Thursday 26 July 2012

Portfolio: July 2012



July has been a month of positive surprises.
The market value of my portfolio increased mainly due to increases in stock prices of my 2 largest holdings (Stamford Land & Frasers Centrepoint Trust), plus the purchase of United Engineers.
 
Nonetheless, I am still concerned about improving my overall Portfolio Yield.

There doesn't seem to be any fantastic yielding stocks right now for me to recycle my capital as the entire market seem to do a mad-charge for defensive stocks.
Looks like I got to wait while accumulating dividends meanwhile.


Actions taken in July:
 -I accepted Wing Tai's offer at $1.39 for about 5,000 shares and retained the rest.
 -Added 17,000 shares of United Engineers for reasons explained in my previous post.



My Thoughts on United Engineers



United Engineers is a company with generally 3 core businesses.

(1) Property development
(2) Hospitality/Commercial Property rental
(3) Engineering

It is a 100 year old company and counts OCBC Group & Great Eastern as its major shareholders.
 

Some key numbers (based on 1Q2012 financial statement) 

Number of shares issued (including convertibles): ~321m
Current share price: S$2.25
NAV: S$4.06
Ppty development Operating profit: 0
Rental Operating profit: S$14.5m
Engineering Operating profit: S$2.5m

TOTAL OPERATING PROFIT: S$17.5m
TOTAL NET PROFIT : ~S$10m
EPS: $0.03 this quarter



My analysis based on earnings

I will be using 1Q'12 as a gauge for "worse case scenario" analysis as it is rather conservative, using  UE's profit from ONLY its recurrent income sources.
Let's assume the completion of UE Bizhub East and hotels, and the stabilisation of occupancy rates in Rochester Mall & Park Avenue Rochester.
The profit projection from these recurrent income would be S$15m/qtr or EPS S$0.045/qtr.
Based on current price of S$2.25, its PE based on its recurrent income stream alone would be an undemanding 12x.
This assumes ZERO profits from its Property Development & Engineering segments, and the sale of the SPVs to OCBC!

Orchard Gateway located beside Somerset MRT


My concluding thoughts

I have bought into UE at prices ranging from $2.20 to $2.50 and intend to collect more should the price fall below $2 in the upcoming 1 year due to a variety of reasons:
(1) Huge discount to NAV. (~50%)
(2) Near-term Catalyst of new streams of recurrent income from:
     -UE bizhub East (dec 2012)
     -Park Avenue hotel integrated with UE Bizhub east
(3) Near-term Catalyst of one-off sale of SPVs to OCBC. These SPVs were created to handle the
     development of Orchard Gateway & Hotel.
(4) Small number of shares issued will mean low liquidity but it'll mean strong EPS growth should
     earnings be boosted.

By buying at current price or even cheaper, i believe that i will be holding a company that will be substantially more valuable 1 year later due to its stronger recurrent income portfolio and its potential cash hoard.

On a side note, a hunch I have, is that by giving the big development project of Orchard Gateway to UE, plus UE's recent business direction towards generating more recurrent property income, OCBC might look at UE as a prospective "real-estate arm". Note also that OCBC no longer has a substantial stake in another real estate company now that it sold F&N.
I do recall that banks were directed by MAS to divest non-core assets since years ago.
If this still holds true, UE might get to purchase a stake in Orchard Gateway which will give it more recurrent income. It's just a thought though.



Wednesday 11 July 2012

Investment Philosophy: Part 3


                      "Invest ethically"



I met up with a friend over lunch last week and we somehow came to the topic of life philosophy.

She inspired me with her view that one should live their lives by passionately practising the core values that they hold dear.

That is because at the very least, after we have left this world, we would have made our mark by impressing on the people around us with these strong values we have lived our lives by. So much so that when people remember you, they will think of the strong values your life represented.

It could be integrity towards your job, keeping to your promises, love for nature, gratitude towards others, fidelity towards your spouse, being punctual at all times because you respect others' etc.....anything. Everyone of us definitely have something we believe strongly. Just that we have to recognise it and apply it mindfully. 
I felt it was a very meaningful way to live life.







Relating this to my core investment philosophy of ethical investing, I have always been a strong advocate of investing in enterprises that add value to the marketplace and people's lives.

For e.g I do not condone the act of directors/CEOs paying themselves millions despite making huge losses and destroying value. I will avoid these companies like plague. I will also avoid companies that produce tobacco, gambling, etc too.

Moving forward, I this will be a key factor I consider before determining the types of companies' stocks I buy.




It might seem radical to many people, but I personally do not advocate shorting a company's stock too. I have never shorted a stock and never will.

The basic premise of investing, i believe, is to buy into strong enterprises that create value in the long run.

What good does it do to profit from a company's fundamentals deteriorating terribly?

I do think that shorting is a something that is contrary to the statement "making the world a better place". It is destructive rather than productive, and I would rather spend the time hunting good companies that contribute positively to the economy. The satisfaction obtained from seeing a value-adding enterprise grow and knowing you have a share in it is thrilling!





Going forward, I aim to grow my portfolio based on this investment philosophy of investing ethically. How about you? :-)