratio plunges from 1.96 to 0.93, indicating lack of liquidity should inventory move too slowly. The main culprit for this is the increase in the debt load of the Group from $27 million six months ago (the Bahrain expansion Phase I had already accounted for this) to $$45 million (which includes about $19 million additional loans taken up for the acquisition of PSL). This additional debt load had pushed up gearing and net debt now stands at $30 million. Annualized ROE has also deteriorated to 11.5% against 14% a year back. Finance costs had increased five times to $505,000 for 1H 2012, and I would keep an eye out for finance costs in future periods as I do not think MTQ can reduce its debt burden so quickly.

The catch here is this – is MTQ decision to gear up a proper and correct one considering there are good opportunities for synergistic acquisitions and also good prospects for its Bahrain Facility? Given that the cost of debt is almost at an all-time low and their business model is a proven one with many years of track record, I guess I can give the Management the benefit of the doubt, for now. The key, I guess, is to keep a close eye on the numbers and to ask the right questions, because a growth company if not managed well can quickly sink into trouble, especially one which has geared up for an increased level of business activity which may not be readily forthcoming.

Cash Flows

The cash flow statement of MTQ is much more fluid and interesting as compared to SIAEC, though whether this represents a good thing or not is up for debate! Due to the numerous major corporate events during 1H 2012, there were also many movements in the statement which represent one-off items, and I will provide details on these and explain their impact (or lack thereof) in subsequent periods. As the Bahrain operations have yet to commence and pick up steam, please note that for this reporting period, operating cash flows portion may not be fully representative of the Group’s cash flow abilities.

There was a significant drop in operating cash inflows for 1H 2012 to $3.3 million, down 55% from $7.4 million a year ago. The main culprit for this is the increase in receivables and prepayments of about $7.2 million, probably due to the ramping up of activity in Bahrain and also due to the acquisition of PSL which saw the subsidiary’s Balance Sheet consolidated into MTQ Group. At face value, this large increase represents a worrying sign which should be monitored to review if it is merely a timing difference, or if it may represent problems in collection. Slightly higher income taxes were also paid (of $2 million) due to the non-deductible nature of some expenses. [Note: It is perhaps interesting to point out that for FY 2011, operating cash inflow came in at a very high and healthy $22.4 million, though this was subsequently offset by the high capital expenditure for the Bahrain expansion.]

Investing cash flows is where most of the “action” took place, and I am personally hoping that things will quieten down in this department soon. Actual capex was surprisingly low at just $5 million, and reflects the fact that most of the capex for Bahrain had already been incurred during 2H FY 2011. The main outflows, therefore, were two one-off items – that of the purchase of PSL costing $20.7 million (and likely to cost a little bit more due to the audit of the consolidated NTA position of PSL), as well as the purchase of more shares of Neptune Marine Services (NMS) costing $3.1 million. The result was a net outflow of $28.7 million. The good news (if it can considered that) is that negative FCF is just a small $1.7 million, and close monitoring must be made to ensure the operating cash flow impact is due to a timing difference (as previously stated).

For financing cash flows, not much is required by way of explanation as the previous section had already discussed the issue of MTQ’s gearing; therefore I am not surprised to see an inflow of $19.4 million being part of proceeds from bank borrowings. It is small comfort to me that the Chairman and CEO both chose scrip dividend to reduce the amount of cash outlay for payment of dividends to just $975,000. With such gearing, I would closely monitor their interest expense and cash outlay to make sure they are not over-stretched. Management is surprisingly sanguine over their prospects and do not seem unduly worried about their higher gearing and net debt position (I will provide justifications for this in Part 2, though I still maintain some reservations).


There’s probably not much to say regarding dividends, and the first major surprise came the same time last year when MTQ doubled its interim dividend from 1c for 1H 2010 to 2c for 1H 2011. The catch, of course, was that there was an option for scrip for the 2c dividend, and the Chairman and CEO both chose scrip to reduce the cash outflow impact and smoothen out the cash flow statement. This has continued for the next two dividends as well (including the current 2c interim dividend). Knowing that the two top guys will be choosing scrip and knowing that they feel confident about the direction the Company is headed, I have also been choosing scrip on the last two occasions and will probably continue to opt for scrip this time round as well. It is a cheap and cost-effective way to increase my stake in the Company and also to compound my dividends.

