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The disconnect between asset prices and fundamentals

2012-02-02T11:43:00.001+08:00

It is weird how asset prices can be so disconnected from the current state of the world economy. If one is to look at the Baltic Dry Index (BDI) which is a good reflection of 2 factors: supply of ships and state of economy ( hence the demand of ships), it is amazing to see how shipping counters like NOL, Cosco, YangZiJiang e.t.c has been rallying like crazy while the BDI has been plummenting like crazy at about the same time. To borrow jargon from the technical analyst's vocabulary there is currently a complete divergence between the BDI and the shipping counters. The current BDI is at 662 and note that this is even lower than it's 5 year low of 663.

Five year Baltic Dry Index Chart

NOL 1 year chart

I still do not believe that this is a real rally but i will be happy if i am proven wrong as i still have 60% of my portfolio in high dividend yielding equities. If the equities market is to rally somemore and become extremely overbought, i would sell some of my equities off. It could rally somemore if china relaxes some lending rules,US print somemore money, EU print somemore money or investors ploughing money into equities as property investing is now too regulated. e.t.c. I really hope that its due to the shifting of money from property to equities as it would fit very very nicely into my strategy.

I believe that the economy will keep on getting worse as the 2 biggest consumers of the world is mired in recession. How can China, Hong Kong or Singapore not be affected? Taking the words of Donald Tsang, Hong Kong's Chief Executive just a few days ago: " I have never been as scared as i am about the world". This speaks volumes. There has also been more retrenchments in the electronic or banking sectors if you were to know industry insiders. Even Mr Tony Tan mentioned that Singapore economy may be threatened in August of 2011 ( Straits times)

Now about property. I am fortunate to know a property developer who made a remark that Singapore property would definitely cool due to the property situation in China as there will be now fewer Chinese buyers snapping up our properties. From my own experience, I am also of the opinion that Singapore asset prices are laggards. Just look at how the singapore equity market tracks the China equity market and to a lesser extent now, the US market. Whenever there is a big rally in the US S&P the previous night, the STI would rally the next morning.

China property price slide gathers speed - The Telegraph

Are China Properties in free fall - Forbes

China property sector goes from bad to worse - FT alphaville

Hong Kong homes face25% Drop as loans fall in year of dragon.- bloomberg

Singapore home prices fall in December - Reuters

European interest in Singapore Property Markets cooling - Asia Property report.

And the list goes on.......

So what will i do now. Just wait loh. There is a season for sowing and a season for reaping. Now is neither.

Thoughts On Current Environment

2011-12-08T11:18:00.001+08:00

It is quite expected of the government to come up with additional property cooling measures as i have said before that property is a public good and any additional meaningful upside in price will be capped. I must say that this recent measure of taxing foreigners the additional 10% stamp duty is a very good and well thought of move by the government. I applaud them and must say they are really responding well to the recent results of the general election. I feel that this move tackles both the issues of foreign competition and also the laments of the young generation of aspiring homeowners. Good Job. So how well will property fare in the coming years?

In my opinion, property will go down in prices and volume but i won't know by how much. Singaporeans have strong holding power from what i observe ( I used to say that property prices may also stagnate but no longer). They have their CPFs, so this is a plus point for property. On the other hand, recent data has shown that foreigners and PRs form a significant proportion of property transactions and since assets are ALWAYS priced at the margins, prices could swing to the south given an expected low transactional volume. All that is needed to really push property to nose dive will be accelerated retrenchments. The holding power of Singaporeans will make sure that property will not go too far south though.The devaluing of fiat currency will also help prop up property. 2013-2015 will be a good time to show-hand in property for investment given the supply and expected interest rate hikes.

Now about the equity markets. In my opinion, money has to flow somewhere. It either flows into stocks or flows into property or flows into Gold or flows into bonds or flows into currencies or flows into savings account. Money now has flowed into safe currencies like USD or Yen and savings account and to some extend flowed out of equity markets and the sing dollar. The reason why equity markets have not corrected massively is just because there is just too much money chasing limited assets. I still have not dipped my toes into the equity market again yet as i feel there is still some downside to go as i feel market confidence is still not yet totally broken.( 60% of my portfolio is currently in equities). Having said that, some of my stocks in my watchlist has hit or broken their 52weeks low. I have also observed that many of my shares are still being shorted. I just cant wait to squeeze the short sellers, just not yet and im a small fry. haha. Will the harsh property cooling measures result in money flows to the equity market? It would be interesting. Now, i will just sit back and earn my fees from the short sellers and dividends.

Discipline to keep one's emotions at bay

2011-08-26T09:50:00.004+08:00

Currently, my percentage of cash comprises 35% of my portfolio with 65% fully invested in equities. At present, my portfolio in terms of paper profits is still yielding a positive return even after the market sell down. ( I have not included the dividends i have received over time.) Having said that, i did consider liquidating some of my equities when the 50 EMA crossed the 200EMA from above but alas, i am not disciplined. I find difficulty in selling some of my equities after a sell down. It is emotional for me and i think i need to improve on this.

Having said that, another factor why im not selling is because my companies are still fundamentally strong and yielding at least 6% -7%dividends based on my buy price. When i include the lending fees which i receive when i let people short my shares through SGX, my returns are slightly more. I am not emotional when my shares drop 50% in value because of market risk . I dont mind as i will buy more but i get emotional when the companies i buy go fundamentally weaker resulting in share price decrease. I hate that.Really hate that.Furthermore, i dont know if QE3 will be annouced. If announced, equities could have a rally in the short to medium term.

This 35% cash that i have will be there to take advantage of any property correction or massive share price correction. Jackson hole speech is upon us. I hope that Ben Bernake doesnt do a QE3. I hate it when he said that interest rates will remain low till 2013 I hate it when governments impose short selling bans. I love it when Gold price goes up because i think its a bubble. I hate it when Moody's and Fitch dont downgrade US debt. Its not the time to get emotional...

AAAAAArrrghh, I am frustrated and i need inner peace. God please help.

About the Japan Crisis and What to do?

2011-03-18T12:06:00.003+08:00

Firstly, i pray that the Japanese disaster will end immediately and that the nuclear situation be kept well under control and a heavy rain cloud will just suddenly appear over the reactors and pour out godzillion tons of water at the fuel rods. My heartfelt condolences!

There has been rife talk about the next time bomb which is the Japan Sovereign debt. Let's begin the bad news.Japan's public debt is reaching 225% of GDP. Japan needs to spend more to rebuilt which will result in even more debt. Japan's aging population will result in less tax revenues which will increase the debt. S&P has recently cut Japan's sovereign debt rating for the first time since 2002.Moody says it might follow suit. If these bad news is not enough to send a chill up your spine, why not some pictures to add to the gloom....

From the picture, it can be seen that government revenue is on a downtrend while government expenditure is on the uptrend, together with the rising trend of the government debt. Oh Gosh! Well if that is still not enough, why not throw in some videos featuring Chief Economists from Whos who in the banking world to rub salt in the wound. Here it is, you unbelieving soul!

Is that enough to create some sort of fear? Are you breaking out in cold sweat now? Have you pee-ed in you pants yet! Not me. Maybe cos im a spinelss creep, so definitely no chills up my spine yet.
BULL SHIT
And I Shall repeat Bull Shit.

but but but....who is going to buy JGB bonds anymore to lend to the japanese government if the japanese population gets too old and their savings are depleted when they are not able to earn. (Some background:Most of the government debt is financed by her own citizens.I think its 80%, not sure. The japanese government is basically selling more JGB bonds to finance the interest on the debt, So its a vicious cycle, where the government borrows more to pay off previous debt and the debt can only get larger at a faster rate.).

Honestly, this response makes sense if we are talking about an individual person borrowing from cashlines,cashplus,citibank readicredit, HSBC personal loans to pay off existing loans which have high interest rates. The party will end soon eventually when all resources are depleted. A person cannot borrow forever.This also applies to companies.

However, the situation is different for a government. A government is able to borrow infinitely just by printing more cash. So what if the japanese citizens one day start to lend less to the Japanese government by buying less JGB bonds. SO WHAT! The government can simply order The Bank of Japan to buy the bonds up by printing money and that has been unravelling recently when the BOJ has been printing trillions of YEN. ( Similar to the US FED). This gloom doom crap about a Japan Sovereign debt is really hyped up in my opinion.Bring it on..make it 100000000000000000% of GDP instead of the 200% of GDP.Somemore zeros.....yeah, make it 100000000000000000000000000000000000000000000000% of GDP. It doesn't matter.

OK, having said the above. One consequence is this. Hyperinflation will result if governments just wantonly print money. SO for the individual investor, i feel the topmost concern now is to look for good investments that will beat the headline inflation. Therefore FIRE AWAY....BUY BUY BUY!Being fearful now because of the Japanese Sovereign Timebomb is plain stupid.It might be good for Japan too since it has been plagued by deflation for too long. Now what to buy....hmmmmm

*The above is my own opinions. I have been known to be wrong many times. But it has not been known if i have been correct more times or wrong more times......i wont tell.

Why property is no longer an excellent Investment-Part 2 ( Continued)

2011-02-07T18:00:00.005+08:00

This post is a continuation of part 1. Please read the link first. Based on the parameters and the given scenario ( Price stagnates, no capital appreciation) , below is the layout of the spreadsheet.

Sold within 1 year of purchase

By the end of the 1st month, if the property is sold, the percentage loss is 42.85%. When this loss is annualised, the percentage loss is 514% per annum.
By the end of the 12th month, if the property is sold, the percentage loss is 37.80%. When this loss is annualised, the percentage loss is 254.34% per annum.
The above is due to the horrific 16% stamp duty.

Sold after 1 year of purchase but within 2 years

By the end of the 24th month, if the property is sold, the percentage loss is 22.73%. When this loss is annualised, the percentage loss is 11.36% per annum. The above is due to the horrific 12% stamp duty.

Sold after 2 year of purchase but within 3 years

By the end of the 36th month, if the property is sold, the percentage loss is 7.58%. When this loss is annualised, the percentage loss is 2.53% per annum. The above is due to the horrific 8% stamp duty.

Sold after 3 years of purchase but within 4 years

By the end of the 48th month, if the property is sold, the percentage gain is 7.64%. When this loss is annualised, the percentage gain is 1.91% per annum. The above is due to the horrific 4% stamp duty.

Sold after 4 years of purchase but within 5 years

By the end of the 60th month, if the property is sold, the percentage gain is 22.94%. When this loss is annualised, the percentage gain is 4.59% per annum. There is no longer any seller stamp duty.

From the 6th years onwards, i will hide some columns and leave only the End of month, Percentage gain and Annualised percentage gain columns.

As can be seen, if one has holding power to wait, there is still some meat left but seriously the reward is greater than the horrific risk of capital depreciation, excess supply resulting in lower rents, increase in mortgage rates Do remember that this model is assuming the house is constantly being rented out and that commission for renting out the house has not been included. Repairs, renovations have also not been included.

Why property is no longer an excellent investment (Part 1-to be continued)

2011-02-06T11:31:00.016+08:00

Been debating with a friend on whether property is a good investment for ages!The problem with this debate is both of us just throw out qualitative statements about the good and bad of it. I gave up. Took out a spreadsheet and did a property calculator. Let this spreadsheet be the end of such meaningless debate. I have inputted the new rules implemented this January 2011. The following parameters are what have been placed into the model. I would like to add that this model serves as the best case scenario for residential private property investment. Therefore, one would very likely get less than the returns stated.

Parameters based on government rules
- 40% downpayment is needed.
This is because we are looking at property as an investment and very likely this investor has an outstanding home loan already.
- Seller stamp duty (SSD) of 16%, 12%, 8%,4% in the 1st,2nd,3rd and 4th year respectively if property is bought and sold within these years. No SSD if sold after 4th year.
- Buyer stamp duty(BSD) of 1% on first $180000, 2% on next $180000 and 3% on remaining property price.
-Property agent commission of 2% paid by seller
-Property tax of 10% of annual property value

Assumptions ( I would really appreciate it if you would tell me if i had made any unrealistic assumptions...i am open to constructive criticism. Remember this is a model)
- Net rental yield of 3.5%. This is calculated by taking the monthly rent minus maintenance minus monthly property tax divided by property price Monthly property tax is derived from the annual property tax divided by 12 months. ( i feel i might be quite optimistic about the yield already given the way i calculate it)
- Mortgage is fixed at 2% per annum. (Very good already)
- Loan tenure is 30 years
- Property is rented out 100%.(best case scenario)
- Rent amount is constant. ( best case scenario)
- Buyer legal fees is $2500 ( Is this fair?)
-Seller legal fees is $2000 ( Is this fair?)

What i have not included (because it varies greatly from individual to individual)
- i have not included the property agent's commission for renting out the property
- i have not included the renovation or repairs or furniture cost
- i have not included home insurance

The Horror Story
Mr Dick Albaross, who has a hearing problem, has $380,000 to invest. He eats fish every meal and likes to go to the wet market to buy silver pomfret from Auntie Chuck Hubert. In the wet market, he hears Auntie Chuck Hubert chant " buy pomfret", "buy pomfret". Being hard of hearing, he thought she meant " buy property" , buy "property". Since Auntie Chuck Hubert sounded so earnest, she could be right!!! Hmm, should i buy a property.....Dick pondered.

Scenario 1 (Property price stays stagnant)

( This post will be continued to show the annualised percentage gain for the different years when the property is sold......Gotta go gambling now....).

The happy problem of excess cash

2011-02-04T13:33:00.002+08:00

With not much value left to be found in the stock markets and possible risks including stagflation(inflation coupled with anaemic economic growth in developed countries), increase in oil prices or food prices hurting corporate profitability (thereby reducing general stock market upside due to an already large profit base reported), very possible continued increase in interest rates to stem inflation, the wild card in middle eastern unrest and the general optimistic mood of " uncle and aunties" ...its wise to store up some cash for a possible correction. The stock market could possibly go higher due to ample liquidity, yet it also serves to heighten the danger of a reverse of liquidity back to developed nations.....risks is greater than reward.

Given the above backdrop, i am at my wits end to place this excess cash i have. I did explore Traded Endowment Policies (TEPs) but at 4%-8% per annum returns with a possible 10% loss of capital, having to fork out cash monthly to serve these policies and having to face the volatility of exchange rates as these policies are priced in pounds, i feel i can definitely do better than that in other things. Having said that, i think it is a good place to park your money if you are one who don't know what to do with your money and need some enforced money discipline. Way better than investment-linked insurance policies or certain whole-life plans or endowment policies. Residential property investment is a no go definitely. The risks are higher than the rewards. Any meaningful upside will be capped by the government(election year, remember!) as residential property is still a public good. The above average supply of HDB flats being doled out and TOP-ing in 2013-2015 and also of private residentials, means rental rates will fall. Coupled with higher interest rates, there will be lesser meat. Its more likely to go slightly downhill or stagnate. It is ONLY suitable for those with strong holding power to realize the meat..PERIOD. Other forms of property like commercial and industrial is out of my sphere of knowledge but i would hazard a guess that the recent "popular" mentioning of commercial and industrial as a good investment means that it isn't anymore or at best, not much meat left. Anyway, its best left to experts.

It could be a good time to clear certain debts.Will update. Meantime, Happy Chinese New Year!

Private Shield - is it worth a buy?

2010-11-28T13:12:00.003+08:00

Let's talk about the single most important thing in one's personal finance, Hospitalisation and Surgical Insurance. Read this and this and that on such H&S insurance matters.

Having read the articles above, i somehow had this impression that Medishield gives more value to those Private Shield plans. (Note, i use the word value, not cheap and i use the word impression , so it is just my opinion. Just for the record, I am an absolute newbie in insurance,

Prices

Comments
I have used Enhanced Income Shield (BASIC) insurance as comparison as it's the most " apple to apple" .
Medishield covers grade B2/C wards. Incomeshield covers B2/C wards AND B1 wards.
85 years above is not covered under Medishield. Honestly, i have damn good genes...and i think i will live till above that age, barring any suay events like slashing or stabbing incidents by the 369 gang or ang soon tong or 18 sio li ho or Kuti PiSai Motorcycle gang linked to Columbian Drug lords .(Eh Ah Beng reading this ...relak la bro..just joking ). At most, Incomeshield is only 2.87 times more than the premium of medishield and it is covered by Medisave, money one can't touch.

Coverage ( Very General and Brief)

Comments

In term of coverage, Incomeshield (Basic) trounces Medishield big time.The above table is just a portion of the difference in coverages, if you have so much time to spare for analysing, look here for Medishield and here for NTUC incomeshield.

Honestly, i think a limit of $50,000 for a policy year for Medishield is kinda low. So, do you think paying 2.87 times ( at most) for the 'as charged' ( means unlimited in a sense) feature and the coverage beyond 85 years of age is worth it?

Sabana Reit and Mapletree Industrial Trust

2010-11-24T02:09:00.002+08:00

Lockup period
Sabana Reit-Period of 180 days from listing date. Thereafter, 50% will be locked up for the following 360 days from the end of the 1st lock up period.
MIT - Period of 180 days from listing date.

Gearing/Leverage
Sabana Reit - 26.5%
MIT-38.5%

Performance fee Paid to manager
Sabana Reit - 0.5% per annum on Net Property Income if DPU grows at least 10%
MIT-3.6% per annum on Net Property Income

Sabana Reit's Alignment with Unitholders
The Manager has elected to receive 80.0% of the base fee in the form of Units for the Forecast Year 2011 and the Projection Year 2012 and (if payable) 80.0% of the performance fee in the form of Units for the Projection Year 2012, except that where the issue price (which is equal to the Market Price (as defined herein) of each Unit) is at a discount of at least 20.0% to the NAV per Unit, the Manager shall receive the base fee for the Forecast Year 2011 and the Projection Year 2012 and (if payable) the performance fee for the Projection Year 2012 wholly in the form of cash.

Honestly, comparing MIT and Sabana, it seems that Sabana is more aligned with their Unitholders. I like that they will choose to receive their base and performance fees in cash instead of Units if the Units are undervalued ( underlined above).

I also like that Sabana set an extremely high performance target of being paid a performance fee if they grow the DPU at least 10% from the year before, unlike MIT's target which is so, well, duh! MIT will still get paid performance fee as long as they have some income. I think my grandma can do that!

Gearing of Sabana looks good too and their dividend yield of 8.22% is pretty attractive........i must say..BUT...here's the catch before you go blindly into such an investment...Read below
http://www.investmentmoats.com/money-management/reit/why-reits-and-business-trust-are-not-always-good-investments/

Which bank will benefit the most from a rise in SIBOR?

2010-11-18T00:31:00.001+08:00

A wrong move made!And another wrong move!Its so hard to find good investment opportunities these days. Anyway, with all the talk about how interest rates are so low now and the only way forward is for it to move up gradually, let us try to position ourselves for this expectation shall we?

SIBOR stands for Singapore Interbank Offer Rate - simply put,interest rates for deposits,loan e.t.c rise if SIBOR rises.

NIM stands for Net Interest Margin which is measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits), relative to the amount of their (interest-earning) assets. )

Development Bank of Singapore (DBS)
See how it correlates with the SIBOR......when sibor goes up, DBS NIM ( net interest margin goes up)

United Overseas Bank ( UOB)

Hmmph, NIM seem to be negatively correlated with SIBOR....

Overseas Chinese Bank of Singapore (OCBC)

There don't seem to be any correlation between SIBOR and NIM. Is there?

With hyperinflation and a gargantuan wave of hot money coming in, are you ready?

A Little Spare Cash, Unattractive Stock Valuations, Low interest Rates. What to do?

2010-10-07T15:58:00.006+08:00

September went by without any correction in the stock market. Boring!Hopefully October gets more interesting. We recently sold the Taisin shares we bought on 7 September 2010 and lock in a gain of about 22% in 1 month. The run up in it's share price on 5th and 6th of October was unexpected and we decided to sell it instead of being too greedy.We don't know why it went up, but who cares...seriously as long as money is made. We still like the company due to it being shareholder oriented BUT their recent offer of a scrip dividend scheme, we dont really like.

So, with a little cash, what do we do with it? Stocks are abit overvalued, interest on bank deposits are low, property rental yields are low at 4-5%? Processing.......

The Small Caps Stock Adventure

2010-09-07T23:01:00.026+08:00

No investment has been done since the beginning of 2010 till today 7 September 2010. Stocks, especially blue chips ones, have been running up like crazy. We missed an opportunity last week to load some more Singpost due to trying to gain a 0.01 cent advantage...damn it! See how far it rose from $1.13 to $1.23 within 1 week!!!Arrgh. I spotted the aggressive quantity of share buybacks of Singpost, whenever it touches $1.12 or $1.13 and therefore entered with CONVICTION but missed just cos i queued at $1.12."%%$#*@&@^!%@#$@%@". But its alright..hehe..another one will come as always and i have vested in it last year, so nothing to complain. Just for your information on the performance of Singpost, up up and away!

Having about 90% of my portfolio vested in blue chip stocks during the crisis,the valuation of such stocks are not very attractive, having reached near their 52 week highs and price exceeding their net asset valuation by quite a bit. Europe and US seems to be sputtering along and the asian region seems to be doing better. In very general terms, the economy is on a better footing than before though risks still remain but the probability of going back to the crisis again is low. (We are still keeping some opportunity cash just in case). Investing in companies that are focused on the asian region seems like a logical choice now. Given this backdrop, we have started to look at small cap to medium cap stocks whose revenue is predominantly derived from asia.Honestly, we find it a challenge to research and source out for the perfect small-medium(SM) cap stock. Unlike the blue chips ones,for SM ones, there will always be an aspect to it that is an eyesore like everything will be good about it, but they are giving out too much rights or everything about it will be good but directors have bought it cheaply at low price before, so buying it at a higher price feels damn sian to me. Nevertheless, i bought into Tai Sin today having considered the pros and cons.

