Saturday, November 15, 2008

CitySpring Trust - Bushing, Bush or Is it George Bush?

We got pulled by our barber (not by the hair..)to attend the CitySpring Investor seminar held today 15 Nov 2008 at Marina Mandarine. He is excited cos he says he has 100,000 shares in it and would like us to go listen and ask the management some questions on his behalf as he was shy. The questions he had was :

1)How come in the lastest results, the net income is negative? And this is not the first time.
2)What's with the outages at Basslink and how does Cityspring mitigate operational risk of the subsea cables?
3) Are there any acquisitions in the pipeline?

Being the ever obliging people, we decided to follow him on his quest for "nirvanic" answers but told him we were not going to ask questions on his behalf. At most, we would just follow him to the microphone and stand beside him while he asked. (That's what we call friendship..you see) .See below for some pics.

Susanna Cher, Au Yeung Fai, Tong Yew Heng ( Pretty honest management who answers the questions straight to the point. No hint of "smoke" screen)
An investor who bought at 79 cts and when it dropped to 59 cents bought somemore and when it dropped lower to 50cts he is still buying. He followed with a chant buy ah buy...yo ah yo cityspring...strange dude!
Au Yeung Fai ( Spending sometime after the briefing to answer investors queries)

Anyway, the barber was lucky as his questions were posed by other investors before he had the chance to do so.

For the question1: The management explained that given the capital intensive nature of the 3 underlying assets ( Basslink, CityGas and SingSpring), the negative or generally low net profit in large part is due to the depreciation of the underlying assets which is non-cash and just an accounting concept. It is better to look at the Cash from Operations for such businesses. They further explained that the lower cash earnings was due to outages at the Basslink, the upfront fee paid to DBS bank for the corporate loan and also the sharp increase in fuel cost for City Gas in 2Q which was not adjusted by an increase in CityGas's tariffs. Fuel cost has since dropped below the tariffs, therefore in layman's terms, whats lost before will now be gained back going forward.( SGDiividends: Hmm, so we should use Price to Cash Flow From Operations to compare with similar businesses then!)
For the question 2: Regarding the outages, the management mentioned that it was due to a fault in the bushing( what the heck is this? Is it a bush ?) and a circuit breaker which historically, the probability of failures is very low, so this was unexpected. But they have since remedied the situation with Siemens. Regarding the subsea cables, the management let in on a suite of comprehensive risk management processes in place:
1)Something to do with installing the location of the subsea cables in the GPS system of the fishing trawlers there so they wont "trawl" the cables
2) Swaping the anchors of the ships so that the anchors do not have to dig deep and thereby damage the cables
3) Insurance policies undertaken
4)contracting a ship with a consortium to patrol and detect any faults in the cables
5)Most of the undersea cables are entrenched below the seabed so as to reduce the probability of damage from ships or Singapore Zoo White Tigers.
For the question 3: The management did let in that on the trust level, they have about $25 million cash balance but on a whole, together with Citygas, Singspring and Basslink, they have $100 million cash balance and that they are currently on the negotiation tables.
Anyway, the general feeling of the whole briefing was pretty good and we think the management is frank. Our Barber went back relieved and we heard he slept well that night!
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team



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