Part 2 will focus more on the qualitative aspects for MTQ, and will include a discussion on Bahrain (details to be supplemented with an interview with Mr. Kuah Kok Kim with The Edge Singapore), oilfield engineering division, PSL, a brief mention on Engine Systems, and finally on NMS.

Friday, November 11, 2011

SIA Engineering – 1H FY 2012 Analysis Part 1

SIA Engineering (SIAEC) released their 1H FY 2012 results on October 28, 2011; and following that on October 31, 2011, they released a set of presentation slides which were used to present to analysts at the analyst briefing. Since it has been a while since my original purchase of SIAEC, and subsequently I had also added to my initial position on two separate occasions, I thought it timely for me to do an analysis and review of the Company. I shall limit the analysis to the financials, cash flows, associates and joint ventures (JV), dividends as well as some of the qualitative aspects and growth prospects for the Company. This shall be divided into two parts for ease of reading.

Part 1 shall focus mainly on the financials and numbers including the year on year comparisons and nine-year history, cash flow categories and presence of free cash flow (FCF), share of profits and dividends from associates and JV; as well as dividend history. Part 2 shall be shorter and will touch briefly on SIAEC’s operational performance, recent activities and strategic tie-ups and partnerships.

Financial Analysis

From the above table, one can note that revenues have been generally flattish for the last 5 years, and costs and operating profits have also remained fairly constant. In fact, operating margin for 1H 2012 was the same at 12.5% compared to a year ago (1H 2011). The main bulk of the profits, which comes from share of profits from associate companies and JVs, also rose just marginally by 1% from $77 million to $77.7 million. Therefore, the only reason for the slight increase in net profit to $139.3 million was actually because of a tax writeback! On the bright side, flat profits and revenue may also signify resilience in the face of growing uncertainties in the global economy as well as aviation industry; with SIA reporting a 62% plunge in half-year profits due to higher fuel costs, perhaps it is mollifying to know that SIAEC can hold its own due to its business model (which does not have reliance on oil prices).

On a positive note, the Balance Sheet continues to remain solid with debt of just $2 million against a cash balance of $388.9 million. Working capital has dipped to $455.3 million from last year’s $504.9 million but is still high compared to the last five years. Current ratio has dipped from 3.10 to 2.58, mainly due to the payment of the special dividend of 10 cents/share, and this will bring its current ratio more in line with long-term averages of around 2 to 2.8. Interestingly, annualized ROE is higher at 23.3% for 1H 2012 as a result of a lower equity base, against 21.9% for 1H 2011. The dividend declared of 6 cents/share (unchanged from 1H 2011) was somewhat of a pleasant surprise – I had expected a cut to 5 cents/share due to lingering uncertainties in the economy and also a possibly depressed aviation industry outlook. The Company will have to cough up $66 million to pay out to shareholders in late November 2011, and this pay out will be reflected in the 3Q 2012 results.

Cash Flows and Cash Balance

Cash inflow did suffer during 1H 2012, compared to the same period last year. Net operating cash inflows plunged nearly 70% to just $20.7 million against $66.6 million a year ago, while investing inflows also dipped 6.5% to $40.2 million. Due to the payment of the large final cum special dividends, cash outflow from financing activities increased two-fold to $253.8 million. The result was a significant drop in cash of about $192 million, which followed a record-high cash balance as at March 31, 2011 of $581.4 million. Apparently, the practice is for SIAEC to pay out a special dividend when cash balances hit levels which are considered higher than normally required for working capital purposes. Capital expenditures dipped to just $15.3 million for 1H 2012, thus there was still some free-cash-flow (FCF) of $5.4 million, though this is pitifully low compared to the same period last year, when FCF stood at $40.1 million.