We like it that they are giving out dividends consistently every year. This shows that they are shareholder oriented. This is bloody important. This stock can be a capital growth stock, and dividends along the way just makes the wait for the capital growth more bearable. At current price, dividend yield is approximately 7.5%. According to their latest financial statements, there is one upcoming dividend ($0.01)as it has been recommended by the board, but yet to be reflected on SGX website as of now.

We like that their current price is below their Net Asset Value per share.

We like that their directors are buying at $0.225.Go to Tai Sin insider trades. If you look further back through the months, some of their directors have paid prices ranging from $0.34 to $0.15. See for yourself. The interesting part is that some of the shares were given as a gift for a daughter's wedding from the parents and uncles. This further point to the likelihood of focus on shareholder value. Come on, will you give your close kin shares which wont add value. Possible, but unlikely.

We like it that they are pretty near their 52 week low. See for yourself....you unbelieving soul!

Just for your information, here is a look at the historical prices since 2005. Tai Sin has hit a high of $0.595 before in 2007.

On a final note, go look at theprojects they have done in the past, from circle line mrt, marina barrage, bedok water reclaimation plant, sentosa development project, changi airport....Remember the national day rally about the $60 billion upgrading rail lines government project announced by PM.....hmm maybe,maybe, only time will tell. As an endnote,this stock is still not perfect.........Do your research yourself!

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

Keeping an Open Mind to Opportunities

2009-12-09T11:55:00.002+08:00

Talking to some people can be really exasperating. When one explains a sure-win strategy to make money to them with absolutely zero risk and no commission earned whatsoever, they will first ask, sure or not. They will then close their minds and the idea is dismissed. To be fair, i agree that when things are too good to be true, they probably are, BUT , i still stick to the philosophy that NOTHING OR NO IDEA should be dismissed without exploring or investigating first. Taking a phrase from the bible( Dont mistake me for a holy cow cos i am definitely not, neither am i evangelising, its just something which has been sticking in my head recently, dont know why....)
" A farmer went to sow his seed, some fell along the path;it was trampled on and the birds ate it up. Some fell on rock, and when it came up, the plants withered because they had no moisture. Other seed fell among thorns, which grew up with it and choked the plants. Still other seeds fell on good soil. It came up and yielded a crop, a hundred times more than was sown." - Luke 8, verse 5-8

There is no objective or this article, really. Just thinking about the opportunities that one finds in their everyday life which one should really listen to and keep an open mind. Think about the trading courses from T3B or Mirriam, hmm, honestly, do they work? Maybe they do, maybe not? Maybe its just a situation where good ideas were sowed but but it fell on rocks where some people do not take action, maybe, rules were not followed and the "birds ate them up"...hmm.

Playing It Safe.Growing it Slowly But Surely With a Peace of Mind.

2009-10-01T22:39:00.011+08:00

Ok yeah we haven't been updating for soooo long but well...we needed a break. Anyway the meteoric rise of the stock market makes us sick in the belly as we just didnt have any bullets left to pump in. Haizz...just spraying some water guns here and there..pathetic!!!!!Well guess there is a season for everything and we should be thankful. Anyway, now we have got some money and October does seem to be a potential month where stocks are likely to go down after the euphoria. Why do we say this?
Looking at the Baltic Dry Index which according to Wilkepedia is :
"An assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the index covers Handymax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain." It has been going down since June 09 and some stocks are being squeezed into a tight consolidated range between the bollinger bands which classically signifies a impending move.Besides it well know that in Sep and Oct stocks do dip statistically.

But oh heck with it. We just bought some SIA Engineering and SMRT shares recently and yes we are impatient and thats bad ...really bad..illogical and unwise.Simply put...stupid.Anyway, as fundamental investors, we dont try to catch the bottom nor the top. We just wanna catch NEAR the LOCAL bottom or LOCAL top and we are in heaven. Hope nothing unforseen happens!So why these seemingly boring stocks. SMRT..what the heck!

Frankly, we did consider buying SMRT since March April of 2009 and we dismissed it in favour of other stocks as we couldnt see much growth then, other than a very very stable business sans a terrorist attack. But the news that it recently was able to sell some bonds at a low 2 +% interest caught our eye. The news that it recently concluded an acquisition of a 49% stake in China's Zona Group caught our eye. The knowledge that a certain director bought some shares in August 2009 at $1.73 made our eyebrows twitch. ( though its only 10,000 shares lah).Looking at the past dividend yield, it has been steady and increasing too and we having taken lots of MRT lately...its a super cash cow, ready for overseas expansion with their Singapore business as an ATM machine. Just look at the army of corporate warriors going to work every morning being squeezed like sardines.......One thing about this business though is that it is highly regulated by the government to keep the cost of living affordable to the majority. Anyhow..worst case we treat this stock like buying a bond, best case, it expands more aggressively overseas to justify a higher stock price and/or higher dividends.Basically, we think it the best tranport stock to own in Singapore.

So how about SIA Engineering? We figured that Singapore is becoming the center of MRO in Asia Pacific with the government paying special attention to this area. We also figured that the Singapore Airlines Group of company which comprises of Silkair, Tiger Airways, Virgin and SIA already provides a base of recurring clientship for this company. In addition, SIA is noted for being at the forefront of flying new planes like the A380 which means SIA Engineering got expertise compared with her peers. Anyhow, having briefly a stint in the aviation industry, we do think that this is a kind of engineering work where people dont just outsource to low cost countries or companies as the consequence of a shabbily done job is catastrophic. We also think that this company will be one of the beneficiaries of the spillover effect from the casinos in Singapore....OK we also noted the following...

Options were granted to employees with an exercise price of $2.25 - $4.67 to be exercisable from 2006 - 2018 and the current price now is about $2.59. Sounds pretty decent with a quite high dividend yield of 6.15% with a quite steady historical dividend payout. Well...why not...besides their ratios are fantastic.

Oh well...discipline my friend..we are working on it. Luckily, we still have some bullets left for the rest of October. Let's hit the low. Its just a game..

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Stock Market Manipulation - US Markets and elsewhere

2009-04-29T10:44:00.014+08:00

Retail brokerage customers generally never learn that they paid money for something that failed to be delivered to their accounts. That is because retail customers’ brokerage account statements do not reveal whether delivery takes place; even when no shares are delivered at settlement, share entitlements are still credited to the buyer’s account. Those credited share entitlements then trade in the market as if they were real shares issued by the company. - WorldAffairsJournal Regulation (Spring 2008)

Huh? What's the above about? It's about the practice of selling shares without owning any shares, also called "Naked Shorting" and then failing to deliver the shares. In the US market, they use the term "Failure to Deliver" to describe it. The consequence of this act is to increase the number of outstanding shares of a company and basic economics of demand and supply states that when the supply increases, price goes down.

So, let's say Company A issued 1000 shares. Anyone who owns 1000 of these shares own 100% of company. Let's say a hedge fund "naked short" another 1000 shares and "fails to deliver" it. These 1000 "naked short" shares are credited as electronic digits into the buyer's online brokerage account and are paid for by the buyer. The total number of shares appearing as electronic digits are now 2000 shares, but the number of shares legally issued is only 1000...so what now? The buyer has effectively paid for nothing! It has been said that such practices resulted in many good fundamentally strong companies being driven to bankruptcy in the US and it is claimed that this is rampant in that country. It is also conservatively claimed that about 1% of daily shares volume traded in the US market are such " phantom shares".

Guess SGX did a fine job to mandate that investors buy back any naked shorted shares in the market within 1 day or else face a fine of $1000.

Read the articles below for more information. Hmm...we wonder how will the companies issue dividends in this case?

Click this for greater understanding.

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Fundamental Analysis is Useless without Integrity

2009-04-26T16:38:00.018+08:00

'Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy., -Warren Buffett

One thing good about this crisis is that it gives people a chance to learn things. Having received that mass circulated email as published in the previous article, we just decided to take a look at a randomly chosen certain textile S- share company that has its shares suspended lately. Below is a snippet of announcement issued by the company on 13 March 2009 where it states that Fibrechem is in default of a loan of US$26,365,581 to a consortuim of local and international banks. So who are these banks?

See below for a snippet of the annoucement made on 22 Aug 2006 by Fibrechem.

What really amazes us is that there was little or no clue based on publicly available information that could have led to somebody predicting this could have happened. By looking at their financial statements, both audited and non-audited that were released, leading up to this default, it seemed that this company was flush with cash and settling bank loans were a non-issue.

See below for the financial statements leading up to the event.

Audited Annual Report 2007 ( By One of the Big Four Audit Firms )

The Cash and Cash Equivalent is enough to pay more than twice the bank loans owed!!

29 April 2008 - Unaudited First Quarter Financial Statement

The Cash and Cash Equivalents are again more than enough to cover 2 times the Bank loan!

4 August 2008 - Unaudited 2nd Quarter Financial Statement

Ok maybe now the Cash and cash equivalent is not able to pay twice the bank loan...but it still looks pretty decent. (Maybe the astute analyst might notice the sudden decline in excess cash over bank loan due to the huge jump in non current bank loan and question it..but we don't think we would have noticed it ....heng ah..luckily never look at this counter.)

3 Nov 2008 - Unaudited 3rd Quarter Financial Statement

The Cash and Cash Equivalent is nearly twice the bank loan...a huge jump in cash and cash equivalent amount this time.

So thats the last financial statement Fibrechem released. So who would have suspected that Fibrechem would have difficulty repaying the bank loan of a mere US$26,365,581 since they have HKD1,166,140,000 in Cash or USD$151,598,200 ( 1HKD = USD0.13) based on the last statement released??

Where did this cash go? Is it real in the first place? Which bank did Fibrechem stash this cash in? Did the big four auditor verify this cash in year 2007? What is going on!...This proves that fundamental analysis is useless if given rubbish data. Warren Buffet is right...Integrity of management is the most important! All else is secondary. S shares can go eat shit.

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Confessions of An S-Chip CEO - Is this true or someone wants to short something?

2009-04-24T16:40:00.010+08:00

[Email circulation received by SGDividends]

We are victims as well!!! Let me tell you the story. By the time you read this article, it would have reached hundreds of investors, bankers, regulators and journalists. My purpose was to shed some light on the "dark sides" of the business of S-Chips (Chinese companies listed on Singapore Stock Exchange), so as to help prevent more financial losses in the future hurting the ordinary people on the
street. From this angle, I wish to redeem myself somewhat.........

It all started some 6-7 years ago. My colleagues and I were just a few of the million of entrepreneurs in China struggling to make ends meet at the textile fibre factory that we bought from the government. Some of our older colleagues had laboured for more than 20 years before having the chance to "privatise" the state-owned textile fibre factory in Fujian Province that we have worked for since the day we left school under the Premier Zhu's "government retreat, private sector advance" scheme, literally at a song. We thought we were going to be very rich very soon. Little we knew that when the local governments of the various counties and villages decided to "retreat", we end up with thousands of "privately-owned" textile fibre spinners that competed ever more aggressively. Despite ever rising revenue, margins were disappearing fast....... Sometime, we just wonder why we have worked so hard only to earn next to nothing. Perhaps, our only reward was meant to be "the master of our own destinies"...... But we never really gave up hope...... One day, we shall strike gold.......

1990, the year after the TianAnMen Incident, was really a very difficult year. Many of our clients, the textile manufacturers who were enjoying the initial euphoria of the burgeoning export demand, went belly-up within a short 2 years of economic contraction. However, we pulled through all the vanishing receivables and anguish cashflow-balancing exercises. By 1993, we were off for the biggest boom ride of our life-time. Our textile fibre business blossomed as China becomes the clothing factory of the world, benefiting not least from the one-off Renminbi devaluation that the Chinese government engineered in 1994. Those were the good old days, where sufficient numbers of our competitors were eliminated by the TianAnMen-induced recession, and the world began to look to China for every piece of garments stretching from the heads to toes. Money was easy......and we expanded our production capacity as quickly as we could, limited only by the fact that the state-owned banks were not really very keen to lend money to private enterprises like ours, and we just have to borrow from our villagers at some 15% interest rates!!! Nevertheless, we did good business and our leader, the general manager of the factory, could even afford a chaffer-driven Santana. In any case, he was too old to learn new trick, even as simple as driving itself. I was the rising star which had to bide my time, as I was the only person who speaks decent English. I was meant to be the tongue of the company in dealing with the external world. But I am getting impatient. For while the company was booking increasing profits, we never seems to have cash to be distributed as any excess cash generated from the business was never enough to cover the capital expenditure needed to expand the production. We just owned an ever-growing production business.

Unfortunately, good profit margins never last in China. Good demand quickly attracted new entrants into the business as the barrier of entry is relatively low. At the same time, some of the so called "obsolete capacities" came back from the grave and soon, we found ourselves struggling to churn our profit. It was like working for free again......lots of revenues but just no profit!!!

By the middle of 1990's, we were doing great business selling to our customers in different areas of the coastal areas. In 1995, we suddenly found ourselves having to deal with fast rising cost pressure. However, the market was buoyant enough for us to raise our product prices to pass on the cost increase to our customers. Then, we realized that we must move ahead in term of technology and product offering. Like everyone else around us, we took advantage of the tax concession offered by the government to the so-called joint venture companies. We recycled our "cash" to Hong Kong, set up a "foreign company", which in turn pumped back the cash to Fujian in the form of a joint venture entity, using the cash to purchase some second-hand German equipment to produce the chemical fibres needed in all kinds of fabrics and artificial leathers.

However, luck did not really favour us, at least thus far. Soon, we were told that our economy was experiencing very high inflation rates and soon, the then Premier Zhu Rongji stepped a hard brake on the economy, cutting the bank credit to many state-owned enterprises which were producing things that no consumers wanted. While as private enterprise we did not enjoy the benefit of bank credit, its sudden massive contraction hurt us as bad as the state-owned enterprises who received such reckless loans. We were entangled like the other enterprises in what we called the "triangular debt" problem, where everyone owes the next person money and there was just no money at the source for anyone to get paid.......!!!

The situation last for quite sometime as we lived from hands to mouths, sometimes having to send out local thugs to chase for receivable payments from cash-strapped clients. Then again, what else can we do? We had so much or our friends' and relatives' money with us investing in all these machinery now that the only road for us is to struggle forwards......turning back would have made us the "outcast" of the village.......

By the time the rest of the Asian economies cracked in 1997 amidst the so called Asian Financial Crisis, we were already becoming numb to bad news. I remembered there were days that I wished I had not joined the textile industry, or any industry at all......for making money out of making something is so darn difficult....... I thought I might have just wasted my youth.

Somehow, we managed to pull through as a group. The general manager of the factory, who is now getting seriously old, made his sacrifice along the way by selling his Santana in order to keep more mouths fed. We all had no where else to turn to but to continue pushing hard to sell our new product, the chemical fibres. Finally, by year 2000, the economy began to recover. Our hard work and persistence were also beginning to get paid off handsomely as China had become the centre of all textile, shoe and furniture manufacturing in the world, and all these products required some forms of chemical fibres. We were beginning to rake in cash beginning 2002!

Then my life-changing incident took place. One fine day in late 2002, I was introduced over the dinner table to one Singapore "Deal-maker" who was to become one of the richest men in his country in the next 5 years. Mr D was still a "relatively" poor deal-maker at that time. Just like many so called "deal-makers" running around China at that time, they hope to make small fees introducing companies to capital, or vice versa. Mr D claimed that he had successfully engineered a number of private equity transactions in China, helping companies with so called "mezzanine" financing to prepare the companies to be listed in stock exchanges outside of China. He was fully aware of the psychology of Chinese entrepreneurs and their deep dissatisfaction with the bias of the Chinese government in allowing only state-owned enterprises to list on the local stock exchanges. To us, having a listing status in China is like having acquired the right to print money. One just has to cook up a nice investment story and he could get Chinese investors to subscribe to the right issues of a listed company at any price. It was so much more an elegant way to make some money, rather than to have to toil for a few cents selling chemical fibres.......

Mr D went further to claim that he had taken some of the invested companies public in both Hong Kong and Singapore Stock Exchanges and given his investors had made some money, he always have a group of ready-investors willing to back all his "stock picks". He went on to ask quite a number of detailed questions on the operating conditions of our companies over the dinner, jotted them down carefully on a small note book along the way. Later on, we adjourned up-stair the restaurant for a KTV session. I must admit that I remembered clearly Mr D was a good Chinese song singer, having sung some hot-off-the-chart songs that I heard my niece hummed sometime shortly before the incident. His smooth handling of the KTV girls, which he asked for two concurrently, also showed that he had been around.........

The next time I met Mr D was three months later, quite unexpectedly as I had thought he could have decided to give our company a miss given our relative small size. He requested for a factory visit which, after having consulted our old general manager, I accompanied throughout. As usual, no serious business until after dinner and getting slight tipsy after a few drinks forced down by the KTV girls in the evening. I must admit that Mr D is a seasoned operator. He was quick to recognise that I was an impatient young man to take over the operation from my older colleagues. Throughout the entire evening, he was trying to convince me to move the gear one notch faster to accept some private investors into the company, beyond which he was confident to help us to get the company listed in one of the foreign stock exchanges, where everyone will be able to cash out their profit if they so chose. I pretended to be sceptical while deep in my heart, I need no convincing as I have known many Fujian entrepreneurs shot to fame and riches, 2 of them by turning large tracts of collective land into vegetable farms and the other bending float glasses he bought from state-owned factories into auto wind-screens and sell them to car manufacturers. I never doubted that one can make a lot of money from car wind-screen, but I could have never imagined striking it rich planting vegetable.......!!!

Mr D and myself both agreed later that we need to convince the other older colleagues of mine to approve such a scheme, and over time, move them aside to allow someone young and dynamic person like myself to be the face of the firm to cater to the likings of the investors, who were mostly English speaking. In the meantime, my task was to convince the existing shareholders to allow a group of Mr D's friends into the shareholding first, while paying Mr D a "structuring and introduction" fee along the way. The easy part was, as Mr D coached me on how to present to the rest of the shareholders, his fees will not be in "cash" but rather in equivalent value of "shares". He said that was to assure everyone that he could only make money should he be able to engineer an eventual listing of the company on a stock exchange, after another year of lock-up period for promoter shares after listing. All interests would be aligned, as he put it.

Mr D was indeed an experienced operator. He had anticipated all the concerns of the "older" colleagues of mine, who feared that this was another one of those "leather-bag-company" deal-makers that was trying to make money out of no commitment. So he got through the first "hurdle of trust" after my carefully orchestrated presentation to the "board" of the company. However, there was still one important issue we could not resolve amongst the board members. The finance manager correctly pointed out that the company indeed, did not need substantial amount of cash at this moment as we were not expanding aggressively anymore. The market place for our products was relatively stable right now with demand and supply growing organically. We will not be able to drive higher sales without sacrificing our margins by cutting prices. In short, we can only grow organically at around 10% per annum, which was probably not the most exciting story for the investors. In fact, the board members did not see the need for new capital. However, the idea of getting listed did appeal to them. They too had many friend who had become "paper millionaire" after the companies got listed. They too were looking for
the big-pay-off day. So I was tasked to come up with a solution. In other words, there was a "green-light"! I did not expect my luck!

Almost immediately after the board meeting, I called Mr D to tell him the outcome, as well as the issues raised. Again, I thought he must have expected the outcomes. As he explained calmly over the phone, the first round investors (which he called angels) will not put in a lot of money so that they would not dilute the existing shareholders very much. These angels are the "connected persons" that will come in with their own money (through Mr D's personal vehicle) that will help cement the way for some of the well known direct-investment funds to step in at a slightly later stage, which would provide the company with the credibility, other than funding, to convince the stock exchanges to allow the company's listing, and the subsequent active participation of other institutional investors during the IPO. Mr D went on to explain that the process of getting a Chinese company listed was in fact, an art. There were not many people like him that could have the trust of many influential people to conceal their names behind his vehicle to invest in a company, not unless they have been working on other cases together before and having developed deep working relationship. These angels will see the company through the process from getting "restructured" to "listed", rendering their helps in one way or another
through exerting subtle influences on counter-parties, bankers, regulators and other investors. Mr D's vehicle will participate in the shareholding of the company first, where they will invest up to 5% at book value. In other words, they demand for very cheap entry. Mr D will only take his fees later after having brought in the money from direct investment funds, in larger quantum, in the form of shares of the company at book value before the entry of new capital. He wanted 2% worth of the amount of money he would bring in from the funds in such shares. Subsequently, he went on to explain that this was the modus operandi these days as he could introduce us to the senior executives of the companies who had done business with him for further due diligence on his reputation. In particular, he emphasized that my colleagues should not be worried at all given the fact that it was going to be his and his friends' money that will be in their hands, rather than the other way round. My older colleagues did find some solace in this argument later on.

As for the use of money, Mr D simply pointed out that we will have 6 month to a year to come up with a new plan on spending the proceed of investment, in the form of new technology and new products. "Aren't you guys always looking for money to upgrade production machinery to produce new stuff for the market? It the same bunch of the customers anyway......", so he quipped.

So the decision process took a few months, where in between, Mr D sent in some accountants and lawyer to conduct some checks on our operation and accounts. We had nothing to hide then as we had no reason to fake anything. Everything was ours.......then. Subsequently, the "angels"
came in, followed by, indeed, a number of reputable direct investment funds a few months down the line. We got a whopping US$20mn to put up a new plant to produce a new type of artificial fibre, the machinery of which was to be imported from Germany. The new product was in fact,
attractive to a lot of customers. However, none of them were going to buy a lot of it at the beginning as they were not sure their customers were going to like the new types of yarns made of this new fibres. Business was not as brisk as Mr D had hoped for.......

On the other hands, Mr D seemed quite keen that we could move forward in our listing process. He began to educate us the process and requirement of the stock exchanges for listing. We paid visit to Hong Kong and Singapore, talking to bankers and exchange officials, attending
seminars, as organised by Mr D. We were all psyched up to be a rich millionaire once the company is listed. However, there was just this little problem.....our new products were not accepted by the market as fast as we had wished for. Most of our customers operate under very
tight cash flow situation. They only have working capital to provide for the acquisition of raw materials to produce the yarns ordered by their customers. No one was going to spend a lot of money buying our new fibres, produce large quantity of products to purvey them in trade
shows, despite they all fed back with good comment on the potential of the new fibres.

Very quickly, Mr D came up with an idea. In order to boost our sales numbers fast, he will raise another US$20mn of money from all the direct investment funds in the name of working capital need. As he explained, they often did the same tricks with those companies they listed before.
They will raise new capital to produce the new products to sell to customers, encouraging them to help push the new products by offering them more favourable and longer payment terms. With the increased sales and profitability number, he could get the company to list very quickly
to get more money to help push for more sales....... He claimed he had done it many times before and it had always worked out. The economy was recovering quickly in 2003, nothing was to going to go terribly wrong. When I asked whether that would be considered "artificially inflating
sales number", he laughed and quipped, "with the capital markets on your side, you can engineer self-fulfilling prophesies!"

Of course, this article cannot be complete, at this juncture, without citing Mr D's favourite quotable quote. "Water enough money into any company, even a fake one could become real some day." He believed so much in this that I thought one day, this could cause his downfall.

So we went ahead, sold the new shares at higher valuation to another bunch of investors Mr D arranged. He took another round of commission in the form of shares. We were beginning to admire Mr D. Money flows through his hands like water and he did it so effortlessly. We were no
less impressed by his connection to some of the richest and most influential people, particularly in Singapore. You see, he was viewed as a successful Singapore entrepreneur made good in the vast land of the North. Through diligence and perseverance, he carved a niche for himself
identifying promising Chinese companies to groom for listing on the Singapore Stock Exchange which was losing out in race to Hong Kong Stock Exchange as the Chinese state-owned enterprises were encouraged to list in Hong Kong. Mr D was their hero, directing promising private Chinese enterprises to list in Singapore and along the way, enriching many "angels" and local investment banks in Singapore.

I chanced upon many of these angels as well. There were occasions Mr D would have called me to help arrange for some transport and accommodation in Xiamen for groups for "secret" visitors. They are usually small groups of 4-8 people. I would generally put them in
comfortable Buick mini vans, receiving them from the airports, ferrying them to golf courses, restaurants and night clubs. They would usually visit one of two factories invested by Mr D. From my impression, these were the angels behind Mr D, which for obvious reasons, he had to
please. There were bankers, lawyers, other deal makers, stock brokers, fund managers and people that do not have a job, simply because they were so rich already. Occasionally, there were ex-CEOs or Chairmen of large government controlled enterprises in Singapore. Once, I even met a supposedly ex-member of parliament in Singapore. It was obvious to me that Mr D entertained them in separate groups at separate times, taking pains in ensuring that some of them were not aware of the involvement of the others, for some reasons. I was always invited to all these golf and night entertainment events for a simple reason: I speak English and Mr D
wanted to be seen as having someone like me to watch over his investment in this part of the world and helped him to tap into different kinds of local relationship. The other Chinese entrepreneurs may not be comfortable in dealing with the whole bunch of English speaking
Singaporeans.

One common trait of all these trips was that all these guys from Singapore seemed to love the night clubs in China. The daily programme always ended in some night clubs, where these guys would party till the wee hours, every night they were there. Mr D would sometime, when he was half drunk, tell me that he had again "nailed" some key relationship and one of the travellers in the group would soon be in his "Club". He would whispered that someone in the group was the senior partner of an investment fund, or someone in another group was connected to the
so-and-so in Singapore, or someone was closely associated with the chiefs of some Singapore banks, or someone had "influence" over the listing approval process of the stock exchange, and some would just be some new investors that he was trying to woo to invest in his pre-IPO
projects or the shares in the companies that he sponsored the IPOs. When I asked why they were all so tireless in their nocturnal activities, Mr D laughed, "This is what I call pent-up demand. You know these people cannot even come 100-meter close to any KTV in Singapore because of their social status. The opening up of China is probably the best thing
that happened to all these Singaporean men, for they can at least release their "valves" once in a while........ Do you know how boring Singapore is? I have a permanent KTV room booked up in one of most posh KTV in Singapore, costing me half a million Dollar at the minimum every
year. Guess what, the only important guests I have using that rooms are from China!"

Watching Mr D in action, I finally understood the true meaning of "club". He had managed to combine the "social club of friends" and KTV clubs so well that I thought every successful Chinese businessman should learn. And in so many ways, the "club" in Singapore is really not that different from the "club" in China........

So finally, we got our act together to attempt a listing towards the end of 2003, after much of the financial twisting and engineering to make our company look like a well-funded high-tech textile fibre company on the verge of experiencing explosive sales take-off. In truth, we
produced a lot of the new fibre products and literally give them to our customer to produce new fabric for marketing purposes, with the promise that we will not collect money until their products are sold. Nevertheless, we book these as receivables. To the dismay of Mr D, my
older colleagues had insisted on listing the company on the Hong Kong Stock Exchange, rather than the Singapore one, where Mr D has greater control on the process. They felt that the company would probably be accorded higher valuation in Hong Kong. Besides, they were not
comfortable with Mr D's influence in Singapore fearing the ultimate loss of the control of their company. Mr D went along grudgingly, helping to smooth the way to facilitate the IPO.

We got a small investment bank to underwrite the IPO. The big ones were really not interested in this small piece of business. We went on to file the application to list to Hong Kong Stock Exchange, who was equally high-handed as Hong Kong was flushed with quality large size
state-owned enterprises queuing up to list there. Being relatively uninterested in small size listing and more experienced in evaluating the quality of smaller Chinese private enterprises, they were quick to notice the sudden expansion of account receivables on our accounting
statements. They followed up with a number of questions with the clear purpose of delaying our listing, probably to see how these receivables will behave given longer period of time. In short, there would be no quick IPO for us.

Mr D was quick to use this delay to his advantage. He hinted to everyone on the company board was that one of the reason for the stock exchange delay was due to the lack of a convincing younger manager helming the company, and that our senior colleague was already too old to project a "dynamic" image to the Exchange and the investors subsequently. He wanted me to be promoted to the CEO position while our existing GM to become the Chairman of the board. With his insistence, my appointment was pushed through the board, which made one of my older colleagues very angry as he was supposed to be the next-in-line in seniority. But heck, he should have spent some time learning English!

Mr D, being truly worried about the age of the receivables on our book that would become increasingly dubious as days go by, pushed us to shoot for a Singapore listing where he feel, with his broad relationship will help a smooth IPO. This time round, my older colleagues obliged
grudgingly. So we quickly filed an application to list in Singapore. It proceeded relatively smoothly and we went through an initial hearing very quickly. The market was in relatively stable conditions and we felt we could get the IPO proceeds quickly at the turn of the year. With lot of money, like Mr D's famous words, a fake company can become real....... To be fair, ours was not really a fake company. We were just doing what the Chinese proverb describes: Accelerating the growth of the seedling by pulling it up a little everyday......

To our surprise, we got a letter very soon from the stock exchange questioning us the reason for the failure to disclose to them we had applied to the Hong Kong Stock Exchange earlier. They asked whether we had been rejected previously and on what ground we had been rejected.
Just as we wonder how they found out so quickly since one could safely assume due to competitive relationship, these exchanges should not be talking to each other on micro matters like this, Mr D came storming in over-night. "Someone wrote a poison letter to the stock exchange", so he explained. "Someone who knows the situation very well and who is not very happy with the whole thing", he concluded. We were fortunate, he went on to exclaim, as he felt that given the Hong Kong Stock Exchange never really rejected our application, he could still salvage the situation using his relationship and influence.

While there was no hard evidence, we nevertheless took the precaution of asking for the early retirement of the senior colleague who was passed over for the post of CEO as we suspected him to be the whistle-blower. We made sure he was well compensated in monetary terms as we thought that would sooth his anger, with promises to allocate more of the shares to him so that he would share our desire to see a successful IPO. Then we went on to reply to the stock exchange disclaiming the fact that we were previously rejected, citing our need to access capital markets fast as ours business was expanding rapidly. Hong Kong was just going to be too long a wait for us. On the other hand, Mr D worked his network and "club of friends" to sooth the nerves of the exchange officials, who were working hard to promote Singapore as the "second board for China" as the launch of "second board of China in Shenzhen" hit a snag when the
National Peoples' Congress decided that the Chinese investment public was still too unsophisticated to handle investing in non-State-controlled enterprises that even the Chinese government may not be able to police effectively.

So after 3 month, we were informed that we manage to secure the final hearing. Mr D and some young lawyers and accountants spent a few days preparing me to handle the questions "correctly". I saw the signs of satisfaction on the faces of the officials during the hearing. One of
them even went on to comment on the fluency of my English...... Mr D was right again. My Chairman could have fumbled and rumbled on just like any other Chinese CEO during such occasions. They were just the hardworking mulls that built the foundation of the Chinese's manufacturing might. I belong to the generation that would take the company to soar higher as
we understand and speak the language of high-finance, in English!

The battle to IPO was hard won. We got listed in 2004 and to our pleasant surprise, some of our customers came back to pay down the receivables and asked for more of our new chemical fibres. By now, China has become the "factory of the World" that churned out all kinds of
consumer and industrial products so cheaply that the Americans and the Europeans were so addicted to. The stock markets and physical property markets in the world were becoming buoyant and everyone was beginning to feel wealthy and began to spend more. Our new fibre products found more commercial uses and we bought more machines using the IPO proceeds to
produce more products to cater to the booming demand. Again Mr D was right. Pour more cash into the business and you will get a real company.........just like the pig-farmers listed on the stock exchange.......as he put it.

Sensing potential to make a lot of money out of the good performance of the company and the buoyant market conditions, Mr D descended into town one day and asked me out for a dinner. As usual, we headed to his favourite KTV after dinner. After a few drinks, he leaned over and
whispered to me, "Hey, this is your chance to grow really big very fast. The IPO proceed was not enough to fund your growth. Now that we are listed, we can place more shares out to raise more money to accelerate the business expansion to capture more customers before the competitors
in China could replicate our capabilities, which always happen in every industry and business in China." I was reluctant to agree to help sell the idea to my older colleagues as their shares were still in lock-up period and I imagined they would hate to see any dilution of their interests further at this juncture. Mr D went on, "I really needed your help as I need to get the shares placed out to some of those who helped us through the difficult times just not too long ago. We need to let them make some money as we are entering a bull market soon. In any case,
the issuance of more new shares will give us more power to cement your position as the number one man in your company as we all support you rather than your older colleagues."

As usual, we kind of half forced the issue through the board with my older colleagues grudgingly approved some kind of convertible issue to assuage their fear that the new institutional investor would not be able to sell before they were allowed to. In Mr D's effort to consolidate his
hold of the board further, a new director from the institutional investor group was appointed to the board. I had known him earlier as one of those that visited our plant before the IPO, when Mr D was just beginning to restructure the company shareholding where this new
director was once introduced to me as an "angel" investor. Apparently, they were good friends that "make money together".

By 2005, the Chinese economy had entered into another "boom era" and our business was literally flying, just like any other businesses in China. Profit margins were good while sales expanded quickly, and our share prices rose more than 3 to 4 times from the IPO price. Many of older colleagues sold their shares and retired happily into the sunset in 2006, only to regret to see the shares they sold almost doubled again in 2007. Being the new helmsman, I could not easily sell my shares as it would have been construed as management not having confidence in the business.

By then, Mr D had become one of the richest men in Singapore. Leveraging on his experience and the capital he accumulated from earlier successful IPOs he conducted, where in some case he made more than 50 times his capital, he exploited his new reputation as the "preferred deal-maker in Singapore" to the maximum. His "club" became increasingly larger as many people with money and "influence" joined the "club" to participate in this unprecedented "Chinese feast". He doled out hot IPO share allocation through investment banks to repay old favour and to cultivate new relationship. Success begets success and money begets money. It all
seemed so easy and so natural. Everyone got what they wanted. The Chinese companies got their money to expand their business (which at a later stage, no one is really sure which company really had any business to start with), the entrepreneurs were handsomely rewarded for the risks they undertook, the deal makers got their fees, the angels made their killings, the bankers collected their fees and dished out new loans, the lawyers and accountants recruited more young graduates to cope with the record work volume, the stock exchange got their "new mandate as the second board of the Chinese companies", the investors got their hot-and-sizzling China concept stocks and above all, the rich and the influential members of the "invisible clubs" were all happily enriching their own pockets......

The reason why Mr D was successful, I realised, was that he always try to help the people who helped him in one way or another to become richer. Despite the fact that I could not sell my shares, I got the help of one of his banker friends to obtain some financing by securing my
stake in the company to join in the biggest "Chinese feast in Singapore". Just like all the Chinese entrepreneurs Mr D helped, I became one of his "angel investors", taking stakes in promising new companies through his vehicles, got allocated hot IPO shares and reaped substantial gains within short span of time. I too, was becoming not only asset, but also cash rich. I took advantage of the Singapore immigration rule and got myself a permanent resident by purchasing a
property in Singapore. I wanted my son to study in the English school in Singapore and grow up as part of the establishment there. In any case, I would be able to help him join the "club" and he will be taken care of the rest of his life. As for Mr D, he was purchasing properties in the form of "tracts of land" as he moved to diversify his assets from stock holdings to land holdings, with a sight to become a serious property developer. The Singapore property market was getting sizzling hot by the middle of 2007 and it seemed nothing could go wrong, particularly when 2
casinos were being constructed in an otherwise very conservative society.

For myself, Mr D was going to be my role model. I went on to fund entrepreneurs and Chinese companies directly, hoping one day to bring these companies to someone like Mr D, and make more than the Singaporean deal-maker, at least equal........ Oh, I forgot to mention that the
Chinese local stock market went through the roof as well. To take advantage of this, I needed no advice from Mr D. My friends in the local banks helped me secure the capital easily just like what they did for thousands of state-owned enterprise officials. They took the company's
cash as "invisible lien" to lend money to the managers of these companies to punt in the stock markets. The profits of such stock market speculation go directly into the pocket of the managers. However, only in hindsight after the stock market collapse at the end of 2007 that it
became obvious a lot of Chinese companies' cash in the bank vanished into thin-air alongside the stock market bubbles.

Our worlds began to unravel at the end of the third quarter of 2007. By then, the Sub-prime Crisis, as we knew it now, had hit the U.S. economy. We were still busy feasting in the spoilt of the capital market excesses, unaware of the impacts of such a crisis that originated from the housing bubbles in a country so far away. We were blind-sighted by the ease of making money from stock markets and at the peak of the markets in the middle of 2007, we all felt like the "masters of the universe".

The first sign of trouble amongst the Singapore listed Chinese companies appeared when the share price of a Chinese steel company got sold off aggressively. In good times amidst a vibrant economy, this company presented to the investing community a story of their ability to turn in
good profit margins by buying hot-rolled steel coils, coating them in zinc and sell them to car and consumer durable makers. One analyst, whom everyone ignored when the stock prices were rocketing, did question its business model as firstly, such production method is highly inefficient
as most modern steel mills produce zinc-coated plates in one continuous process, and secondly, the investing world also knew that the prices of hot-rolled coils became excessively expensive as there was a preponderance of such downstream processing plants who got squeezed by
the few integrated steel giants who have the capability to smelt iron-ore. Then there was the rumour of the company being privatised by a foreign steel giant seeking easy entry into the China market and its stock prices shot up before the trading of this steel company was suspended one day. Rumour had it that it had been reporting fake profits, an official report of which the investing community is still awaiting after a few months. It was so obvious an insider job to cash out their position to the retail investors and apparently, the company management was not contactable anymore!

By the second half of 2008, I believed many Chinese company CEOs were having tough times struggling to keep their business afloat amidst the most serious and swift crisis in memory as the credit situations around the world got frozen up. Worst, many of us were facing more serious
issues in our personal finances. All our investments in stock and property markets were plunging in values amidst the so-called sub-prime crisis. Worse, we could not sell our stocks and properties as the transaction volume of these investments just vanished quickly together with the confidence of the investors globally. While we busy feasted in the spoilt of the capital market excesses over the last 2 years, we did not realise that we were piling on quite a fair bit of leverages as we secured our investments for more bank loans to attempt to reap more profits, when it all seemed so easy. We never thought we could have any problem of repaying any of our borrowing as we were sitting on a lot of gains on our investment holdings.

There was only one easy way out for all the Chinese company CEOs and that was to dip into the honey jugs. We all understood the importance of having our closest allies to be the finance managers of our companies so that any small "problems" could always be ironed out. In this case, I just "borrowed" some cash from the company accounts to fill some of the "margin calls" from the banks outside of China, which financed my "investments" in the stocks listed on Singapore Stock Exchange, as these foreign banks were ruthless in coming to seize the underlying security when the "margin calls" were not met. In some cases, I just pledged more
of my personal assets to the foreign banks. I was becoming very stressed by all these happening and was not sleeping well.

Mr D was not having a good time either. He too was suffering from exactly the same problems as we were just emulating his investment styles and leveraging activities. I heard of incidents where he turned to some of other more cash-rich companies that he invested in to
"borrow" some cash to bridge through some "margin calls". He sold down quite a fair bit of his investment holdings to some "friendly hands" in a series of stock placements. At this moment, the goodwill and friendship he built over the years came to his rescue in these moments
of "illiquidity" as the market transaction volume just dried up almost completely. However, the market prices of the stock holdings we used to secure our financing continued to drop by the days. Some of our friends and fellow "angels" were selling their holdings........and may just be
in the same kinds of troubles as well. No one trusted each others at moments like these. Those that were selling their investments would not pre-warn their "fellow investors" as everyone would rush to sell at the same time! It was a time where everyone was for himself!

My anguish did not escape the attention of the "director" on our board that Mr D posted in earlier. He flew over one day and was visibly concerned about the situation of my finances and of course, more importantly, that of the company. He sensed troubles as he knew that I too, had quite a fair bit of personal investments that were vanishing into the thin air in values. By now, at the end of 2008, I was becoming desperate. Our company was going into the "audit season" and obviously, there was a large cash deficit that we would not be able to explain to the auditor. In the past, we could have just "arranged" for some cash to be credited into the bank account for a brief period to satisfy the auditors' check. However, there was no such "temporary cash" to be found at any price as the sub-prime crisis had now developed into a full blown credit-crisis around the world. China was not spared in the process. With no where to turn to and the audit dateline closing in, I took the risks to "brief" the director of the true situation and asked for his
help. I was surprised that he was not shocked by my confession. He had probably guessed it!

In any case, the director asked me to remain calm while he would consult Mr D to seek some kinds of new financing to help bridge this difficult period. He asked that everything remained confidential as the last thing we wanted the world to know was the "missing cash" in the company accounts. H told me that quite a number of the S-chip CEOs were on the same boat and some of the "funds" that used to backed their IPOs have been able to extend some credit directly to them ease the pressure from the foreign banks, secured by again, stock holdings of the CEOs. Little did he know that my assets had almost been entirely secured by all kinds of creditors already!

Then the irreparable damage struck. I had borrowed some money from the local Chinese banks to punt in the local stock markets. The arrangement was such that I had to return such cash to the Chinese banks at the end of the year because they too, were subjected to annual audit. I had
carefully maintained sufficient cash in our company accounts, which served as the "collateral to the conscience" of my friends in the Chinese banks. As I began to use them to fund the "margin calls" of the foreign banks and the amounts got further depleted by operation losses of the company amidst the worst economic crisis the world was now facing, my "friends" in the local Chinese banks were not going to take a chance on their own fate. They were definitely not "friends in need". They simply deduct the amount I owed personally from our company
accounts two days before their auditors came in, which was of course, a few days before our company auditors came in. The rest was history...................

The auditor, which was an international firm, was not going to take a chance with their reputation. They formally informed our board of directors in early 2009. In other words, they were warning the board that the financial statements they were going to publish would be "disastrous" and could cause a serious enquiry by the regulators. I think some insiders proceeded to sell some of their shares before any official announcements were made but most of us were warned not to do anything with our holdings as that would be considered "insider trading". Of course, all my older colleagues and company directors hated me as a consequence. I was asked to absent myself from all their meetings as they attempted to come up with a solution before the mandated result announcement date stipulated by the Stock Exchange.

I was very scared. I had no one to turn to as even Mr D had stopped answering my phone calls. Everyone was trying to distance himself from me and it became obvious that I was going to be the "scapegoat". To protect myself, I seek the advice of some lawyers in China who in turn, consulted their friends in Singapore. To my relief, I was advised that should I be found guilty in the Singapore courts for misappropriating company assets, there was no established bilateral treaty as yet for Singapore court to extradite me from China. The China Securities Regulatory Commission, the securities regulator in China, had never once recognised their responsibility to regulate the S-chip companies listed in Singapore. In fact, the Hong Kong Stock Exchange had faced similar issues for decades in their attempt to regulate the P-chips, which were Chinese private enterprises listed on Hong Kong Stock Exchange, to no avail. In other words, as long as I refrained from stepping my feet on Singapore soil, nothing could be done to me. In any case, I thought given the hatred I faced from all my older colleagues and friends in the hometown, I should be taking some long overdue holidays. I relocate my family to a Chinese seaside town. Although I was now an ordinary citizen, I was glad that my wife kept quite a far bit of the money I gave her along the way and that should be enough to last us a life time, at least in China.

Through internet, I came to know that the company finally disclosed the incident to the Stock Exchange and the stock was suspended. They appointed an investigator but I was no where to be found. So it would be interesting on how the story could turn out post the investigation report. In fact, a number of S-chips suffered from the same problems and were suspended from trading soon after us. Inevitably, there were cases of over-stated revenues, fathom receivables, missing cash, over-leveraged financial positions of the founding entrepreneur who mortgaged away their own stocks, as well as outright manipulation of stock prices. In many cases, i suspected the irregularities had begun right from the very beginning, before the companies were even listed. Many were not real companies at the first place. My friends in the know told me that a few more had been discovered as suffering from "missing cash" and jokingly commented that the Exchange had to arrange for a smooth sequence of announcements just like the way they schedule result announcements of listed companies.