By observing the upcoming 3Q 2012 results, it will be possible to project if SIAEC will have sufficient cash generation ability to at least maintain its final dividend at 14 cents/share. Looking back at 3Q 2011, operating cash flow was very high at $77.7 million, investing cash flows was $39 million, while financing cash flows shows an outflow of $57.5 million (payment of interim dividend for 1H 2011). The net cash inflow turned out to be $53.2 million, which is decent. For 4Q 2011, operating cash flows were very strong at $80.5 million, investing cash flows were $39.5 million and financing cash flows showed an inflow of about $4 million. This adds up to about $124 million in additional cash for 4Q, and for two quarters alone the combined inflow was about $183.2 million. A final dividend of 14 cents would drain about $154 million in cash, and therefore it can be seen that the two quarters’ strong cash inflow could sustain this final dividend, with the special dividend being declared to reduce cash reserves which were considered in excess of working capital requirements. Hence, the next two quarters’ cash flows will be critical to be able to appraise the situation better; and qualitative data about the industry and corporate announcements from SIAEC should also be used to support any potential dividend payouts.

Associated Companies and Joint Ventures – Profits and Cash Flows

I have taken the liberty of re-listing the profits and cash flows from associated companies and joint ventures once again for SIAEC from FY 2000 till FY 2011. Although profits had undergone some fluctuations in the last five financial years, the cash flows from dividends received (parked under Investing Activities) seems to have gone from strength to strength. Notice that from FY 2009 to FY 2010 there was a big jump, presumably because of the increased JV activities and tie-ups which SIAEC had for MRO work and line maintenance. With the recovery of the economy back in FY 2010 due to the massive QE 1, cash flows jumped and hit a (then) record high. Following that was FY 2011’s $165.3 million cash inflow, and when viewed from this perspective, these two years could have been anomalous as the real problems with the economy had persisted and were simply masked behind the massive pumping of liquidity. Thus, if we normalize the trend for cash flows, FY 2012 could see a dip before the resumption of the upward trend.

If we just compare the year on year half-yearly profits and cash flows from associates and JVs, we can see that the total for profits remained largely flat, while for cash flows it had dipped about 15% to $62.8 million. This reinforces my point that cash flows may dip for this year, which may result in a lowering of final dividend from last year’s 16 cents/share. Though no specific reasons were provided for this dip, the fragile recovery and ongoing worries in the global economy would be sufficient reasons for the weaker performance of all of SIAEC’s associates and JVs. Profits here make up 50.1% of pre-tax profits, and I feel this will be poised to increase further in the coming years. More on that in Part 2.


For dividends, I have decided to analyze the core dividends declared by SIAEC since listing, and therefore have a row which excludes the effects of special dividends (there have been three such instances over the last eleven financial years as can be seen from the table above). Core dividends have been picking up only from FY 2006 onwards, but an interesting point to note is that interim dividend has been on an increasing trend over the last eleven years, even though final dividend is more erratic. Interim dividend was just 1.5 cents/share back in FY 2000 but has increased over the years to 6 cents/share. Notice that as SIAEC expanded their JV and tie-ups with strategic partners, interim dividend declared has also steadily inched upwards, but in general it remains constant over at least two consecutive years before increasing.

For the final dividend, although it may appear rather erratic at first glance, do note that apart from FY 2008 which seemed like an anomaly, it has also risen slowly but steadily. If you look at core dividends, the trend seems to be an increase of 2 cents/share per financial year beginning from FY 2006, with FY 2008 being a “blip” as it should have been 14 cents/share (but was instead 6 cents more at 20 cents/share). Going by this logic, FY 2012 should see a total dividend of 22 cents/share, which implies that the upcoming final dividend would be 16 cents/share.

However, let me caution that this is just a rather simplistic extrapolation on my part, and what is more important to note are the actual operating results and cash flows from SIAEC’s core business and their numerous JVs and associated companies.

Part 2 will touch on operational aspects and some qualitative characteristics of the Company, as well as discuss future plans and how SIAEC intends to expand amid turbulence in the industry (no pun intended).