With all these irregularities exposed and more promised to appear, the stock prices of all S-chips have literally collapsed. All my friends and their "club members" must have suffered tremendous losses. Some dealmakers and their syndicate members apparently were facing margin calls on daily basis and some even declared themselves bankrupt. It must have been a very trying period for everyone. However, I did not seem to have much sympathy to all these people. I witnessed how some of them became filthily rich in a short span of time without having to work hard, while other enjoyed a good ride in fortune just because they (or their friends or relatives) were in position of influence. I was the only one that would be made a "scapegoat" and had to live a life of "exile", while these guys could still just lick their wounds secretively
and continued on with their life. I do not sympathize those institutional investors who lost their money as if they did, they were simply either incompetent or someone had benefited personally along the way in having committed their funds' money in such investments.
Curiously, I wonder who will speak on behalf of all the many ordinary people in Singapore who came to believe the investment potential of these S-chip companies after all the beautiful "packaging" the dealmakers and entrepreneurs wrapped around them, and went on to invest
their life savings in the S-chips, only to find out one day that all these were worthless!

So when dust finally settles one day, we shall all look back and evaluate what had gone wrong and who are to be blamed. I am sure all fingers will be pointing at the Chinese entrepreneurs such as myself, who are usually labelled as "greedy and unscrupulous". There is a ring of truth to that accusation and I admit I am guilty. But how about those dealmakers, who taught us how to cook the books? How about those angels, who hid their identities behind some dealmakers and exerted influences to assist them to succeed in their schemes? How about those institutional investors who trifled with the money entrusted to them? How about those intermediaries and professionals who were not vigilant enough to protect the interest of the investing public?

I would like to end with a comparison. The Ming Dynasty collapsed only after the General (Wu San Gui) they sent to defend the border against the Manchurians opened the gate voluntarily to allow the Manchurian's army to come into the Great Wall. General Wu did that probably out of a
promise to be made a king later on and be endowed tremendous amount of riches by the Manchurians. Of course, the historians would like to add that he also needed the help of the Manchurians to defeat another general that had taken his favourite concubine. In short, the thieves and robbers are only usually allowed in by the insiders..........

If you have read the story till this part, I am sure you are either a victim or someone who is deeply interested in the development of the S-chips going forward. Please help to forward this email to any many such interested parties as possible. We need to put an end to all these
irregularities lest more ordinary people on the street suffer unnecessary losses.

In the process, you will help me to partially clear my name...... For I am not the only one to be blamed.................

N/B:

1. Not everything is true in this story that I have just
presented in order to protect some friends that still remain friends. In
particular, the story before 1995 was inserted in only to give you a
perspective of the difficulties that most Chinese entrepreneurs went
through, and how they eventually all came to resent the ease and
ruthless manner in which people like Mr D made great fortunes leveraging
off their hard work.

2. At the same time, I sincerely hope that the investigation
report that was pending in the case of my company comes out being at
least "fair" to me. Otherwise, the more "real truths" will follow in
subsequent emails......... hahahaha, the power of internet........

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Regarding the Recent Bull Rally - Irritated SGDividends

2009-04-19T16:24:00.011+08:00

We are very irritated by CNBC and the presenter whose name is something Cutlow or Cudloh or Cartlow. He keeps talking up the market and sometimes we really wish to stuff his mouth with some spicy chicken drumstick but it will be a waste of money. So well......Anyway our auntie and uncle unofficial radar has detected some interest in stocks of late among their ranks which to us contrarians sounds like a bear market rally. Anyway, we really don't know and your guess are as good as ours. It's just eye popping to know that Goldman Sachs has issued a Target Price of $3 for SGX. Wow...way to go man.

So since we are unsure, let us look at the recent past to derive some form of tangible data to work with. Of cos past events might not be reflective of future events but hey....thats the best. Let us look at 3 counters which are pretty reflective of the general market sentiment in Singapore. SGX, DBS Bank ( Our late respect for Richard Stanley) and Keppel Corp.

SGX

DBS Bank

Keppel Corp

From the above chart, it shows that during this period from March - May of last year , share counters go up in value, before plateuing or going down slightly. So will this pattern repeat? Let us see.

Anyway, though we don't usually give out target prices but we have been looking at a certain indicator and are testing it now. So ( Please take it with a pinch of salt and we are not liable ah...don't be stupid, unless u believe in Ghost busters or fortune tellers), so SGX should not go above approx $6.50 ( plus minus 10 cent) in May 2009, and it will go down to below $5 in June 2009. Let's see if it works.

Comparison of Wastewater Treatment Companies Listed in SGX

2009-04-11T06:20:00.027+08:00

Ok a reader requested us to provide an overview of the waste water treatment. Before we go on, it should be prudent to note that we are not experts, in fact, we are just "wannabes", you know..those act smart kind who always puts up their hands when the teacher asks questions but answer wrongly......so pls verify...The information is culled from various sources, such as prospectus, reuters, annual reports, analysts reports..e.t.c.

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The wastewater companies listed in SGX are Hyflux, Asia Environment, Sinomem, Epure and Bio-treat and they are highly dependent on the China market, with the exception of Hyflux which has diversified to MENA ( Middle-east and North Africa).

In terms of treatment methodology, Sinomem and Hyflux mostly focus on the use of membrane technology while the rest mostly focus on the use of the biological treatment. (Note: mostly is used as often they combine both membrane and bio treatments)

In very very general terms, membrane technology is generally used in pharmaceutical or electronics industry to filter out the small stuff or to recycle water, or desalinate seawater into drinking water. The biology method is generally used to treat urban water before discharging into the environment.

In terms of revenue, Hyflux, undoubtedly makes the rest bite the 'dust'.

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Their customers are segregated into municipal or private enterprises ( industrial). Generally, payment terms from municipal government are longer than private enterprises and range between 6 and 18 months. But, the risk of non payment by municipals are lower. As can be seen, most of their revenue are from municipals.

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In addition, this industry is a highly competitive industry with numerous companies competing for a piece of the pie in China. In the prospectus of Bio-Treat, the following was mentioned.

Quote "Our Directors believe that there are currently more than 350 Chinese companies that are active in the environmental protection industry in the PRC, mainly in the field of water and water treatment or drinking water treatment. Our Directors expect the number of players in this market to increase to up to 1500 by 2005 and possibly up to 6000 in 2010."Unquote

As noted by the following from DBSV 2006 report. The following are the major players. This could be useful for comparing the fundamentals.

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This industry is generally project based and income is non-recurring, in industry jargon, it is called "Turnkey" which means they complete the whole project from start to finish and hand it over to the customer for them to operate.

However, there is this trend towards achieving recurring income through the model of BOT ( build-operate-transfer) where the wastewater companies build the wastewater thingy as though its their own, operate it for a period of time under a contract ( 10-30years) , earn recurring income from producing the 'clean' water for the customer, and then handing the thingy over to the customer after the contract ends. Other jargon for recurring income is TOT. Aiyah, as long as you see a O in the middle means recurring lah!

It should be noted that for a company to embark on BOT, they need a lot of capital to do so as they built the projects as their own. With this current 2008-2009 credit crunch, where funding is difficult, many such BOT projects are stalled.

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Generally, for "Turnkey" projects, the wastewater companies require an initial down payment of 20%-30% before commencing on the project, with another 30% to 60% payment paid according to percentage of completion of the relevant project and terms of the contract. There is usually a retention fee of 5%- 10% of the total contract value as quality retention monies which are generally held for a warranty period of generally one year after completion ofthe installation

Given that most of their business is in China and given the importance of collecting money especially in China, we thought it's vital to see how these companies fare in terms of how efficient they get their money back and how efficient they manage their inventory.

Again Hyflux leaves the rest in her wake with a collection period of only 49 days.....In terms of inventory turnover period, Epure is doing pretty well....
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Let us look at their profitability ratios based on only 1 year.

Epure seems to be doing pretty decent and has quite a lead among its peers in terms of Net Profit Margin. Gross Profit Margin is purposely placed their as this ratio has not undergone layers of 'possible' manipulation by the management. Anyway, its reflective of the "room" they can play with in case their cost of sales ( direct raw materials go up).

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In our opinion, this kind of business requires a lot of customisation as every customer is unique, depending on the local regulations, specific type of pollutant produced or environment, so its quite a tough business to be in.

Though one can take comfort in the Chinese Government's strong push for better enviromental legislation and their increase in investment budget for this sector as spelt out in their 11th Five-Year Blueprint (2006 to 2011) issued in March 2006.

So should you invest in this sector, you decide!

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

The Speculative Impact of IMF on Gold Prices

2009-04-06T22:45:00.010+08:00

We really shouldn't be writing any post on a Monday night. It just seems so wrong like we are some kind of nerdy workaholics who do not have a life. Monday nights are for those serious underground party goers who really really know how to PARRRTY if you didn't know. Anyway, we were just looking at the prospectus of the SPDR (State Street Global Advisors) Gold ETF shares and read something interesting which we thought we should share since its highly related to the news about IMF selling their GOLD reserves.Of course, they might not sell in the end as taken directly out of a quote of MarketWatch " ....... the U.S. Congress must approve the proposal, and most member countries also will have to enact legislation to expand the IMF's investment authority."

Taken directly from the SPDR GOLD ETF prospectus ( written in 2004)
"Substantial sales of gold by the official sector could adversely affect an investment in the Shares. The official sector consists of central banks, other governmental agencies and multi-lateral institutions that buy, sell and hold gold as part of their reserve assets. The official sector holds a significant amount of gold, most of which is static, meaning that it is held in vaults and is not bought, sold, leased or swapped or otherwise mobilized in the open market.

A number of central banks have sold portions of their gold over the past 10 years, with the result that the official sector, taken as a whole, has been a net supplier to the open market. Since 1999, most sales have been made in a coordinated manner under the terms of the Central Bank Gold Agreement, under which 15 of the world’s major central banks (including the European Central Bank) agreed to limit the level of their gold sales and lending to the market. It is possible that the agreement may not be renewed when it expires in September 2009.

In the event that future economic, political or social conditions or pressures require members of the official sector to liquidate their gold assets all at once or in an uncoordinated manner, the demand for gold might not be sufficient to accommodate the sudden increase in the supply of gold to the market. Consequently, the price of gold could decline significantly, which would adversely affect an investment in the Shares. "

Ok that is all we gonna share...cos we are gonna party till the moon goes down .... Thats the way..ah ha ah ha..i like it...ah ha ah ha..that's the way..

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Comparison of the Big 3 Local Banks in Singapore

2009-04-05T05:27:00.027+08:00

‘We try to stick with businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change we’re not smart enough to predict future cash flows. Incidentally that shortcoming doesn’t bother us.’ - Warren buffet

As we always believe in understanding what we invest in and absolutely subscribe to the quote by Warren Buffet above, we decided to start a project that seeks to understand the underlying business model of the different industries in Singapore. In this first post of this project, we are looking at the local banking industry in Singapore and compare among them, in the hope, to understand them better. As new information is picked up, we will just add into it. In time to come, we should be looking into Plantation industry , Oil and Gas related Industry in Singapore, Property Development industry,Waste treatment industry, Telecommunications industry e.t.c. As we learn, we share cos sharing is caring. Yeah like real....... Does anyone still believe this sissy crap?

Comparison of income sources between DBS, OCBC and UOB banks.

Net Interest Income - Money earned by banks from taking " low interest bearing" customers deposits to make "higher interest bearing" loans out and earning the interest spread.

Non Interest Income - Any income other than the above. See below

Generally, it has been mentioned that non-interest income adds to the stability of the bank due to diversification of income streams. OCBC is therefore considered more diversified. It is not unexpected as they own a very large proportion of Great Eastern which contributes to their Non-Interest Income portion.

Comparison of Fees and Commission Income ( a component of Non Interest income) between DBS, OCBC and UOB Bank.
Personally, UOB bank presented their breakdown differently from how both OCBC and DBS presented. What does "Investment related" mean? It can mean both "stock broking" and " "Investment Banking"? They also have this component called "Futures Broking" which should fall under "Stock Broking" in DBS or OCBC's way of break down. Maybe the regulators should ensure similar terms used so as to compare more easily.Does Trade-Related under UOB mean "Trade and remittances" under OCBC and DBS? Question Mark?Does "Services charges" under UOB mean "Deposit related" under OCBC and DBS?

Anyhow, look at the fees from UOB's Credit Card and Fund Management. Among the 3 banks, UOB earns the most.Under Loan-related fees, DBS earns the most.

Comparison of Loans to Customers By Geography

Aaaaargh! Can't find any such breakdown for UOB! Hey what's up man!Can you guys follow the crowd?

Anyway, from here it can be seen OCBC's strategy of venturing into Malaysia while DBS's strategy is to venture into Greater China ( includes HK). They have neglible loans to US or Europe, since "Rest of the world" constitutes a mere 5% for DBS and 4% for OCBC.

Comparison of Loans to Customers By Industry

Top 2 industries for DBS is Housing loans and Building and Construction

Top 2 industries for OCBC is Housing loans and Building and Construction.

Top2 industries for UOB is Housing loans and Financial Instuitions, investment & holding companies.

It seems among the 3 banks, UOB has lent out the most loans to Financial Instituitions in absolute amount $16 billion. Only OCBC lents to Agriculture, mining and quarrying ....

Comparison of Customer Deposits ( Cheap Financing for the Banks) Look at the savings deposit of DBS bank! Actually, its quite obvious. This table is a waste of our time. Shit.

Comparison of Non-Performing Assets among the 3 banks What is a non-performing asset?A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments.

For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency.

The percentage of total loans that are considered as non-performing is highest with UOB bank. Of these loans, the percentage that is > 180 days overdue is also the highest with UOB bank at 1.02%. Eh please don't run on bank ok....if you do..u are damn stupid cos Singapore Banks are super duper safe. This is just a comparison of high-class banks and of cos comparisons will bring out one less strong right? Maybe its easier to get a loan from UOB as they seem less stringent?

Comparison of Staff Headcount and expense of the 3 banks

It was pretty unexpected as we had always thought that DBS, being the biggest local bank would have the most number of employees. Surprisingly, it has the lowest, while UOB has the most number of employees. The total amount that is spent on DBS employees is the highest though and their mean "expense ( this could include other things other than salary)" is $85,541.1, nearly twice their 2 rivals.

OK this post is just to compare the 3 banks for a better understanding of their business. So we did not include Tier 1 ratios and the stuff.

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Query about DCA and other Investment Stuff

2009-04-04T11:09:00.020+08:00

Hi SGdividends,

Greeting to you and your team, thanks for having such interesting blog to enlighten rookie like myself.

Been following your blog for the past couple months, decide to write to you as i wish to hear more about DCA, currently i'm buying STI ETF via poems SBP at $200 mthly.Appreciate if you can give me more views on such, i'm not sure if i am doing the right thing, however the admin charge of $10.70 is definitely expensive.

On top of STI ETF, i'm looking to get some penny stocks but only have limited capital. 3-4k Myself is a passive investor and since i'm young, time is to my advantage. I'm willing to buy and hold.

Due to the recent bull rally, i can't help thinking if i really miss out the bottom. Rather than waiting and waiting for the uncertainty bottom, i got to be a little pro-active.

I have shortlisted a couple of stocks, hope to hear from your views if you are comfortable.
Bio-treat
Boustead
Cambridge
Celestial
Epure
FJBen
FSL trust
Gen int
Hyflux water trust
Mercator lines
Midas
RafflesEdu

Your comment is purely taken as suggestion and hold no responsible or liable to whatever that may arise.

( a reader)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hi Dude,

Based on the above, if you are only buying 1 counter ( STI ETF 100) at $200 monthly, then it should not be $10.70 charge. It should be $6.42, since your investment fall into the category of less than $1000 and less than or equal to 2 counters.If that’s the case, your “sales” charge is 3.21% monthly. The most optimal amount via SBL is $1000 monthly which comes up to 0.64% “ sales” charge in this category. So if you wanna do DCA , $1000per month is good if you have the necessary cash inflow monthly. For POEMS SBL using DCA, the next optimum is $5300. ( but don’t think most people can afford a monthly DCA of $5300 right and one can already buy a lot.)Having said that, think if $200 is all you can spare a month, then your current situation of investing $200 is the cheapest option available in the market now and you should continue doing it since STI is still pretty attractive. You should stop your DCA when you see yield curves getting flat.( See our post on "how to predict a recession" under the how to links. Scroll below for the link under Related Articles.)

Just to let you know, our strategy now ( or rather for the past 5 months since) is to buy blue-chips which are collectively included in the portfolios of Fund Managers.(See our posts on "A Peek into Fund Manager's Holdings". Scroll below for the link under Related Articles.) We reasoned that funds faced much liquidation which contributed to the plunge. If and when they buy back, they will buy back such blue-chips again….since they generally have a set criteria of what kind of counters they are allowed to buy. Anyway, we don’t know the bottom and we should just plonk in some money every month.

Just a short comment with some links on the following counters from a “fundamental” perspective, not “technical” perspective, we rather you see for yourself and decide =). It’s your money…not ours. You might also want to check out their debt profile.

Bio-treat
Cashflow
Just feel that there are too many competitors doing waste treatment but they claim to have this BMS technology, don’t know what the heck is that..
Boustead
Cash Flow
You might want to hop over to this blog to look at the in-depth write up by MusicWhiz
Cambridge
Purely a dividend play.
Celestial ( Thanks La Papillion for pointing the mistake)
Check out Convertible Bonds warning
It’s a soybean , food and beverage maker which means its exposed to commodity prices as a raw material. As a fundamental investor, this is a huge risk as people are bullish on commodity prices in the long term. Might face profit margin reduction. For example Jim Rogers bullishness.
Epure
Check out their Cashflow
Another wastewater treatment!!
FJBen
Check out their Cashflow
The cashflow don’t look good. The FREE cash flow looks abysmal.
FSL trust
Check out Market Uncle
Gen int
No comments.
Hyflux water trust
Check out Market Uncle
Mercator lines
Check out their Cashflow
The cashflow don’t look good. The FREE cash flow looks abysmal. Fundamentally weak, personal opinion. Some people may reason that it would be a good idea to buy into cyclical stocks since the upturn will enhance the capital appreciation of such cyclical companies since it has a high beta. It’s your call…but we don’t buy into this reasoning
Midas
Check out their Cashflow
Recently (around 30 march 2009), many financial analysts such as Kim Eng (target : S$0.68)and DMG ( target: S$0.73) say it’s a buy. Reasons being:
1) One of the four entities with a licence to assemble/produce Metro train cars in China.
2) Direct beneficiary of the China stimulus package. Approximately RMB2t is budgeted by the Ministry of Railways (MOR) for expansion of China’s existing railway system between FY09 and FY12, mostly for intercity train systems.
The company has granted share options:
Exercise price of options granted: S$0.517 per share and insiders who have accepted them are:
1)Chan Soo Sen
2)Raymond Tong Wei Min
3)Chew Chin Hua
Validity period of the options: 9 February 2009 to 8 February 2014 which means they can exercise it anytime between. ( that’s how we interpret it).
You might one to look at the insider trades at Midas Website
Raffles Educations
No comments.

SGDividends Motto" Take us with a very very small pinch of salt"
Caveat Emptor
If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

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

Cash Generating Ability of Singapore's Blue Chips...a Snapshot

2009-03-30T23:11:00.010+08:00

We have compiled a list of STI Component counters showing their Cash from operations from year 2004-2008. Primarily, it is to compare the trend and consistency of their cash generating ability over the years. Please take note that the compiled charts are taken at face value from Reuters. And when we mean "face value", we mean take it with a pinch of salt ( like how you should treat what SGDividends, Analysts, your stock broker, e.t.c says). Treat us like some noise in the background and really go verify the facts and do your own due diligence..come on..don't be a pig. Pigs get slaugthered unless they can fly away. Anyway, read the comments at one of our post to understand why we say what we just said...... thanks to that nice chap who alerted us on our mistake in that post.....

Also pls note that we did not include the 3 banks, UOB,DBS,OCBC in the document below. This is due to a small voice that told us not to do it and this is a personal issue....don't ask.

So just what exactly is Cash Flow from operations? Cash flow from operations is the cash that a company generates through running its business. It's generally a better measure of a business's profits than earnings because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. It's cash flow that pays the bills. Its the real mc-coy...unless that company is some certain S shares that just pluck digits from thin air..
Cash Flow From Operations 1
Cash Flow From Operations 1 sgdividends Taken from Reuters.At time of compiling, Data for Cosco and Comfortdegro was unavailable from Reuters for year 2008.

How To Reduce Investment Expenses when doing Dollar Cost Averaging

2009-03-29T20:30:00.012+08:00

" The shortest route to top quartile performance is to be in the bottom quartile of expense. " - John Bogle ( Founder of The Vanguard Group)

This post is to do a comparison in relation to investment expenses between Unit Trusts, ETFs through DBSV Cash Upfront and other brokerages and POEMS sharebuilders plan. In relation to sales charges, based on the spreadsheet done below, there is an optimal way to invest, so as to reduce charges or fees, based on the investment amount if one is to follow a monthly dollar cost averaging strategy.

Generally, dollar cost averaging means allocating a fixed amount of money into investments at regular intervals, so as to lower the average cost of the investment, since when share prices go up, less shares are bought and when share prices go down, more shares are bought. The other reasons for dollar cost averaging (DCA)include not having enough funds to buy a pricey blue chip company say, the minimum 1 lot DBS shares and so DCA allows one to slowly accumulate DBS shares. Other reasons includes a person not being savvy enough or having not enough time to monitor the market so as to "generally" time the market to enter.

The reason why we are comparing the said instruments is because these share a common trait, which is, they allow one to so call diversify their portfolios. Well, personally, SGDividends do not use any of this said instruments, that is Unit Trusts, Share Builders Plan or buy any ETFs, but oh well, to each his own.

For those who don't know what POEMs share builders plan is...read below.

Read here about DBS Vickers Cash Upfront Trading Service

Ok so now that we have some background information on what the POEMS share builders plan and the DBS Vickers Cash Upfront Service is....let us compare! Do note that for the share builders plan, we are refering to the scenario where a person buys more than 2 different counters each month....since 2 or less counters is not really diversification....don't you think? Therefore, the handling fees is $10.70 instead of $6.42.

Also, do note that Share Builders Plan only allows one to buy certain Singapore listed shares.

Regarding ETFs, most of them allow one to buy in terms of 100 units or 10 units ( for example, DBS STI ETF 100) instead of a board lot size of 1000 units, so monthly regular DCA of $100 is still possible....

Commission Charges Sgdividendsteam sgdividends Comparison of commissions charges for different equity intruments in singaporeThis only analyses upfront charges when one buys , such as sales charge,handling fees and brokerage commission. It DOES NOT include GST, annual management fees,SGX access fees e.t.c

Ok some points to note. It is stated above that between the monthly investment amount of $100 - $700, unit trust is the cheapest. That's misleading ok....in addition to the sales charge above, there is an annual managment fee of generally 1.5%. In fact, SGDividends has been very sweet to the Unit Trust as we took the lowest sales charge of 1.5% among different UTs. Many UTs have sales charges of up to 5%.

ETFs generally have, in addition to the above sales charges, an annual fee of 0.28% - 0.3%. Also, one must pay brokerage fees when one liquidates this investment. Unit Trusts do not charge fees when it is liquidated. Having said that, ETF is still cheaper than Unit Trust.

For Poems ShareBuilder Plan, in addition to the above charges, there are compulsory unaviodable charges of $10.70 for corporate actions per counter. So, lately, with the recent spate of rights issuance by some bluechips company, there has been quite some expenses.......

So well, you decide for yourself which is the way to go...... and do note that expenses is just one single factor when investing as the performance of the underlying instrument through which ever means, Share Builders Plan, DBS Vickers Cash Upfront or Unit Trust..e.t.c is still the most important

Buy and Hold Strategy For The Long Term...Rethink again

2009-03-28T15:17:00.008+08:00

So what does the term buy-and- hold really mean? How long does one hold to consider oneself such an investor? Frankly, its just an academic jargon which is of no use debating over. Life is larger than this. We were reading up on Marc Faber cos he looks abit like Hannibel Lector in the movie and also because he said that it is a myth that stock markets go up generally in the long run. So well.. this guy is a smart guy..having gotten his PHD in economics at age 25 and having so much experience in the money markets of the world.....his comments is at least worth some consideration. Besides, conventional wisdom says that when one is young, start investing in equities as in the long run, equities in general rises. One can see this is by clicking on the charts for the DJIA (Dow Jones Industrial Average Index).
Taken from the book below......

" The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. This figure is based on most surveys of corporate births and deaths. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces. Human beings have learned to survive, on aver-age, for 75 years or more, but there are very few companies that are that old and flourishing. "

And this research is based on Fortune 500 companies which are considered blue chips and therefore relatively considered less risky than those mid-cap or small- cap stocks. Its quite scary to think whats the average lifespan for mid-cap or small cap stocks then.....10-30 years? Therefore, it is imperative that one researches the stocks thoroughly before buying, instead of just buying many different stocks after a surface read-up on the company, in the guise of the oft-used word of "diversification".

Serves to remind one also to allocate at least 2-3 times a year to rebalance and relook at ones portfolio. Anyway, the authors also did a study on why some select few companies were able to grow beyond the lifespan of a normal company and one of the common factors is the financial prudence of the company management and board.

It terribly irks SGDividends when we receive glossy, thick annual reports every year! Save the money and trees..dudes!

Why Tempted SGDividends Are Not Investing into US Equities....

2009-03-21T07:02:00.020+08:00

Aww man...we like Krafts and General Electric. Why? Do you know that Krafts are the brandowners of Oreo Cookies? Their financial ratios are not outstanding but they did a restructuring just 2-3 years ago which makes sense and we have the gut feeling that Irene B. Rosenfeld is a good leader.( we don't really like it that she is both chairman and CEO though...). How about General Electric?General Electric are beseiged by their GE Capital..but their other divisions are going damn strong. Just click on the links of key developments for GE under Reuters, compare with other companies you think are big and you will understand. But we are not investing in these, neither are we intending to do so( unless something interesting happens). Among many reasons such as the exchange rate risks, the lack of a homeground advantage as Singaporean investors, we just found another reason to not invest in US equities. (If you are trader, yeah think US market is for you...its damn volatile . Investing and Trading are different)

This reason is not new actually..think we read it in a book initially and it makes sense to us. It suggests that the US stock market will not be able to see as good a returns as the past due to the mandatory withdrawal of US citizens of their 401Ks at age 70.5years. Just in case, as a Singaporean and you are not familiar with 401Ks, its like a retirement account, similar to our Singapore Supplementary Retirement Scheme (SRS) which was incepted somewhere in year 2001. Below is a summary timeline of 401Ks..

Let's look at the current population pyramid of US as of year 2009. ( taken from their Censeus Bureaus....don't play play and who says Geography is useless, we will punch you..see how useful it is!)It should be noted that the inception of 401Ks was around year 1978. That means that as of current year 2009, about 31 years have passed, enough time for US citizens to have amassed a large amount of equities or mutual funds and other securities in their 401Ks. Add to that, as can be seen from the population pyramid above, the baby boombers are coming of age. At around 6-10 years time, the currently 60-64 age group would have to begin mandatory withdrawals, which means selling of US securities. Wouldn't this add to the downward pressure on stock market prices?See the fattening of the population pyramid downwards.

Just a minor additional point. The US government temporary suspended the mandatory withdrawal of 401Ks for year 2009 and thereby effectively postponing such withdrawals to a later date, giving the explanation that forced withdrawals in such current environments would cause a realised loss for retirees. That makes sense. But another additional reason, in our opinion, is that it would cause additional downward pressure on US stock prices. Duh.....

So great, all this, baby boomers, postponed mandatory withdrawals should just add to the relatively sub-par performance of the US stock market in the future...don't you think?

Updated in response to the first comment.

A random search brought up this chart by the US Census Bureau. This is showing data in year 2000 and 2002. Let us focus on year 2002.

As can be seen below the amount of stocks and mutual funds US persons are holding are USD20,665. The amount in 401K is USD21,450. So, the amount of 401K is not insignificant. Granted, not all 401K are in stocks....

An invisible tax...Cash is crap!

2009-03-20T07:33:00.009+08:00

With the yet again recent move by the US Feds to increase the money supply by buying up mortgage backed securities..we vomited when we heard that news. The US is in a big mess...it seems they are operating in an environment where every action they take is a struggle between politics and pure economics logic. Don't get us wrong...we think what the Feds are doing are logical from a public administration standpoint, but it is disastrous from an economics point. Anyway, SGDividends is ultra bearish on the US dollar and thats our personal opinion. It just makes perfect sense.

In layman speak, the above chart is basically showing how fast and furious the US Feds have been buying securities ( mortage-backed,treasuries, e.t.c). When the US Feds buy securities, they use US dollars to pay for it, therefore, effectively increasing the money supply into the system. Don't you think the spike is kinda scary?

To understand what gibberish we are talking about, one needs to understand the purchasing power of cash . It refers to the amount of real goods and services that a person can buy with say $1 fiat money. Therefore, its not correct to measure whether one has become wealtheir by looking at one's bank account, its more important to see how much goods and services one can buy. See the second chart above.

A bit on the history of money so that one can have a firmer grasp on why we say the USD dollar is crumbling and appreciate the situation better. ( Anyway, who says history is a useless subject in school...we will punch you . Its has helped many people make serious money.. )

Fiat money ( the paper money) used to be backed by Gold. So simply , USD$1 is backed by 2 pieces of Gold held in the Central Bank. By doing this, there was a system in place that imposed discipline on the government and prevented them from printing too much money. Think about it, one's money then was actually backed up by something REAL and PRECIOUS. In 1971, the US government abandoned the above system, which means money can be printed wantonly as it is no longer backed up my ANYTHING. Doesn't it make you wary of that lousy piece of "Legal Tender" paper. When the US government increases money, its actually an invisible tax on especially those people who do not receive that money. Its similar to a company stock. When the board of directors issue shares to their employees or insiders, it is dilutive and those shareholders not receiving these shares actually now owns a smaller percentage of the company.

Ok that was just some rant. Think the only money we will keep now is the money in our EZ link cards and Minimum $500 dollars in our POSB bank for daily liquidity needs. Cash is crap..buy assets. Ok so we wrote an article about 1-2 months back regarding Gold...since its a hedge against inflation...well we are still not buying into Gold though....just don't feel like it.

How Low Could the STI Counters Possibly Get...Let's Calculate

2009-03-08T23:31:00.003+08:00

Ah...The million dollar question on when the STI's low will be reached, so let us attempt this with some tangible data based on the last 2 recessions, the Asian Financial Crisis ( 97/98) and Sars ( 02/03). Actually, the idea to blog this was from a post from a website called money-and-girls.blogspot.com ( yeah you perverts...you saw it right...girls...) who took the data from another website which we would have definitely acknowledged if we knew.

Below is the data showing the percentage decline from the peak 93/98 high to 97/98 low during the Asian Financial Crisis and from the peak 99/00 high to 02/03 low during the Sars period for the various STI counters.

The above is taken from money-and-girls.blogspot.com

Let's use this percentage data to calculate the possible decline for the various STI counters in this financial crisis...shall we? See below document( The document below was done by SGDividends)

Possible Low

(Please note that those highlighted in blue are those stock counters that were listed during the 2 time periods from boom to bust...and we will only focus on these)

So what can the above tell us?

From the second document, it seems that there could possibly be more downside to go for many of the STI counters if one were to base strictly on history alone, ceteris paribus. The first document highlights something interesting. Notice that for nearly all the Straits Times index counters, their 02/03 lows were higher than their 97/98 lows. However, if one were to compare their 97/98 highs to their 02/03 highs, this pattern does not exist.

Therefore, a lesson learnt is that one should never ever invest when its a boom year cos you might just be stuck for ages and one should always invest in a recessionary or depression-like year as its highly probable that you will still make money even if you had not sold out your stock positions by the next downturn.

But then again, pls be mindful that its not always 100% true that the most recent low will be higher than the previous low as seen by the Nikkei index below from 1984 to current where the low just get lower and lower....poor japanese investors!

How to Invest Using Dogs of the Dow method with SGX shares

2009-03-04T11:51:00.032+08:00

Our fellow blogger at www.passivelifeincome.com mentioned to us before about this theory called Dogs of the Dow. It has a weird name and we thought it sounded like a movie show. Anyway, as we read more into it, apparently, some fund managers ( Merill Lynch) have been marketing a fund based on following this dogs of the dow strategy. So let's delve more into it and apply it to Singapore context. As the name implies, this strategy is actually done with Dow Jones Industrial Average (DJIA) companies.

So how effective is it? Show me the money..no money no talk! Read on!

What are the steps for the Traditional Dogs of the Dow method?
(This is a summary of what has been written by other people)
Step 1: Fix a date ( usually end of the year but any date is fine). Be disciplined and stick with this date, always.

Step 2: Select the 10 stocks which have the highest dividend yield. Even though it has not been mentioned, we will exclude REITs or TRUSTs simply because, the DJIA does not contain Reits or Trusts, so this is by inference. Since this method was for DJIA stocks which are the largest, so by inference again, this would mainly refer to blue-chips stocks in Singapore context. And this is the STI component stocks ( REITs and TRUSTs are striked out):
Capitaland, ~~CapitamallTrust,~~ City developments, Cosco Corp, DBS, Fraser and Neave, Genting International PLC, Golden Agri-resources, Hong Kong Land Holdings, Jardine Cycle and Carriage, Jardine Matheson Holdings, Jardine Strategic Holdings, Keppel Corp, Keppel Land, Neptune Orient Lines, Noble Group, Olam International, Overseas-Chinese Banking Corp, Sembcorp Industries, Sembcorp Marine, SIA Engineering, Singapore Airlines, Singapore Exchange Limited, Singapore Press Holdings, Singapore Technologies Engineering, Singapore Telecommunications, STARHUB, United Overseas Bank, Wilmar International, Yanlord Land.

Step 3: Allocate your funds equally to the 10 stocks.
Step 4: On the anniversary, sell the 10 stocks to get your funds, add somemore funds if you want to and repeat the steps.

As can be seen in the document above, the Small Dogs of the Dow seem to be doing better! So.....a little refinement.
From Step 2 above, choose 5 stocks among the 10 stocks that have the lowest closing price and allocate your funds equally among these 5 stocks, instead of the 10 stocks.These 5 stocks are the so-called "Small Dogs of the Dow".

So whats the bloody logic?
The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its companies prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above average stock price gains as well as a relatively high quarterly dividend.

What does SGDividends think about his logic?
Frankly, we think their logic is a bit logical as we have mentioned before ( in our opinion) that its always better to get some money back in the form of dividends as we wait for capital appreciation, so choosing the beaten down stocks with a high dividend yield makes sense. But then we dislike it as its just too mechanical...like why is this stock beaten down..e.t.c...read our post on DIY investing for our preferred method. Anyway, notice the footnotes, note 3 in the above document taken from http://www.dogsofthedow.com/, it states reliable sources and we are extremely skeptical with such things. Why not tell us which sources are those? My mum is reliable... so is my grandfather..get the drift.... Having said that, its track record sounds good..so we will just shut up for now.

So what are the stocks? Say it and stop beating around the BUSH!Bitch!

Dog of the Dow - Compiled by SGDividends.blogspot.com

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

SGDividends Watchlist 1 - Price per Average Free Cash Flow

2009-03-01T23:12:00.009+08:00

Below is a list of SGX stocks which are on our watchlists. Column L (the one at the furthest right)shows the Price divided by Average Free Cash Flow per share. The lower this value, the more "value" a share is deemed to be by this valuation method. We have always maintained that this form of valuation is more conservative and better than price/earnings.See link in our step-by-step DIY investing.

Warren Buffet's Opinions - Most recent 2008 Letter

2009-03-01T10:51:00.011+08:00

Finally, its out...like an eager beaver, we read his letters with glee. Just some opinions from Warren Buffet.
His Thoughts on the Economy
"We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall."

His Thoughts On Future Oil Prices
"Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."

His Thoughts on Holding Treasury Bills and Cash

"The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary. Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
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

Financial Instituitions are Your Friends - Some ramblings about Structured Warrants

2009-02-13T22:06:00.015+08:00

We stumbled upon this advertisement in Singapore from a financial instituition and thought what great marketing material it was.

What they wrote seem to imply that their hedging strategies are perfect ( second paragraph) and any gain to the warrant holders are taken from the losses of the warrant issuers' counterparty whom they entered into positions with to hedge their warrant positions. Its not really right to state its a win-win situation between issuers and warrant holders since the issuers are still earning the premiums with no risk ( assuming perfect hedge) but risks still exists for the warrant holders who could still lose the premiums. Maybe this situation exists to " compensate" the warrant issuers for all the hardwork they have done to package such a derivative product.

And the truth of the matter is, in our opinion, its indeed a zero sum game since there is no such thing as a perfect hedge. When warrant holders win, warrant issuers still lose, although, the lost is just minimised. Refer to the following link where it is written :

"According to Financial Supervisory Service data, domestic brokerage houses posted a combined 55.4 billion won loss from equity-linked warrant trading between April and August last year, while foreign houses logged a 1 billion won loss. These warrant issuers failed to hedge adequately against markets moving against them as the benchmark KOSPI jumped 29 percent. "

Anyway, we stumbled upon this somewhere in the internet:

"For the covered warrant, the main concern of the issuer is how to attract the market investors to buy the issued covered warrant when the product is launched. In this consideration, the usual technique for the investment banker is to buy lot of the corresponding share at a low price and suddenly push up the stock price. It then issues the covered warrant at a strike price based on the high stock price. Often they will also support the stock price for a while, but when their warrant have been nearly sold to the market, the stock price will drop. As the strike price of covered warrant is normally quite high, the premium and leverage ratio are also quite high. The high leverage ratio is ideal for investment consideration, but the high premium is very risky, and the covered warrant can easily become "Wall-paper warrant" in bad market situation. Investors should always remember that the issuer of the covered warrant is an investment banker who is VERY EXPERIENCED in market manipulation. When a covered warrant is approaching its expiration date, the issuer will try to beat down the price of the stock, such that the issuer can buy back enough stock from the market to be later distributed to the warrant holders who are willing to exercise the warrant. In the extreme, the issuer may even try to drag down the stock price to make it lower than the strike price. The warrant thus becomes 'Wall-paper' and no warrant holder is willing to exercise it. The warrant issuer thus makes a neat big profit. This normally occurs to the weaker blue chips (there is only covered warrants for blue chip stocks in HK) like Cathay Pacific and Dairy Farm. There are some issuers who are very NOTORIOUS in killing their covered warrant investors! "

See this link for what a dealer said: http://ir.asiaone.com/cosco/news/20061005_001.html

Another blogger post on structured warrants. Level13 Financial Ramblings

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

How to be a DIY Equity Investor - The Minimum Considerations

2009-01-25T09:57:00.043+08:00

It's been sometime since we updated this blog, having been distracted by something beautiful. We have learnt a lot about ourselves these few years ,made some terrible investments but life goes on. We can't turn back time but the only thing within our control now is to learn from our mistakes and not ever make the same ones again. For this article, we thought of sharing our opinions and proposing a systematic way in which one should pick their stocks and when to buy and sell equities in general. This should actually be the minimum we think one should do. The steps have actually been written in bits and pieces throughout this blog. The steps shown below is not too time consuming. we feel...In addition to the below, one can go always go one step further to do graphs to see trends such as whether the sales or cash flow is increasing along the years if they think the amount they are investing is worth the time. Pls feel free to critique or suggests improvements for one should always be humble in this world and to learn and upgrade oneself. The objective is to keep things simple. Simplicity is beautiful.

Before reading further, read this first.
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Step 1: Look at the Yield curves as a forward looking indicator to decide when to underweight or overweight on equities. (Read our blog post here)

Start selling (especially cyclical stocks): flattening yield curve

Start buying: steep and rising yield curve. Buying should increase in intensity when VIX indicator is high.

Rationale: We believe in timing business/economy cycles. Such cycles are a fact and nearly everything goes down in a downturn, even defensive stocks. But we would wish to state that we think there is no point in trying to predict exactly when the top or bottom is.

Link Tools: We have included the links on the right of this blog for the US yield curves and VIX indicator charts.

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Step 2: Select companies which generate positive free cash flow consistently from the cash flow statement for the past 4-5 years. This is one of the most important steps. This step is for filtering out stocks that don't generate free cash flow and ignoring these.

Rationale: In investing, no one can be 100% certain in anything, but one thing for sure is that companies which have flopped are those that have not been able to generate free cash flow. See below for facts. Anyway, whats good about having a business that does not generate cold hard cash? Net Profit shown on Income statements is really unreliable, subjected to depreciation expense, management manipulation, and does not take into account recoverable sales from accounts receivables.

Ferrochina (above)

Jurong Technologies Industrial (above)

Link Tools: http://www.reuters.com/

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Step 3: From Step 2, select companies that have their current assets greater than their current liabilities. Even safer is to select companies whose cash balances or fixed deposits is greater than their current liabilities. ( Read this blog post for an example here). This step is for filtering out stocks that do not have current assets greater than current liabilities and ignoring these.

Rationale: This is just to ensure that the company can survive during the bad times where banks are not as generous in their loans or will charge high rates for loans. An alarm bell should ring in one's head if the company is taking on bonds or loans that have a high interest rate. See herefor example.

Link Tools: www.sgx.com. Click on the company ticker. Click announcements and take their latest financial statements and look at the balance sheets.

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Step 4: Compile a list of the companies which satisfies Step 3 AND Step 4 . This is the watchlist. Find ratio of Price /Free Cash Flow. (P/FCF) . The FCF we use is an average of the Free Cash Flow for the past 4-5 years so as to smooth out any one offs. This step is for comparison between the different companies filtered out up till here.

Rationale: The lower it is, the more value it is relative to the other companies as one is paying lesser $$ for a unit of free cash ( or cash that the company is free to use) that the company has. It also allows comparison between different kinds of companies, such as between service and manufacturing companies. We don't subscribe to P/Book ratio as it penalises service companies by showing them generally having a large p/Book value compared to capital intensive companies. Similarly, we don't subscribe to P/Earning ratio as it generally penalises capital intensive companies due to their higher depreciation expense. All companies, no matter what their capital structure is, have to generate cash and P/FCF can allow a comparison.

We will be posting up an example of a spreadsheet we did sometime later comparing some companies.

Link Tools: http://www.reuters.com/ . Take the following data: Diluted weighted average shares, Cash from Operations, Capital expenditure to calculate the FCF per share.

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Step 5: For the list of stocks filtered till here, find the intrinsic value by using Benjamin Grahams funny formula ( See blog post here). Find also the intrinsic value using DCF for dividends. (See blog post here). This step is just to get a fluffy feel, awareness and some insights.

Rationale: Actually, we don't know the logic of Benjamin Grahams formula, but since he has proved himself and have also taught Warren Buffet before. No harm using it. Actually if one is to see the intrinsic value calculated by us, its not too ridiculous when one compares with the current market price of the stocks. DCF is quite fluffy in the sense that dividends are not constant. But the purpose of this step is to gain some insights and to get a number as a value. This is because comparisons between different companies using P/FCF simply tells one which company is more value than the others but does not tell one whether it is cheap or expensive to buy. Another good thing about doing this step is to shake off the anchoring bia-ness ( See blog post here). Anyway, it acts as an assurance if one buys a company that is trading below both the value churned out by DCF and Benjamins Grahams formula to prevent one from being too emotional, right?

Link Tools: http://www.sgx.com/

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Step 6 : Compare the average net profits % ( around 4-5 years average) and average gross profit % ( around 4-5 years average). This is just to get a general feel for the company.