Sunday, November 06, 2011

Personal Finance Part 25 – Holistic Tracking of Personal Finances

When thinking about personal finance, a colleague once asked me if my wife and I keep track of our spending and our mortgage balance, as she was also keen to settle down with her husband soon and wanted to find out the proper way of managing finances. This made me do some soul-searching and think about how I was personally monitoring my financial life and what spreadsheets I had on me which helped me to achieve this. Thus, this post is about the different aspects of one’s finances which one should track in order to ensure most bases are covered and you do not receive a “nasty surprise”. Unsurprisingly, it is Singapore-focused and some aspects (such as CPF) may not be applicable to international readers. However, I do feel that it is comprehensive and would welcome further constructive ideas or suggestions from readers on how to improve further.

The need for detailed tracking and documentation

You may ask yourself – why is there a need for detailed tracking, documentation and monitoring of one’s financial status, and why must it be comprehensive? I am of the opinion that if one’s knowledge of their finances is comprehensive, then one gets a much better understanding of all aspects of one’s finances; and knowledge is power. Being aware of your cash reserves, CPF balances, outstanding mortgage loan and investment portfolio would give you peace of mind that you are in control and that you have a grasp of what is going on in your financial life. To do so requires meticulous tracking and the use of either a spreadsheet or a device for monitoring (for those who download apps on your smartphones). An additional advantage of being aware also means that you are able to react and not panic should there be an urgent situation or an emergency.

Cash and Bank Balances

This section is essentially the “lifeblood” of personal finance. It constitutes all bank balances in all bank accounts and shows the detailed cash movements made during the month. This is also the section where I do simple budgeting. At the start of each month, I would input all my fixed expenses into the spreadsheet as a negative number (i.e. all GIRO automated payments like credit card bills, phone bills, utilities, conservancy charges, maid levy and insurance). The ending balance, if negative, will reflect the fact that I did not retain sufficient funds in my savings account to fund the month’s expenses. Other budgeted expenses which are discretionary (e.g. birthday gifts, red packets for weddings or birthdays) will also be input. On the income side, salary will be keyed in according to the timing of receipt as well as other miscellaneous income like rental and dividends. At this point in time I should emphasize – the timing of the cash flows is important if you are running a tight budget as most of the time salary comes in at the end of the month but expenses are ongoing. Thus, one can just run your mouse down to see if at any point during the month you dip into a negative balance. If so, then you should transfer some money from your opportunity fund to cover the gap temporarily.

In case I forgot to mention, I essentially have three “main” bank accounts. One is for operational expenses (day to day expenses) which includes food (meals), recharging of my EZ Link card, paying my bills and general entertainment. Another is a joint account with my wife which is usually quite static as it is reserved simply for common expenses like conservancy charges and utilities. The third is my emergency cum opportunity fund where I park my cash earning 0.8% per annum for quick deployment in case of investment opportunities. By having clear segregation, one can ensure one does not inadvertently “dip” into the opportunity fund to pay for indulgences and impulse purchases.

My personal practice is to transfer 50% of my take-home salary the moment it is credited in my bank account. This is essentially the practice of “paying yourself first” and I have been doing so for the past four years or so. One suggestion I can make here is to make payments through Internet Banking as much as possible as it will save on cheques and is much more efficient. My utilities and conservancy are on GIRO, while I pay my credit card bill and phone bill through Internet Banking. For cheques, I use those from CIMB as they are free of charge (POSB charges for the cheques).

For information, I am using POSB/DBS for my spending account, UOB for my joint account and CIMB for my opportunity/emergency account.

CPF and Housing Loan Balances

Another important balance to track is that of your CPF. Everyone knows this is a uniquely Singaporean forced savings account, which can only be partially withdrawn at age 55 (and even then, only if it’s above the ever-changing minimum sum!). Along with the CPF balance, I thought I would also mention the housing loan balance since I placed both on the same spreadsheet (but on different tabs).

Essentially, most people would use their CPF OA account to pay for the instalments on their housing loan; therefore it is important to keep track of the OA account to know how much “buffer” you have in case you lose your job or get a pay cut. Ideally, there should be a +ve amount being added to the OA every month, meaning the servicing of the loan drains less than the amount of contribution. But with housing prices rising relentlessly, this is becoming more and more of an impossibility as the contribution is capped at $5,000; therefore many couples may have to dip into their cash savings to top up their instalment (this would probably apply to those who plan to purchase a very expensive 5-room DBSS apartment costing in excess of $700,000).