Rationale: This is to see how much margin the company has to play with to fight price wars, commodity increases..e.t.c.

Link Tools: http://www.reuters.com/

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Step 7: Compare the dividends yield and dividends consistency. Generally, a higher, increasing and consistent yield is better. This step is just for comparison and gaining some insights.

Rationale: Need we say more. A higher dividend yield allows one to get back some money as one holds the stocks.Its like a "productive" asset as one waits for capital appreciation. And we don't really agree about the theory that says the more dividends a company gives out, the lower its capital appreciation will be. It makes sense actually in THEORY as the money saved can be used to fund projects to increase earnings which in turn increase the share price. But we feel its always better to get back some money earlier. Doesn't one spend money more recklessly if one has lots of it? We think one will spend more prudently and wisely if the money they have is more tight or just enough. This applies to management.

Link Tools: http://www.sgx.com/

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Step 8: Check Management Quality. Check board of directors. There is no criteria for this and its up to one to judge, just to gain some insights. Look for webcasts interviews by management.

Rationale: Need we say more. We like to see directors who are also directors of other companies and we like to see at least one female on the board. Also, directors who have different skills sets like law, accountancy, engineering...e.t.c. Also companies who have CEOs who are also not the Chairman. This makes sense as the purpose of the board of directors is to watch over the management to safeguard shareholders. If the CEO and chairman is the same, then whats the purpose? Also look at the integrity of the management and their past history which could affect share prices. For example why is Golden Agri so much below its NTA. See here for possible reason.

Link Tools : Company website lah..

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Step 9: Check shareholding statistics. There is no criteria, just to gain some insights

Rationale: Is the management putting their money where their mouth is? Our preference is for management to hold some shares but not too much. More than 50% and we think its too much. We think this is a safeguard as if the share market plummets again after we buy and the majority shareholder decides to delist it by buying the shares at a low price, our money is gone.

Link Tools: Company website or financial reports

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Step 10: Check the growth rate of outstanding shares through the years. This is just to gain some insights.

Rationale: Actually we dislike companies whose outstanding shares grow too much too fast. We don't like employee stock incentives and management share options. All this just means that our proportionate ownership of the business is lesser and that the company has to make more money to justify the increase in oustanding shares and to make sure that our proportion of the money the company makes does not decrease too. Again, we don't agree that giving out such shares will motivate workers much. This is from experience and also talking to people on the ground. Its too theoretical.

Link Tools: http://www.reuters.com/

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Step 11: Check for management buying and selling the shares and at what cost. Check for share buybacks and at what cost. This is just to gain some insights and feeling shiok that we bought lower than the managers or company.

Rationale: Generally companies or management buy back shares if they think their company is undervalued or its a better to invest in their own company than to use the cash to do anything else. Share buybacks increases one's proportionate ownership of the company also.

Link Tools: http://www.sgx.com/

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Step 12: Sit back, relax and think about the business model of the company. Does it have an economic moat? Who are its competitors? How many suppliers it has? Is it highly regulated? Is it highly exposed to commodity prices as their input?Talk to your friends working in the company ( not insider trading lah...as in ask them about the industry trends, how stingy is the company in doling out bonus to staff, generally, the more stingy the company is to the staff, its better for the shareholders...sound sick but hey, its always about the shareholders)

Rationale: This is to determine the factors affecting their revenue and expenses.

Link Tools: Your own brain, google and porter's 5 forces.

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Step 13: Use of technical indicators just to get a general feel of when to enter. What we use is ADX, RSI, Volume and Bollinger Bands . We are not traders, but just trying to get a little better deal.

Rationale: If more people use it, the more likely it is true right, like a self fulfillig prophecy. Actually, these are not dependable for the SGX market due to the low volume and the ease for manipulators to play around. More dependable for US markets with their high volumes of trade. But as long as it gives us a 0.0001% better chance of buying it at a o.o1 cent cheaper price, why not? since it so easily to use. But we are not too bothered anyway even if it tells us wrongly, cos we are not traders but some cheapskates who are trying to just get that slightly cheaper deal.

Link Tools: Any respectable brokerage house should have it. DBSVOnline's free charting is pretty decent due to the ability to choose the colours for the chart lines.

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One can always go further my following what this blogger who calls herself Dancerene did. See here . ( In addition, always read the footnotes !)
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

GloomBoomDoom Marc Faber Interview

2009-01-10T15:45:00.004+08:00

This one of the best interviews we have seen. Nothing new but there are some things he said which is quite refreshing! Basically, the summary of this interview on 1 Dec 2008 is:
1)Buy and hold strategy is dead.Warren Buffet's approach is dead for 10 years and will be dead for another 10 years ........MEOW!
2)US and China economy is a total disaster
3)He is bullish on Gold
4)He thinks Treasury bonds is the next bubble
5)He thinks the global economy will take at least 5 years to recover
6)China's reserve of 2 trillion dollars in reserve is not much in proportion of the 1.3 billion population size.
7) The Chinese is not a good example on how to invest money as they has most of their holdings in USD treasury bills
8) Central bankers are making things worse by printing more money and should let more banks fail
9)Corporate bonds is worth to invest in
10)He expects the economy to go down very badly in 2009 and be a total disaster.

Marc Faber - Part 1

Marc Faber - Part 2

About Gold - An Opinioniated Article Against the Majority

2009-01-10T08:19:00.023+08:00

We met an old finance lecturer today and boy does he look old. He told us to buy Gold because the value of the US Dollar is forecasted to decline in the long run and Gold is deemed to be inversely related to the USD dollar. Should we listen to him? Yes, we agree with him that the US Dollar is highly likely to decline, but still should we buy Gold? As Indians are particularly fond of Gold, we decided to go to Mustafa Centre to immerse ourselves in the big jewellery shops they have there where one would feel like they are in Gold Wonderland, with the precious metal glittering all around you. We spoke to the staff there and all we remember is " Buy Gold".

We decided to go back to our garage to be a keyboard warrior to do some research on the internet and most signs point us to buy Gold. Great!

Lets look at the charts. Gold has indeed risen extraordinarily,especially since 2005 onwards. The known factors that affect Gold are the following:

1) US Dollar - If the value of the US dollar is declining due to inflation or the Government printing too much money, Gold will go up.

2) Demand of Jewellery - Higher jewellery demand = higher Gold Price

3)Ease of buying and selling Gold - Due to more and more Gold ETFs, e.t.c. As when one makes things easy for people to buy and sell, people will trade more.

The combination of the above 3 factors should suffice to explain the rapid increase in Gold Prices from 2005 to 2008. So let us see what Warren Buffet has to say about Gold:

It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

As usual, as we don't follow blindly to opinions unless substantiated with data and facts ( who cares if he is warren buffet or Jim Rogers or Obama or Hu Jintao or Mother Theresa), we decided to check Wikipedia to find out more about Gold and its uses.

According to Wikipedia, Uses of Gold ( in addition to store of value and Jewellery) are the following :

1)Medicine - used as dental fillings, used as conductive coating in electron beam microscope, used to treat rheumatoid arthritis

2) Food and drink - Gold leaves in drink

3) Electronics - generally, electrical contacts due to its high conductivity.

Frankly, the above uses of Gold, in our opinion, are lame. Do we really need to drink Gold Leaves and just how many people actually drink Gold Leaves? Dental fillings can actually be grouped under Jewellery, a luxury good and just how many people have dental fillings and how much Gold is needed for a dental filling? And how about Gold use due to its conductivity? Lets look at the table of conductivity for various metals( see below), again from Wikipedia. Silver and copper are better conductors of electricity than Gold. So Gold does not seem to have much of an "economic moat" for its use as a good electrical conductor.The only valid use for Gold, therefore, is definitely as a "culturally accepted" store of value as it is really quite a useless metal. And "culturally accepted" things are quite fluffy. Read more on the "culturally accepted" tulip flower in the mid-1630s where a tulip bulb can be used to buy a house.

So will one make money by buying Gold?Quite possibly yes because of the inverse correlation between Gold Price and the US dollar ( see chart below) and the US dollar value is highly likely to go down, but we rather forgo this opportunity as we don't like things without any fundamental underlying demand other than its demand just hinging on the fact that it is culturally accepted. Furthermore, Gold's supply is generally constant as it does not spoil and not generally consumed ( just look at the lame uses above). Compare this with other commodities, say oil, where the supply is common sensically dwindling as its always constantly consumed while demand is fundamentally increasing in the long run. Based on this, basic economics of demand and supply states that Gold is a inferior investment than oil, for example.

To be fair to the Gold Proponents (Majority), here is a link to a website that explains why Gold is worth investing:
http://www.gold-eagle.com/editorials_02/hommel102802.html

Demand Breakdown for Gold ( added on 11 Jan 2008)

An Impediment to Share Market Recovery?

2009-01-04T13:46:00.014+08:00

When Israel moved into South Lebanon in 2006, oil price increased and share markets were slightly muted.

The markets have been rallying recently. A point to note is that the turnover volume of trades is still very small, which means there are fewer participants in the stock market. When there are fewer participants, it means prices can be easily controlled by market manipulators. So can this rally sustain?

Anyway, seems like even if OPEC is not able to revive the oil prices, a war can always help. Higher oil prices lead to higher expenses in this environment when demand is decreasing, leading to lower profit margin. Sounds just bad for certain companies?

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

Fund of Funds - The more fund managers there are, the more people are managing my money, therefore i feel safer.

2008-12-30T16:36:00.011+08:00

We engaged a cheapskate artist to help us draw a pictorial view on why its not wise to invest with fund managers. With the latest invention of fund of funds, which is basically, a fund which invest in other funds, its even more silly. The more managers there are, the more manager fees one pay, the less cash is actually invested. This is lame.
With the recent scandal of Madoff, it signals that the more people there are managing one's money, the higher the risk there is. Remember the lawyer who ran away with the clients money? So, in conclusion, the above shows when one uses fund managers, they decrease their returns and increase their risk.

But if one is really clueless about investing, then just go for exchange traded funds, like for example STI ETF or Lyxor where your investment just tracks the index but fees are way less. Yeah it kinda sucks that fees still have to be paid for someone just to copy and track the index, but its the lesser of 2 evils.

Read what the Old Fogey Warren Buffet has to say about fund managers in general.
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

A Peek Into the Fund Managers Holdings

2008-12-26T22:03:00.010+08:00

Fund managers seem to be very restricted in their investments. We were just thinking one day and imagining when a large redemption occurs, if fund managers had placed their allocations into stocks that are highly illiquid, they will find it quite difficult to sell such stocks and therefore have to sell them at a very low price so as to meet the redemption. This implies they would prefer to place their allocations into stocks that are more liquid. Judging by the monthly fact sheets published by them, where they show the funds' top 10 holdings, it is usually the common suspects which are highly liquid, Singtel, DBS, UOB, OCBC e.t.c. But are there interesting stocks not shown? Let us see.

Since the market is pretty uninteresting at the moment, we decided to peer into their equity holdings as shown in their prospectus, just to kaypoh a bit. We randomly picked 5 funds, whose objectives are generally the same : Capital Appreciation in the medium to long term. We have highlighted counters which only appears in one fund. Therefore, the fund with the most red colour counters is quite gungho as they have the most different counters. Some of the red counters are really bad investments with totally no fundamentals are all, in our opinion.( Actually, its includes many of the black colour ones too) But its good to see some variety.

Aberdeen Singapore Equity Fund ( As at 30 Sep 2008)
Bukit Sembawang Estates Limited
Capitaland Limited
City Developments Limited
ComfortDelGro Corporation Limited
Eu Yan Sang International Limited
FJ Benjamin Holdings Limited
Fraser & Neave Ltd
Hong Leong Finance Limited
Keppel Corporation Limited
Oversea-Chinese Banking Corporation Limited
SBS Transit Limited
SembCorp Marine Limited
Singapore Airlines Limited
Singapore Airport Terminal Services Limited
Singapore Exchange Limited
Singapore Food Industries Limited
Singapore Petroleum Co Limited
Singapore Post Limited
Singapore Press Holdings Limited
Singapore Technologies Engineering Limited
Singapore Telecommunications Limited
United Overseas Bank Limited
Venture Corporation Limited
WBL Corporation Limited
Wheelock Properties (S) Limited

(SGDividends : Wah, all the counters like really household names man!)

HGIF Spore Eq-A USD (As at 30 Sep 2008)
ALLGREEN PROPERTIES LTD
BANYAN TREE HOLDINGS
CITY DEVELOPMENTS LTD
DBS GROUP HOLDINGS LTD
HO BEE INVESTMENT LTD
JAYA HOLDINGS LTD
KEPPEL CORP LTD
MOBILEONE LTD
SC GLOBAL DEVELOPMENTS
SEMBCORP MARINE LTD
SINGAPORE AIRLINES LTD
SINGAPORE EXCHANGE LTD
SINGAPORE PRESS HOLDINGS LTD
SINGAPORE TELECOMMUNICATIONS
STRAITS ASIA RESOURCES
UTD OVERSEAS BK
VENTURE CORPORATION
WHEELOCKPROPERT(SINGAPORE)LTD
WING TAI HLDS
SARIN TECHNOLOGIES LTD
BEAUTY CHINA HOLDINGS
ARA ASSET MANAGEMENT
MERMAID MARITIME PCL

Lion Global Balanced Fund (30 June 2008)
DBS Group Holdings Limited
United Overseas Bank Limited
Oversea-Chinese Banking Corporation
MacarthurCook Industrial Real Estate Investment Trust
CapitaMall Trust
Macquarie International Infrastructure Fund Limited
CapitaLand Limited
Hongkong Land Holdings Limited
Frasers Centrepoint Trust
CDL Hospitality Trusts
Suntec Real Estate Investment Trust
Ascendas India Trust
Ascendas Real Estate InvestmentTrust

SMRT Corporation Limited
Singapore Post Limited
Cosco Corporation (Singapore)Limited
Hyflux Limited
Unisteel Technology Limited
Singapore Technologies Engineering
AusGroup Limited
SBS Transit Limited
Peace Mark
Raffles Medical Group Limited
Wilmar International Limited
Ezion Holdings Limited
China Fishery Group Limited
Thomson Medical Centre Limited
Singapore Telecommunications
StarHub Limited
Keppel Corporation Limited
Tat Hong Holdings Limited
CitySpring Infrastructure Trust
Ferrochina Limited

SCHRODER SINGAPORE TRUST CL A(3o June 2008)
Asia Dekor Hldg Lt
Fraser and Neave Ltd
Golden Agri-Resources Ltd
Jardine Cycle &Carriage Ltd
Parkway Hldg Ltd
Singapore Airlines Ltd
Singapore Post Ltd
Singapore Press Hldg Ltd
Wilmar Intl Ltd
Jardine Strategic Hldg Ltd
Noble Group Ltd
ARA Asset Management Ltd
DBS Group Hldg Ltd
Keppel Corp Ltd
Oversea-Chinese Banking Corp Ltd
Singapore Exchange Ltd
United Overseas Bank Ltd
ASL Marine Hldg Ltd
ComfortDelGro Corp Ltd
Cosco Corp (Singapore) Ltd
Hiap Seng Engineering Ltd
Pan-United Corp Ltd
Rotary Engineering Ltd
SembCorp Ind Ltd
Singapore Technologies Engineering Ltd
Allgreen Properties Ltd
Ascendas Real Estate Investment Trust
Ascott Residence Trust
Bukit Sembawang Estates Ltd
Capitaland Ltd
CapitaMall Trust
City Developments Ltd
Guocoland Ltd
Keppel Land Ltd
Suntec Real Estate Investment Trust
UOL Group Ltd
Wing Tai Hldg Ltd
Datacraft Asia Ltd
Singapore Telecommunications
Total Access Communication PCL

DWS SINGAPORE EQUITY FUND(30 June 2008)
DBS Group Holdings Limited
United Overseas Bank Limited
Keppel Corporation Limited
Oversea-Chinese Banking Corporation
Singapore Press Holdings Limited
SembCorp Industries
Capitaland Limited
Cosco Corporation (Singapore) Limited
StarHub Limited
Fraser & Neave Limited
SMRT Corporation Limited
Capitamall Trust Real Estate Investment Trust
City Developments Limited
Singapore Exchange Limited
Wilmar International Limited
CDL Hospitality Trusts
Hotel Properties Limited
UOL Group Limited
Raffles Medical Group Limited
Jaya Holdings Limited
Unisteel Technology Limited
Ascott Residence Trust Real Estate Investment Trust
FJ Benjamin Holdings Limited
Singapore Airlines Limited
Wheelock Properties (S) Limited
Allgreen Properties Limited
Ausgroup Limited
Yanlord Land Group Limited
China Eratat Sports Fashion Limited
First Resources
Synear Food Holdings Limited

"Wide diversification is only required when investors do not understand what they are doing."- Warren (Pot calling the kettle black. Just joking, it makes sense actually.)

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing" - Old Fogey WB

The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. - Old Fogey WB

Free Float - A Necessary Consideration for SGDividends

2008-12-20T06:19:00.012+08:00

We have beening bio-ing ( a.k.a Stalking) some companies which seem to be pretty under researched, boring , unexciting with super attractive valuations. But being the ever kiasee investors whose number one golden rule is to eliminate as much risk as possible first before even considering the potential returns ( basically we try to go for investments with the highest potential returns per unit potential risk), we are held back from clicking the " submit" button. So unless an earthquake hits or a childish adult comes along and push our collective fingers on the left button of the mouse to hit the "submit", we think we will give these companies a miss. ( anyway, seriously, adults are more childish than teenagers if you just open your eyes and ears to observe with an open mind.)

The reason is because of the free float of these companies which are very small. Singapore's regulation is for at least 10% of the shares of an SGX listed company to be free floated where free float refers to shares owned by persons who are not existing directors or substantial shareholders of the company. Free float shares can also be thought of as shares owned by the public and very generally speaking , such shares are highly illiquid with a large bid- ask spread. Being illiquid with a large spread is fine from a fundamental long term investing standpoint,nothing wrong with that, but we believe that adults, in addition to the capacity for love, kindness, are inherently greedy. Therefore, a concentration of power in a few individuals in a collective investment just reeks of a high risk investment, Ceteris Paribus! Based on logic, a low free float counter may also result in an investment considered a Value Trap.

Well, guess nothing looks interesting to invest in at the moment from our inexperienced perspectives. Here are some links, here and here which are related to the issue of free float size from our venerable and Hot Monetary Authority of Singapore.

" Investing is a Zero Sum Game " - Mr Siew Khim, Daniel SXXXX537E

Something that puzzles SGDividends Maybe Due to their Inexperiences

2008-12-17T13:01:00.018+08:00

Before we invest in something, we seek to understand it first. Thats the basic need. When we look at some trusts, something just don't click with our subconcious mind but guess its due to our inexperience regarding such entities, don't know, not sure.

Beefy Barber wants to unlock some cash value from his scissors and shavers lying in his run-down barber shop. He thought of a smart idea, why not package these scissors and shavers into a erm.."Package". Securitise it with say 100 shares. He keeps 40 shares and sell the remaining 60 shares equally to the Sexy VJC Girl and the Scheming SGDividends Team. The maintenance and usage of the scissors and shavers will be managed by Beefy Barber's employee. The revenue from the scissors and shavers will be (after deducting the management fees for Beefy Barber's employee) distributed to Beefy Barber ( 40%), Sexy VJC Girl ( 30%) and SGDividends Team ( 30%) according to their percentage of shares.

So in summary:
Beefy Barber gets 40% of net revenue + management fees ( through the employee)
Sexy VJC girl gets 30% of net revenue
SGDividends gets 30% of net revenue

Should we invest in it?Since Barber is a majority shareholder of the "Package" and also the 100%manager of the "Package", could Barber increase his management fees so as to leave little for the owners of the Trust? Hmm...So our Sexy VJC Girl thought of a smart idea. Lets create a trust deed so we can bind the amount of management fees to be received by Beefy Barber. (little kids these days..) Ok, hmm since the trust deed requires the majority shareholders to vote for it to have binding powers so we should be safe since Sexy and SGDividends hold 60%. So we decided on an appropriate management fee....say 4.5% of the revenue derived from the "Package" . Beefy Barber however wants 10% but since we (SGDividend and VJC Girl) own 60%, we win. We can only hope that Beefy Barber don't get pissed with us and still put in the effort to manage his scissors and shavers well.

So how about in the real market? Generally, a trust ( or REIT) is made up of many many investors who come and go and may not be united. Will they be able to muster up collective action even if collectively they hold the majority shares?

The point is, is there a conflict of interest between Barber and the rest of the other shareholders like Sexy VJC Girl and SGDividends?Who is to check the Beefy Barber who has the "most" say in the Trust and who is also the manager of the trust?
In a company structure, the board of directors checks the management to ensure shareholders rights are protected. In the trust structure, it seems there is no such structure in place. This is how we feel about Trusts.

We hope our worries are unfounded.

Let us meditate on the island of Sakhalin to find the answer.

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

Scheming SGDividends Just Playing Around

2008-12-13T09:32:00.009+08:00

Cambridge has sort of cleared some issues with their financing. So, what now, can buy, can short? The Article Written by Our Sexy VJC Girl seemed to have drawn an intense discussion Here.Maybe its cos of the word SEXY which after minusing the "Why" gives a pretty nifty,cool word. Anyway, the discussion was on the value to use as a discount factor, k, so that when we discount back to find the fair value of Cambridge, its appropriate. Probabilities, Scenarios, CAPM words were mentioned and its quite an intellectual read actually, which left us starry-eyed.