It is also important to track one’s Medisave contributions and balance, to ensure one has sufficient buffer for medical emergencies and also for H&S insurance (the basic Medishield package can be purchased using Medisave funds). The current Medisave contribution ceiling is $41,000, after which additional contributions will be routed to the Special Account.

As the housing loan is an amortizing loan, it is important to build a spreadsheet which can at least project your instalment up to six months to a year in advance. My loan is an HDB one and thus the rate stays constant at 2.6% per annum, but for those who took up a variable-rate loan package where the rate is pegged to SIBOR or SOR, they may wish to input the effects of a sharp rate increase to simulate an increase in interest expense and review if they are able to stomach the increase without undue financial distress. Tracking the loan is also useful to simulate different scenarios of pay rises, pay cuts, retrenchments etc to see the effects on the ability to service the instalments, and then cross-check it to the CPF OA account to determine if sufficient buffer is in place to weather a crisis. The buffer is built up usually through bonuses (but which are subject to the revised cap of $79,333 for 2011) and one good way to reduce the loan amount is to make lump sum repayments. However, if you have a very cheap loan (<2%), then it may be more worthwhile to invest the money or just leave it in the CPF OA account (the first $20,000 earns 3.5% per annum risk-free). For myself, as my HDB loan amount as of this writing stands at about $75,000, I cannot refinance it at a lower rate through a bank and so it makes it worthwhile for me to pay it down through lump-sum repayments as far as possible, in order to clear the balance more quickly and be debt-free.

Investment Monitoring (Market Values and Dividends)

Investments are an important aspect of one’s finances as they will determine the amount of passive income which comes in every month, throughout the year. By “investments”, I am referring to mainly equities or bonds which pay a predictable dividend or coupon at specific times of the year. Tracking market values is actually secondary if you intend to be a buyer of long-term values, and if you intend to simply sit tight and enjoy the growth of the companies within your portfolio over the course of years. I find it useful to maintain a spreadsheet which tracks my total cost and market value at the end of the month or a certain period, to ensure that I adhere to my aim of capital preservation, and also to be able to monitor my additions to the portfolio over time as I accumulate funds.

I use separate sheets for purchases, tracking of daily market prices and index levels, as well as portfolio values and dividends. Suffice to say that my spreadsheet is pretty massive and complex and is all inter-linked so that I can have easy access to information regarding my portfolio and dividends at any instance. Dividends are recorded by calendar year and receipt dates are clearly input once a dividend is declared, so that I can, at the same time, update my cash spreadsheet for the exact receipt date and amount based on my shareholdings. At this point, you can probably tell how one spreadsheet is linked to another, as the effects of one may result in changes to another. Rather than link up all this via formulae (which can go horribly wrong if cell references change or sheets are inserted/deleted), I usually input the amounts manually. One needs to have discipline and patience to track these numbers but over time you will get used to it, and probably even enjoy it!

Insurance Portfolio and Details

The fourth and very important aspect of tracking is one’s insurance portfolio. Insurance is a necessity for everyone (in my opinion) as it will buffer you in times of emergencies and helps you to avoid large expenses. I have my wife’s and my policies summarized on one spreadsheet, with separate tabs for mine and hers. The spreadsheet should contain details of type of policy, insurer’s name and contact details of insurance agent (financial planner), payment amount (whether monthly or annual, mode of payment and date if GIRO-deducted), coverage amount, and other salient details like whether it is pegged to inflation or is a reducing balance (for reducing term loans for example). Essentially, the summary should be able to tell you at a glance what your total coverage is for various types of conditions like death, disability, TPD and accidents. Most important of all is the H&S policy (I consider this a compulsory policy for everyone) as the premiums are very low compared to the amount you need to fork out for just one hospital stay. I would strongly suggest paying a higher premium for private hospital stays in A class wards. When my daughter was hospitalized mid this year I easily earned back nearly 10 years of premiums!

An insurance portfolio should be balanced with Term policies, H&S, endowment (should you choose one – I did not as I intend to invest the money on my daughter’s behalf for her future education) and disability income. You should try to cover most aspects of your life which may cause financial difficulties if something happens to you. Remember also to include details of your beneficiaries – as one ages this will change as your parents may pass on or you may have more children.

Credit Card Balances

This is actually optional but I had included it as I know many people out there have multiple credit cards, thus it would be helpful if one could summarize each card’s expenses in an easy-to-read spreadsheet, along with amounts and due dates. One has to be very disciplined about this and update the spreadsheet as soon as a transaction is completed which involves a credit card being swiped. Readers may argue that the banks will send credit card statements so why track this manually? The problem is that so many statements with different formats and due dates can result in considerable confusion, and I have read of blogs where the bloggers have lost track of one or two statements and ended up having to pay not just late charges but also the accrued interest of 24% on outstanding balances past due date. One then has to go through the hassle of asking for a waiver. For myself, I only have one credit card and hence I do not practise keying in every transaction – I mentally am able to tally up the amounts I spend every month and will control my spending once it hits my pain threshold!

Net Worth Summary

This is by far my most important spreadsheet as it summarizes all the other aforementioned spreadsheets and consolidates and collates the information together. In essence, the net worth spreadsheet will incorporate all your cash balances in all bank accounts, surrender values of all insurance policies, market (monthly closing) value of all investments plus any other funds from other sources; this will yield a number which will represent your total assets.

Beside my total assets column is another column which measures the increase or decrease in the value of total assets month-on-month. Ideally, this number should be always increasing, assuming that you save much more than you spend! However, due to the volatile nature of equities and also bonds, the figure may thus fluctuate according to economic cycles, but the general trend should be upwards over the course of say 3-4 years (this is usually a long enough period of time to experience a full bear/bull cycle and hence will smooth out all fluctuations for market values). Do not be unduly distressed if total assets take a sharp plunge due to Mr. Market’s mood swings – just focus on increasing your cash holdings every month and to plough some money into solid, well-managed companies, and over time the value of your total assets can only increase.

As proof that this can occur with disciplined savings and investing, in October 2005 (6 years ago) my total assets was just $41,000. As at end-October 2011, the total assets amount has touched $320,000 (this also includes my daughter’s Government CDA-Extra account with OCBC Bank). That is nearly an 8-fold increase over 6 years and it could not have been accomplished without perseverance, sacrifice and a well-established investment philosophy (coupled with a little luck on the side too admittedly).

Finally, another column will show my HDB loan balance decreasing as the months go by, and thereby I can compute my net worth which is total assets minus all loans (in this case, I only have one mortgage loan). This figure has also hit an all-time high recently of around $245,000. Assuming my monthly expenses are about $3,000 a month, I would be able to sustain myself for about 81 months without additional income. One should think of wealth in terms of how long one’s net worth can sustain oneself if both spouses stop work. This is how I have been measuring myself for the last couple of years. Another method of measurement is to monitor my total dividends over the course of one calendar year to compute my average monthly passive income (currently, it stands at about $1,100 per month). If this eventually exceeds my monthly expenses, then in theory I would then have achieved financial freedom and can choose not to work. [Note: I did not include the market value of my primary residence in my net worth computation because to realize this value would imply that I would have to sleep at the void deck of my HDB block.]


As can be seen above, it takes some time to prepare and psyche oneself to monitor so many aspects of one’s finances, but start slow and steady and soon you would enjoy the process of being in control of your finances. I have shared many personal details of myself which most people will not even share with their spouse, so I hope that this post will help people to organize their finances more effectively; as well as serve as inspiration for those who are just starting out in their career and wish to build up sizeable savings and investments as a prelude to retirement planning.

Although I must admit I am still a long way off from my target of half a million dollars by the end of next year, and passive income of $3,000 per month; nevertheless I feel I am progressing well on my journey and shall endeavour to carry on climbing towards the summit!