Ok so we used 6% ( preferential DBS share) as the discount factor(k) used previously to find the $1 value(Max) and it has drawn some different reasonable opinions and they got a point since DBS is less risky than Cambridge REIT. But SGDividends just don't know how to use Probabilities, CAPM, calculate the WACC ( especially the Cost of Equity) e.t.c to find the discount (K) appropraite to discount back to find the value of Cambridge. So can we be more simple?Can we use some scenarios based on comparing with industrial reits in Singapore by using their dividends yield? Is it logical? Hmm, if dividend yield is one of the factors which investors look at when deciding which Industrial reit to invest in , can we consider the dividend yield as an opportunity cost? For example, if we were to invest in Cambridge, we would be forgoing the dividend yield in MapleTree and vice versa. ( OK this is not from CFA textbook, we just play play test test only lah...give chance) We all know that dividends yield is constantly fluctuating too but anyhow lets take it with a pinch of salt and just try using it as the discount rate.

Let's experiment and try it out, shall we? Let's use the values from this fantastic blog .

REIT Dividend Yield
MI-REIT 40.870%

MapleTree 17.671%
A-REIT 13.367%

Average Dividend Yield above ( as at 12 Dec 2008) = 23.96%

Average Dividend Yield for Singapore REITS = 19.314%
( Let's assume their data is correct! Should be lah...randomly tested.)

Growth Rate ( G) = 0,

Discount Rate ( k,Required Rate of return) = Dividend Yield of Peers

Dividend (D) = $0.053 ( after cut of 0.9c).

Years of asset (n) = 65 years

(Pls see our article Titled : Sexy Vjc Girl Analyses Cambrigde REIT to understand the gibberish we are merlion-ing)

Lowest Value of Cambridge ( Using MI REIT yield) = S$0.13

Highest Value of Cambridge ( Using A-REIT yield) = S$0.40

Average Value of Cambridge ( Using Average Yield) = S$0.22

Value of Cambridge when compared with Yield of Singapore REITS = S$0.27

Research Analysts Never Fails to Bizarre SGDividends - Are they making sense?

2008-12-11T12:56:00.011+08:00

Our Beefy Barber bought Olam and Noble recently. The reason, cos many analysts are calling for a buy or have given it a good review. That is utterly irrational! We decided to read some of the analyst reports that he has read and we really think this reports do make sense BUT are they forgetting the basics? Or maybe they know the basics but heck lah...who cares....im paid to write professional reports and if anything go awry, just change the target price loh...worse come to worse, just fall back on disclaimers. Or maybe, they have other income producing reasons? Anyway, you can read these reports from our fellow blogger Here . ( wonder where he gets so many reports from??hmm)

Ok so like that, SGDividends say SPH BUY $15 target!. SingTel SELL $0.50.Keppel SELL $1. Wilmar NEUTRAL $1 million. Feels good. If kanna the target price, we are saints. If not, heck lah, just change.

Ok on a more rational note. Let's look at the basics. Seeing is believing. Don't need to write so many reports one or else become keyboard warrior. Let's not even go into the metric Free Cash Flow. Let's just look at Cash Flow from Operations. See how negative their cash from operations. So unless they are drilling for some black gold underneath the sea level, hopefully they can come up for some fresh air.

Apologies for the harsh remarks but Beefy Barber is our friend even though he bullies us at times.
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

Cambridge REIT- Take Care Cos i Care

2008-12-09T19:04:00.018+08:00

Thanks to a fellow blogger by the nick of Cheng ( you can read his blog Here) who mentioned a red flag about Cambridge in response to the analysis done by our Sexy VJC Girl. This culminated into this article . We took a look at Cambridge to see what the hoo ha ha ha ha..Santa Claus is about.

It states that they still have S$336,843,000 dollars they have to pay within a year. Wow. So, we, being extremely nosey and kaypoh like what a hot auntie would naturally be, decided to look at the footnotes to gain some perspective on this "wow" figure, and here it is:

So, really, dear investors who invested in this counter, keep your eyes peeled on any news on this. BUT, we being extremely irritating, persistent, bo liao and totally curious decided that it shan't end like that. We decided to take a look at Maple Tree Logistics which is another sort of industrial Reit. And..TAaaa DAaaaa.... ~~No mentioning of any debt to be repaid within one year!~~ S$113,701,000 to be repaid winthin 1 year. Compare this with Cambridge.

So can islamic financing save the day for Cambridge? ( Hmm we seem to remember some article back that Islamic financing may not be immune to the credit crisis too?........Just can't find it..)

About half and hour after we posted, Anonymous cleared some air on the financing issue. Great, thanks Anonymous. This is taken from financeasia.com. Have they signed it yet, cos its 16 days to Christmas...ho..ho..ho!

See below for a post by a nick "Banker" at a forum.
Quote:
Cambridge Trust (CIT) has an option to extend the S$330+ mil facility. ABN Amro the trustee of CIT is the arranger for this facility. Moreover, this loan already has been securitized in the ABS market. In addition to the ABN Amro's backup, CIT has Australian National Bank as the major investor at the trust manager. I don't think refinancing is a problem. However, if CIT has to pay higher interest it will affect the DPU.UnquoteUpdated 11 Dec 2008: From a forummer nick "caseyc" regarding the Islamic Financing

Quote:According to the following source, it seems like Shariah-compliant loan is dead:http://www.sharesinvestment.co.../35054/en/"Refinancing will stem from conventional financing arrangements (as opposed to Shariah-compliant loan arrangements which CIT has been vying for) in the form of syndicated loan."I can't find any other references that mention this though, so take it with some salt.I've been waiting for the refinancing announcement, but decided to exit after I no longer felt comfortable with the lateness. Let's hope that they can pull through this. UnQuote

Singapore Press Holdings - A recession proof play but is my money better utilised elsewhere?

2008-12-08T14:26:00.023+08:00

We are making use of the sexy VJC girl to help us crunch some numbers and she gave us a list of data today. Shit man. Some of our investments SUCK after seeing what she crunched. Anyway, what emerged is so simple to understand but its just that we have been too absorbed into the world of sexy valuation names, such as Sum of Total Parts (SOTP) valuation, Cash Conversion cycle, DCF, PEG ratio e.t.c. . Not that they are useless of cos. What we think and reasoned is that before these ratios are used, the utmost prerequisite is that the investment has to be generating a positive operational cash flow consistently first before one

should even consider analysing further with other ratios. ( Unless of course if they are a new company without operating history, then its your call).

"Profits are an opinion, cash is a fact " - Unknown

Just imagine this, a company reports a darn large sales revenue. But this sales revenue may be "owed" by the customers to be paid say in 6 months time. What if the customers default? This sales revenue is then not realised but still recorded as net income previously. Similarly, net income is often contaminated with depreciation expense which is non-cash but purely an accounting concept. So if a company is generating a boatload of cash but if it is capital intensive, then net income will be seen as very little. To clear all this fluff, including management's easy manipulation of net income, one has therefore to look at the Cash from Operations. Or to be more conservative, Free Cash Flow from Operations from a reasonable amount of time period, say 4-5 years or more.( Deducting Capital Exp. from Cash from Operations.)

So, we decided to look at Singapore Press Holdings. Recently, 2 analysts have been stating a BUY call for this counter, including a consensus recommendation calling for a near buy. Its easy to agree with them. Straits Times Newspaper, Business Times everywhere and they should be recession proof, right. Let's look at their data. ( You can find the data at http://www.reuters.com/)
Wondering why their revenue have been increasing so remarkably but their net income seem to be going no-where, and their Cash from Operations is bobbing up and down the water. Their FCF seem to have the longest breath, staying submerged, only coming up for some fresh air in year 2004. Come to think of it. Does SPH really have an investment moat? It's great they came up with STOMP , Digital Newspaper ...but...is that enough?

The following is added on 9 Dec 2008 . This is from Today Newspaper published on 9 Dec 2008, a day after we published this post. Pls note that we are definitely not related to MediaCorp ( come on, just look at the quality of editing of this cheapskate blog) and their recent spat with SPH on whose readership is higher.

ucypmas, a reader, commented that their "Free Cash Flow" might be understated due to the large amount of dividends paid out by SPH. So we decided to relook at it. Yup....they shuld actually have a large free cash flow but due to the paying out of boatloads to investors, its lesser than it seems. It ain't that bad after all. So it must really be in a kinda stable industry where SPH chooses to give out cash instead of using it for investments! Thanks ucypmas for highlighting this fact.

Updated on 10 Dec 2008: We thought it was quite unfair to SPH and irresponsible for us not to show accurately the free cash flow of SPH. So below is the adjusted data where we added back the Dividends paid out to Investors to the Cash Flow From Ops and Free Cash Flow . (Anyway, wah lau, how come SPH placed Dividends paid out to shareholders under the Cash Flow of Operations section??? Shouldn't it be itemized under Cash Flow of Financing section like what usually companies do??? Bleah!)

Is Macquarie International Infrastructure Fund a good buy for the Beefy Barber?

2008-12-05T21:20:00.013+08:00

Whenever the Beefy Barber wants us to help him, we notice his biceps start bulging slightly. Barber wanted to know if Macquarie Infrastructure is a good buy as the price has dropped from an all time high of $1.23 to $0.295. He also mentioned about the very high dividends yield of about 24.5% (based on dividends of 7.25cents on market price of $0.295). But he is confused, he says. Lately, instituitions such as Capital Group has been reducing their stake from 7.0159 % To 6.9547 % . Macquarie has been reducing from 11.08 % To 10.71 %. BUT Directors such as Lee Suet Fern and Heng Chiang Meng are buying up shares. So what's up? We decided to go together to the Macquarie Seminar on 4 Dec 2008 to learn more. Frankly, we came out non the wiser. What was mentioned is exactly what has been announced on the SGX website and we won't elaborate more. We remembered only the speaker saying that the Catalyst of the plunge was due to Hedge funds who dumped around 10% late last year and Lehman's collaspe and something of a conservative estimate that the dividends will be expected to be 6 cents next year ( 20.3% dividend yield) and that once corporate debt has been repaid, MIIF will start to increase dividends again and that there is going to be a change of depreciation method from a straight line method to a units of production method for Hua Nan Expressway. Hiyah...don't understand the Australian Dudes slang!!! Anyway, as the Barber was more interested in the dividends, which is the meat of this investment, we decided to compile a chart, showing the Distributions of each of the underlying compared with the risk ( gearing) of each of this business. We reasoned that this would be helpful to Barber as any collaspe of any one of the businesses will mean no distributions from that business and therefore a reduction in dividends.

Please note that the distributions used above in the chart is based on operational dividends, excluding special, one -off ones. As can be seen from the diagram above, if Miao Li or Hua Nan were to collaspe, since their distribution contribution is so minute there should not be a material impact to the dividends received. (assuming fees and charges remain the same),especially Miao Li with the highest gearing.CAC and MEIF is quite risky and their distributions to MIIF is quite substantial.

We wanted to compare with what an appropriate infrastructure gearing is. And found this article.

Quote Gearing is higher for unlisted than listed infrastructure. One of the advantages of unlisted infrastructure is an owner’s control of the capital structure. Hence, gearing levels in privately held infrastructure range from 50% at the lower end, for higher risk infrastructure such as airports, to 90% for social infrastructure (schools, hospitals, etc) for which the revenue stream is typically backed by government or semi-government payments. On average, gearing for listed infrastructure companies is around 40%. However, it varies significantly across companies and across regions. For example, gearing for some of the Australian listed funds is quite high (above 50%) while the European infrastructure companies have a low level of gearing (around 30%). Unquote

Since MIIF underlying businesses are unlisted and the consolidated average gearing is roughly 60% and its within the gearing range of unlisted infrastructure as stated in the article above ( 50% - 90%), no glaring problem seen.

We have not heard from Barber since we left the seminar whether he would still want to invest in it. He owes us each an "ARMANI" haircut for accompanying him to this seminar.

Did Singapore Airport Services Really Pay A High Price for Singapore Food? Don't be fooled!

2008-12-04T16:23:00.026+08:00

TODAY published an article on 3 December 2008 on the sale of Singapore Food Industries to Singapore Airport Terminal Services ( SATS). . The Editor used the market capitalisation of Singapore Food to state whether the sale price was at a discount or premium.So is market capitalisation a good measure of whether an acquisition is cheap or expensive?

Let's give an example, if 2 slaves each cost $4. ( just for simplicity sake lah...we hate slavery...don't be soooo uptight!). If one slave has a debt of $1 but another has a debt of $3. If a master was to buy a slave and he has to pay back the debt owed by the slave, which is actually a more expensive buy? Of cos the slave who has a debt of $3 is the more expensive buy. On the same token, if one slave has $1 dollar in his pocket and the other has $2 in the pocket. When you buy a slave, you get his dollar in the pocket. So in this instance, the slave who has $2 in the pocket is a cheaper buy as you get to pocket the $2. So let's use this concept to measure whether the buy price of Singapore Food is cheap or not, shall we?It is actually a well used concept with a jargonic name called Enterprice Value. ~~It is a measure of the theoretical takeover price that an investor would have to pay in order to acquire a particular firm.~~It is better intepreted as the true cost of the acquistion in the market place ( See Opinions at the bottom of the article by CC for more insight. )Read Here to find out more about Enterprise Value.

Enterprise Value ( EV) = Market Cap + Debt - Cash

Debt = $74,968,000 (ABOVE)

Cash = $17,428,000 (ABOVE) From above, it is stated that 69.68% represents 359,731,154 shares. This means the number of shares outstanding for Singapore Food is 516,261,702 (100%)

Calculating...........

Enterprise value = 516,261,702 X 0.89( Using the price given in the above TODAY article) + 74,968,000 - 17,428,000 = 517,012,915

Therefore, the theoretical cost of the acquisition if we based on market-determined price of 89 cents listed on the Singapore Stock exchange in TODAY's article should be $517,012,915. If we divide it by the total number of shares = 517,012,915 / 516,261,702 = $1.0015 per share.

Today stated that 93 cents is a 4.5% premium to the 89 cents of Singapore Food. At first glance, it seems Singapore Airport Terminal has paid a premium. But based on Enterprise value, it seemed SATS did have a good deal after all, paying 93 cents instead of $1.0015, a 7% discount!

The cost of the acquisition to SATs if they are able to acquire all the shares in the market place based on last done market- determined price of 89 cents on the Singapore Stock Exchange in the TODAY paper above is therefore theoretically ( academically) actually $1.0015 per share. Mainstream media states 93 cents as the price paid per share.

But what is the true true true true true true true cost that it paid? Since SATs paid 93 cents. Based on the below calculation,

516,261,702 X 0.93+ 74,968,000 - 17,428,000 = 537663382.86

537663382.86/ 516,261,702 (shares)=$1.04 per share!!

(This article has been heavily edited after contributions from readers. SGDividends SUCKS!! )

Improper Disclosure for Minibonds? How about Fund Managers?

2008-12-02T19:56:00.013+08:00

As we approach the end of the year, some people are speculating that certain counters will be rallying due to "Window Dressing" by Fund Managers. In case you are "sotong" about the term window dressing, it refers to the oft-said practice of fund managers buying stocks that have been performing well and discarding stocks that have been performing like shit just before they have to report their holdings in a prospectus or interim reports to unitholders. This is to make their holdings look good to people. (Wayang).

But SGDividends, as usual, don't give a fiddler's fart on what people say until we can prove it. But sad to say, we failed. Its nearly impossible to prove this due to either the lack of disclosure of their holdings and the lack of disclosure on the date they purchase their holdings...So well.

Anyway, we think the fund management industry has a lot to improve in terms of disclosure. If not for our curiousity in poring through their prospectus ( originally for the "window dressing" project), we would not have known that they are paid a performance fee on top of their management fee. Why can't these funds state that they also DO CHARGE performance fee in their well marketed FACT SHEET!See so much white space above in the box titled Fund Details? See below for the performance fee they charge in their financial statements.It's a little comfort to know that they do not charge performance fees that quarter ( from beginning of year 2008 to 31 March 2008), given that they have unrealized loss. But isn't it such a great business to have, lose money, i don't get bonus(Performance fee), win money, i get bonus(Performance fee). All in all, portfolio profit or loss...i still get money(Management fees), only how much money (fees) i get.

Anyway, could the rally in the Month of March this year 2008 be due to "Window Dressing"?

People Quarrel Over Coffee...Don't drink Coffee with Friends or Loved Ones

2008-12-01T21:43:00.012+08:00

We were shopping with Barber for groceries and was at the coffee beverage section of Giant. A couple was quarreling over which brand of coffee was better Super 3 in 1 Instant Coffeemix or Gold Roast 3 in 1 Coffeemix. They were at it for 10 minutes while, we, the ever kaypoh and bo liao people, pretended to be looking at some Lee Kum Kee Oyster Sauce, but we were eavesdropping on the couple's war of words. They finally chose Super..the guy's favourite. The girl seemed to walk off in a huff. Tsk Tsk, such an ungentlemanly guy.....come on..its just coffee dude.

So just what is so special about coffee that can cause couples to quarrel? Our curiosity was aroused and we decided to buy both and give it a try. ( Barber, you still owe us 20 cents, dont forget to return...this is not OCBC smartchange ok..)

We tasted both and Barber liked the Super but we liked the Gold Roast. And then it happened again, another quarrel. But since Barber was a beefy person, we decided not to make him too angry by arguing too much. We decided on a fair way of winning this argument, to look at the financial statements of the companies of these 2 brands Viz Branz ( Gold Roast) and Super Coffeemix( Super).

We reasoned with Barber that the Inventory Turnover ( COGS/Average Inventory) of Viz Branz was consistently higher and getting higher, than Super Coffeemix. (See below first chart, purple for Viz, blue of Super)This implied that Viz Branz's products were flying faster off the shelf than Super, which meant it is most likely more well-liked. Barber could not reply, but only mumbled something under his bad breath. And that's how we ended the quarrel with Barber. [ It could mean that Viz Branz is managing its inventory better too by using a Just-in-time policy but this the barber don't know...hehe. Anyway, its a metric that signifies good management.]
Since we were looking at these 2 companies, we decided to look at some other ratios just out of curiosity again ( since it is so simple to do, so why not?), and it had nothing to do with which coffee tasted better.

We decided to look at how strong the company is, in relation to its customers. We looked at the Accounts Receivable Turnover Ratio(Revenue/Average Accounts Receivable) to see which company was taking a longer time to collect their money from customers. A higher ratio implies its collecting money faster which is good. (See above second chart) Viz Branz started out pretty worse off than Super Coffeemix but is catching up and is nearly as good as Super in 2007...a good sign of improving management ability.

Next, we decided to look at how strong the company is, in relation to its suppliers. We looked at Accounts Payable Turnover Ratio ( COGS/Average Accounts Payable) to see which company had better purchasing terms from its suppliers. A lower ratio means a company can take a longer time to pay off its bills to the suppliers.( See above third chart) Super Coffeemix seems better in this metric and seem to be in a stronger buying power or having better supplier relations compared with Viz Branz.

So who is better? Super Coffee Mix or Gold Roast. You decide!

The Sexy VJC Girl Analyses Cambridge Industrial Trust

2008-11-29T12:06:00.019+08:00

The SEXY Victoria Junior College girl has been spending a lot of time with us. Out of the blue one day, she emerges with the maximum value that one should pay for Cambridge Industrial Trust. ( She is really quite interesting and surprising!And she like to determine the Value of anything. For example, she even determines the value of playing tennis vs spending time with us and she comes up with a figure.) Anyway, she told us that her teacher says females are better at investing and guys suck cos guys monitor the stock market too much and think too much and rationalise too much. She also told us her teacher says its the female species that will bring the world out of recession cos her species spend and spend and spend and spend. We got to admit she is right. Just go to a shopping center near you and see who are the ones spending? Its the girls......

Ok let's understand how our SEXY VJC student determined the maximum value of Cambridge. Any amount paid more for Cambrige, you are likely to lose money. ( based on Discounted Cash Flow analysis, excludes Market Irrationality).

Based on Colliers International data above, it is logical to assume that the rental income growth rate g of industrial properties is 0%, by looking from 2001 to 2006F. ( just a cursory glance, she did not do a regression line. Keep it simple. It looks negative actually but let's be nice.).

Based on the above from SGX, the average dividends, D, of Cambridge Industrial Trust for 2007 and 2008 is $0.0616.

Let's use DBS preferential shares of 6% as our required rate of return, K.

Now, let's look at the average number of years that the assets of Cambridge Industrial Trust have to their expiry as all of them are leasehold except for Lam Soon Industrial which is Freehold. (We will assign 999 years to this freehold property. This is just a judgement call.)

From above, the average number of years left to expiry is 65 years. Therefore, the formula we will use is :

Using Excel spreadsheet and plugging in the values, the Fair Value (V) for a Cambridge Industrial Trust share is $ 1.00341. Thats the maximum amount one should pay and it assumes that Cambridge is able to sustain the average occupancy of its premises currently. It also assumes that the rentals do not drop and stays constant. It also assumes no exceptional things like volcanic eruptions or earthquake or fire or Tsunami or Terrorist attack happens on any of its site. So the market price currently as of close 28 Nov 2008 is $0.205. Is it enough for you?

Analysis done by The SEXY VJC GIRL (Aspiring Future Venture Capitalist- who wants to hire her as an intern?)

List of SGX Stocks with their Intrinsic Values

2008-11-28T21:49:00.006+08:00

Click Here for SGX list of stocks with Intrinsic Value based on Benjamin Graham's simple formula.

We will be continually adding counters and updating the intrinsic values when new data has been released from Reuters AND when time permits on our end

We urge you not to believe these figures as this is our own opinions.

Think Independently and Anchor on the Right Prices!

How to compare companies from different sectors using the PEGividends Ratio!

2008-11-27T21:01:00.021+08:00

When comparing among stocks of companies from different sectors, does a low P/E ratio mean the stock is a better investment? Financial literature such as CFA states that a high P/E ratio suggests a growth stock and a low P/E suggest a value stock. So what now? Growth sounds good. Value sounds good too? We are confused!

Actually, its simple. The answer lies in whether the company or sector is really growing when we deem it a growth stock that justifies a high P/E. Therefore a measure called PEG ratio emerges which takes into account the growth factor. ( [Price/earnings] divided by Estimated Growth per share). The lower the PEG ratio, the better.

Now, what if a company has a low PEG ratio and a low dividend yield, while another company has a high PEG ratio and a high dividend yield. Which is a better investment now? Confused? Enter the pegividend ratio which takes into account the dividend yield too.

PEGIVIDEND RATIO =
([Price/earnings] divided by [Estimated Growth per share + dividend yield]).

The beauty of the pegividend ratio is that it can be used to compare companies from different industries/sectors unlike when using the P/E ratio which is commonly used to only compare companies from the same sector such as TADA..the telecoms industry:

Let's put this into practice, shall we? Let us compare Singapore Airlines with Keppel Corp. Here we go!

Data For Singapore Airlines ( A Great Way to Fly!)Above

Data for Keppel Corp ( Remember Christopher Lee as the iceman in the channel 8 show!) above

PEGividends ratio for SIA = 6.86 divided by (29.05 + 14.91) = 0.156

PEGividends ratio for Keppel = 6.10 divided by (29.73+6.88) = 0.167

SIA wins! ( marginally though. Also the dividends yield we use here is for the recent year, according to reuters. It may be more prudent to take the average dividend yield among several years, such as {( year 1 dividends + year 2 dividends + year 3 dividends) divided by 3 years} divided by the current price of the share so as to smooth out the lumpiness of the dividends.)

The PEGividend ratio method is from Ryan Barnes who has worked with Merrill Lynch, Charles Schwab, Morgan Stanley and many others as an institutional trader. You can check out his site at http://epiphanyinvesting.com/.

Singapore stocks are just cheaper but they are still not cheap. Here’s why..

2008-11-26T11:10:00.014+08:00

We had a heated argument with The sexy Victoria Junior College student today because she hurt our ego.She said that after looking at our portfolio of stocks, she thinks it sucks. We, erhem, naturally felt insulted. We explained we bought most of it during the month of October. She countered with saying :” I don’t give a fiddler’s fart when you buy it. Everything has a value.” We, to prevent a further bruised ego, retorted by saying: “ Hey, you little lim kum put of a little girl, who has been monitoring the stock market while you are studying for your A levels. Just look how much prices have corrected! You little prick.” She shouted:” You are just like a cow and anchoring yourself to last years prices!” . With that, she left in a huff! Our egos now badly bruised. We thought we felt a tear on our cheek. And then we realized, we are cows. She is right.

In behaviourial finance, one of the fallacies of investors is to suffer from an anchoring effect. The concept of anchoring draws on the tendency to attach or "anchor" our thoughts to a reference point - even though it may have no logical relevance to the decision at hand. For example, some investors invest in the stocks of companies that have fallen considerably in a very short amount of time. In this case, the investor is anchoring on a recent "high" that the stock has achieved and consequently believes that the drop in price provides an opportunity to buy the stock at a discount. See below of an experiment. Taken from a University Research paper:

Quote
In a 1974 paper entitled "Judgment Under Uncertainty: Heuristics And Biases", Kahneman and Tversky conducted a study in which a wheel containing the numbers 1 though 100 was spun. Then, subjects were asked whether the percentage of U.N. membership accounted for by African countries was higher or lower than the number on the wheel. Afterward, the subjects were asked to give an actual estimate. Tversky and Kahneman found that the seemingly random anchoring value of the number on which the wheel landed had a pronounced effect on the answer that the subjects gave. For example, when the wheel landed on 10, the average estimate given by the subjects was 25%, whereas when the wheel landed on 60, the average estimate was 45%. As you can see, the random number had an anchoring effect on the subjects' responses, pulling their estimates closer to the number they were just shown - even though the number had absolutely no correlation at all to the question. UnQuote

In order to best avoid the anchoring effect, one has to use a calculator and determine a value. We decided to use Benjamin Graham's formula to determine that value. This value will then serve as a benchmark from which we anchor our investing decisions. We apologised to The SEXY Victoria Junior College student and bought her a Macdonalds Happy Meal with a Madagascar Giraffe ( Moooov it). She also made us sing the Victorian Anthem and she said we have to put the Victorian badge on our site. ( Whats with her and Victoria???????!!!) She was so happy that she volunteered to help us crunch some numbers. This is shown below. So you see my friend, stocks are just cheaper. They are still not cheap! ( We are not saying the market has not seen the lowest yet. Don't mistake us cos we don't know. We are just saying cheapness based on Benjamin's valuation. See our post on How to Value Equities using Benjamin Graham's Simple Formula.)

(We want to add that above is not our portfolio. We have positions in some of them though. So pls pls use a calculator, go to reuters or bloomberg and deduce the value for yourself. A the VJC student said " Don't be a Cow". )

How to Value Equities Using Benjamin Grahams Simple Formula! - Example SATS Singapore

2008-11-24T18:44:00.022+08:00

We just finished reading "The Intelligent Investor" by Benjamin Graham and we will distill the important points for our dear readers. Actually, we didn't really agree on some of Benjamin's methodology because some of it was purely rule of thumb. BUT....given that he has "reproduced" some pretty fine students, see below table and compare their performance with our Dear Aberdeen Fund Managers and Dear Fidelity Fund Managers from Fundsupermart Singapore, we have becomed believers. Shameful.....still taking management fees somemore!
Read here on what Warren Buffet say about such people.

Benjamin Graham came up with a simple rule of thumb formula to find the intrinsic value of a stock. (Seriously, don't ask us how its derived...its baffling! )

Intrinsic Value per share= Current ( Normal) Earnings per share X (8.5 + twice the expected annual growth rate of earnings per share)

Take note that (Normal ) means one-off , extraordinary items that inflate or deflate the earning for that year are excluded. These extraordinary items refers to, for example, currency gains, sale of property ( non-property company), or anything that is earned/loss from activities not in the normal course of a company's business. The expected annual growth rate of earnings is the growth expected over the next 7 to 10 years.

Let's use it on Singapore Airport Terminal Services shall we!

We pulled the data out from Reuters ( let's assume reuters is correct) You can get the reuters data from http://www.reuters.com/. ( thats if you believe in their data!) Look at Diluted EPS Excluding ExtraOrd Items. Note that we use Diluted EPS instead of Basic EPS as the former is a more accurate reflection on the ownership of a company. Read here for a better explanation.
This data has already excluded extra-ordinary items therefore it is "normal".

Expected Annual Growth rate of SATS earnings per share = 0! ( based on the above. It might be negative too.. but let's be good shall we! This is up to your assumptions. Garbage in Garbage out!)

Current (Normal) Earnings per share = 0.179

Intrinsic Value per share = 0.179 X ( 8.5 + 0) = $1.512

Current value now as of 24 Nov 2008 = $1.37

Wow...let's go chiong and buy! Wait. Benjamin Graham also mentioned about the Margin of Safety! So is $1.512 - $1.37 = $0.142 a good discount and sufficient as a Margin of Safety?? Use your own judgement!.

As Graham once wrote: " You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."

(Updated 25 Nov 2008, on a commenter's comments on using the weighted average of earnings per share for 3 years instead of just the most recent year's earnings per share, we thought about it, and we think it actually makes sense to use a weighted average, as some industries are highly cyclical. A weighted average will smooth earnings out through the years. Hmm maybe a simple average will suffice to keep it simple.... )

How to See if a Bank might fail - Example: DBS Singapore

2008-11-22T21:20:00.013+08:00

With all the gloom and doom about bank failures and with Citigroup going to $3+ dollars, what the heck is happening to the world! Let's look at a recently popularised ( its been around for sometime actually)ratio called the Texas ratio to see if a bank has a chance of failure. Before you read further, please take note that banks are one of the hardest entities to value or analyse. Admittedly, SGDividends are not experts at it. We can only try, using some logic and common sense.

The Texas ratio was developed as an early warning system to identify potential problem banks. It was originally applied to banks in Texas in the 1980s and proved useful for New England banks in the early 1990s. Below is a good video by CBS about this ratio. Apparently, its quite reliable.

Definition: The Texas ratio takes the amount of a bank's non-performing assets and loans and divides this number by the firm's tangible capital equity plus its loan loss reserve. A ratio of more than 100% (or 1:1) is considered a warning sign.

So what is a non-performing loan (NPL or as DBS calls it NPA)? A loan becomes non-performing after being in default for three months, but this can depend on the contract terms.

So let's look at our dear DBS ( yes the one embroiled in the High Notes case, the one who fired 900 employees without consulting the unions, the ones who "lost" clients safe deposit boxes).

From the most recent financial statements released in Nov 2008, DBS reported S$2,054 million non-performing loans. See below.

The non-performing loan amounts have to be divided by TANGIBLE capital equity PLUS loan loss reserve. The tangible capital equity is calculated as total equity ( S$24,333 million) minus Goodwill on consolidation ( S$5,847 million) which is equals S$18,486 million. See below.

Therefore, the Texas Ratio ( sounds like game Texas Hold'em!) = S$2054 / S$18,486 = 0.111=11%. ( we did not mention about the loss reserve as we can't find it and we suspect its been accounted for in the S$18,486 figure. )

Since the Texas Ratio of 11% is way lesser than 100%. DBS is considered safe. Can you sleep well tonight?

How to Value Equities - The Discounted Cash Flow (Dividends) way! - Example:SingPost

2008-11-22T11:24:00.029+08:00

A reader asked us to write about valuing equities using the Discounted Cash Flow method sometime back. It has been long overdued...sorry dude or duddette...we have been busy analysing some stuff of late. Before you read on, we would like to mention that this method entails a lot, a lot and we mean a lot of assumptions and it is highly theorectical. Garbage in- garbage out. Why do you think Research Reports target prices are nearly always way off target? Anyway, its the thought process that counts and not the final target price. Who knows, when thinking through the process..you may actually gain insights on the stock you are researching. So its not useless..this model.

There are many forms of DCF analysis and we will be looking at discounting dividends. This is most appropriate for valuing stable companies (for example in a mature industry) and those that have a consistent payout of dividends . (Please note that there are other types such as discounting Operating Free Cash flow or discounting Free Cash flow ).We will be using SingPost as an example. See below for the yearly dividends they give out. We started from year 2006.

Based on the table above, it is logical to assume that they will be giving out at least S$0.0625 in dividends every year from 2009 and beyond. So here comes the DCF formula. Its looks ugly but its actually quite easy. SGDividends will walk you through.

Figure 1

The foundation of this formula is that the value of a asset ( stock in this case) is the present value of its expected future cash flows ( dividends in this case). In the above formula, it is taking all the dividends up to infinity years ahead and bringing it back to the present value, now. People then compare this present value now with the current stock price to see if its cheap or not. The dividends for a company could grow in time, therefore, the variable g takes into account the dividends growth.
As SGDividends is all about making complicated things even easier than easy. We are going to derive a formula which will be easier than easy to use. The derivation is below in figure 2, but you can skip this part amd jump to the final formula in Figure 3.

Figure 2

You can read up on the sum of infinity through thislink. From the above maths in figure 2, we derive the following formula in figure 3 from the equation in figure 1. Isn't it much easier to use now?

Figure 3

So let's put all this mumbo-jumbo in practice, shall we?

For Singpost:

Dividends for current period ( or most recent period) , Do= S$0.0625.

As it is in a mature industry, assuming dividends is growing slowly at a rate, g = 2%.

Let's assume your required rate of return, K = 6% ( We use 6% just to follow the rate from DBS preferential shares. It can be anything you wish because its YOUR required rate of return.Most people would then choose as high a rate of return as possible as more is better right?Then its wrong. You should consider your required rate of return as the rate of return of the next best investment which you think you can get. So if you thought DBS preference shares at 6% is one of the best around or it makes you happy, then use it as a benchmark to input the K.)

Value of stock = [0.0625(1+0.06)] / ( 0.06 - 0.02) = $1.65625

Price currently as of 21 Nov 2008 as listed on SGX = $0.76.

Don't go rushing to buy this stock yet as we have said before there are many assumptions. Firstly, there is no guarantee that Singpost will continue giving out dividends or dividends will grow. There is no guarantee that Singpost will last forever, it might go bankrupt like Ferrochina ( haha...do you think so?). If Singpost decides to be crazy and start giving out more dividends than is manageable to its survival as a company, then of cos using the model doesn't work as it will not last and the current value you calculate will be too big and wrong. It is theoretical and also you will realise that this is not appropriate for all companies, since some companies don't give out dividends.

What should i invest now? Get real confused by following the Gurus!

2008-11-19T19:41:00.017+08:00

See below for the current portfolios of investing GURUs. Warren buffet, Boone Pickens and George Soros. Each is regarded as having been successful in investing and experienced ( read: old) enough, having been through market ups and downs to be considered credible in their stock selection. But alas, just look at their porfolio allocations and at first glance, be terribly confused .Warren Buffet seems to be underweight in Oil & Gas, but Boone and Soros is overweight in these. Warren Buffet seems to be overweight in consumer goods ( staples) but Boone and Soros are underweight. Look at the finance allocation and you will again see the difference. So, who should we follow? (of cos follow SGDividends portfolio lah...we overweight in utilities but the GURUs underweight in it!Shiok.....just joking, don't follow us pls, use your own brain..)

George Soro's Portfolio

Boone Picken's Portfolio

Warren Buffet's Portfolio

Actually when we think further, it kinda makes sense to us. The reason for the seemingly stark difference especially between Warren and the other 2 could be due to the time horizon and investment philosophy. Warren Buffet did say before he goes for value companies which just happen to appear more often in bad times. Boone and Pickens could be those who times the market and they are making a bet that Oil & Gas, will make a comeback which we think so too...its just basic economics of limited supply and increasing demand. And think of it, do you think OPEC will let the price fall too much? Come on.....

SGDividend's portfolio ( Singapore and foreign shares)

Anyway, above is our humble portfolio currently. We overweight on Telecommunications and Utilities due to its near recession proof demand due to them being considered necessities. Also they give stable dividends during this time. We keep some in Oil & Gas and basic materials ( include agriculture) as we believe it will rebound, not in the near term though....maybe in at least 1 years time...We are also moderstely overweight on Industrials especially those whose business have some sort of recurring income and are exposed to Infrastructure spending. We slightly underweight healthcare cos we don't think it has much scope for future expansion ( as compared with the other sectors)chiefly because its labour intensive. Property is obvious not the time to move in yet...lah. Wait for much more retrenchments. We are waiting for some banks to follow DBS!And then once banks have taken the lead...............................................

Anyway the morale of the above story is......have your own view as everyone is different!And that's why there is a market!

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

2008-11-15T17:10:00.015+08:00

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!

Headwinds for SingTel's Expansionary Plans in the Region

2008-11-13T20:55:00.013+08:00

In DBS Vickers securities' SingTel Report released recently in Nov 08, it wrote the following:

Quote: Regional associates below our expectations. Associate contribution was down 25.5% y-o-y compared to our estimate of single digit decline. Assuming no forex change from 2QFY08, associate contribution would have been flat. What surprised us was Bharti’s pre-tax earnings contribution, down 5.1% y-o-y, against our expectations of 10% growth. SingTel has attributed the decline to S$57m fair value loss on Bharti’s foreign borrowings. We did not see this item in Bharti’s results and need to check with management on the disparity. The other associates were more or less in line with our expectations.Unquote .

In addition, don't forget that SingTel is still facing some legal issues with its 35% stake in Indonesian Telkomsel. In our SingTel article sometime back, we also mentioned that Terria, a consortium led by Optus, which is bidding to build a part government-funded broadband network in Australia,has also recently lost a partner, Australian Capital Territory-based Internet provider, TransACT. And Ooops, it seems SingTel has a lower current asset base than its current liabilities.... It will be interesting to see how Group CEO Chua Sock Koong will navigate this company through these times

Wilmar - Taboo subject at Investor Briefing

2008-11-12T22:27:00.013+08:00

At the Wilmar Investment Briefing today, a CLSA analyst asked Mr Kuok which banks were pulling the credit lines from Wilmar. Mr Kuok "Tai-Chi-ed" to his CFO who said that one bank had withdrawn its credit line because its top management had decided to stop commodities financing.So why did Mr Kuok mention first about some banks pulling the plug in his presentation?Isn't it taboo to mention it in such a briefing, like how the "retrenchment" word is taboo in the workplace now? A Straits Times Market Correspondence praised Mr Kuok for his candourness in nipping any suspicion in the bud and Mr Kuok being a role model for others to follow. Definitely, we agree this is admirable.( Just to side-track a bit, the above clearly shows how serious this credit mess is...)

But then again,we, being ones who are highly imaginative and bizarre in thought at times, thought of another possible reason for this candourness..... maybe he wanted to highlight about this so that people would scrutinise extra careful the debt profile of his competitors, and possibly punishing those companies who are weak.( low share price then acquire??) So we, being the curious type, decided to take a look at the current assets(CA) vs the current liabilities(CL) of their competitors. OK, all of them seem to have CA larger than CL. So maybe we really have a bizarre brain.We will leave it at that.

Anyway, the new kid on the block, Kencana Agri Ltd who just IPO-ed this year don't seem to have a good cash flow compared with its more established peers.Don't even mention about Free Cash Flow..just look at cash flow from operations which is already negative.

(just added)And, DBS Vickers just released a report and it shows Wilmar having a higher Net Gearing compared with her peers. (Wonder why they didn't include Golden Agri, like, huh....don't they know Golden Agri is an important competitor??).

Citigroup - Should we follow Abu Dhabi Investment Authority and GIC?

2008-11-11T19:34:00.014+08:00

Our barber told us today that he recently bought 16 shares of Citigroup. He just said he felt inspired to buy Citigroup after watching their advertisements and that he just hope that this bank will not fail or else that chio eurasian girl he has been bioing would be out of job. We just love this barber for his cute way of thinking. Anyway, we decided to check it out. Let's use the GIC and Abu Dhabi Investment Authority (ADIA)'s investment as the basis of analysis, and not ratios, balance sheet, tier one ratio and stuff.

From Citigroups 2007 statements (Above)
From GIC's press release (Above)

Comparison (Above)

From the comparison table above, both ADIA and GIC would have the option to convert the Citigroup ( Citibank) share to a common stock at the price of around $31.83 - $37.24 ( around 2010 - 2011) and $31.2 respectively, given the assumptions and assuming no adjustments.

Therefore from the above, an inference can be made that GIC or ADIA could be expecting Citigroup's share price to be roughly at least $31-$37 by late 2010. The price of Citigroup share now is hovering around $11-$12. So, is this a good buy now since GIC and ADIA has already invested in it?

Well, having seen the saga of ABC Learning, it might be wise not to follow these entities blindly since who knows what their real motives are. "Transformers, more than meets the eye...doh da di da da...autobots..." Furthermore, ADIA and GIC made these investments in Jan 08 and Dec 07, where the full seriousness of the crisis was still not widely known. So do you think its a good buy? Sharing is caring!

Is There A Possible Reason For Golden Agri to be trading Cheaper than their peers?

2008-11-10T19:14:00.012+08:00

3 articles back, we mentioned that Golden Agri was on our radar for its darn cheap valuations as compared with their peers. On 9 October 2008, Money Mind on Channel News Asia featured an analyst from Royal Bank of Scotland who commented on a SELL on Palm Oil counters (think he also said palm oil prices have bottomed....then why sell?????Damn Bazaar!) but he mentioned that Golden Agri was a BUY due to its relative valuation. Today, our hot sexy "oracle" gave us the latest issue of THEEDGE magazine to read. In it, there was an article write-up on Indo Agri and a short little comparison on the players in the Agri field.( Reproduced here for your benefit) So what is the reason for this stock to be so undervalued relative to its peers. We decided to investigate and could only think of a possible reason, that investors were pricing in a cheaper stock due to the not so favourable history of its management. Read here here to find out more.

Anyway, based on some simplistic technical analysis, this stock has been trading very heavily and their bolliger bands are narrowing, which could mean a possible larger price movement in the coming days.

Fortune REIT - Another Temasek Holdings Investment

2008-11-07T20:42:00.007+08:00

Fortune REIT is an interesting stock. In the realm of REITS listed in Singapore, it is one of the few ( maybe its the only one, we are not sure as we did not check every single REIT) which has current assets approximately equals to its current liabilities. If you have read our previous articles on REITS and about Fortune REIT, most of the REITS in Singapore have current assets very very very substantially lower than their current liabilities, which actually is quite normal given the well known fact that these entities borrow heavily to finance their operations. So let us relook at Fortune REIT , given that they just released their financial statements. Lets use some primary school maths on percentages, shall we?

TAKEN FROM THEIR SLIDES RELEASED ON NOV 08 ( ABOVE)

Firstly, at first glance, it looks impressive, doesn't it?Solid Operations, No Refinancing Needs, blah, blah,blah..all the marketing talk which actually makes us more determined to research the company actually. Circled in RED, it states that currently their portfolio of property has an occupancy of 94.4%, but let's look at their porfolio expiry profile below.

TAKEN FROM THEIR SLIDES RELEASED ON NOV 08(ABOVE)

It states that in the fourth quarter of 2008, 7.7 % of their occupied space is expiring. Let us assume that the 7.7% do not renew. That will leave us with (100%-7.7%) times stated current occupancy level of 94.4%, which gives us an occupancy level of 87.1% at end of this year. Let's look at 2009. As stated above, 33.4% of their occupied space is expiring in 2009. Assuming that the 33.4% do not renew, this will give us an occupancy level of (100%-33.4%) times 87.1%, which turns out to be 58%! Imagine going to a shopping centre, say Suntec City where around 4-5 shops out of 10 shops are closed!

This is the worst case scenario of course. There might be new tenants coming in to take up the slack, some or even all of the tenants might actually renew, and we might even be wrong in our interpretation of "% of occupied space expiring" in their slides. But well, no definition from Fortune breeds speculation.....(Just added: We are not experts in shopping malls leasing, maybe its the industry practice, not perculiar to Fortune. But from a layman's perspective, given these times, its some food for thought!)

Anyway, we are pretty disappointed with the investor relations department of this company as they did not reply on our query on how they are going to mitigate this risky outflow of tenants. Why the following sentence if you are not going to reply ?

"For general enquiries, please email us at enquiries@fortunereit.com and we will respond promptly."