STI Components Dividend Yield

With prices falling so much in the last few weeks, there are a lot more opportunities now as compared to a few months back. One of Warren Buffett's famous quote is "It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price" and for simplicity, let's just assume the companies in the STI components are wonderful and evaluate if the prices are fair now. lol.

Anyway, I took some time to compile the dividends declared for FY 2019 for each STI components and make some assumption to see if they would really be a good buy/fit for our portfolio since our goal is to build one with a 5% dividend yield.

We all know that all the businesses/companies have been impacted by COVID-19, the oil price war or whatever other reasons, hence their revenue/profit is bound to decrease as compared to last year. Hence, I assumed that the dividends will be cut by 10%, 15%, 20%, etc.

Did the top few companies turn out to be a surprise to you? I will just provide a quick commentary/opinion on the top 3 companies.

1. Singtel @ 6.21% and 5.59% (10% dividend cut)
My guess is Singtel will highly likely cut its dividend... Firstly, Singtel's dividend policy states that "Barring unforeseen circumstances, it expects to maintain its ordinary dividends at 17.5 cents per share for the financial year ending 31 March 2020."

Secondly, there is a significant decrease in net profit due to operating losses at Airtel and lower contribution from Telkomsel amid aggressive price competition in India and Indonesia as well as an exceptional gain from the divestment of units in NetLink Trust.

Lastly, with news like this - Singtel freezing wages of all staff this year, except for operational and support workers, it is hard to imagine that they will not be cutting their dividend. On the bright side, even at this price, the possibility of getting more than 5% dividend yield is still pretty high.

2. SPH @ 5.88% and 5.29% (10% dividend cut)
I would say the probability of SPH cutting dividend is much higher than Singtel and the following 2 charts from their dividends history will explain it all.

SPH has been cutting dividends since 2015. If you think this time it will be different, let's look at the next chart.

The dividend paid out in FY 2019 has a payout ratio of 133%. It is simply unsustainable and it will only be heading in one direction...

3. DBS @ 5.85% and 5.27% (10% dividend cut)
My guess is DBS will most likely not cut its dividend. The decision to raise their dividends back in 2018 was a prudent one and the CEO, Piyush Gupta said, "The significant increase in dividends reflects the quality of our earnings, the strength of our balance sheet and the improved returns we are generating for shareholders". Although the Fed is cutting the interest rate which will have an impact on the banks' revenue (lower), the payout ratio is still pretty comfortable (~50%) and I don't believe the CEO would want to eat his own words so soon.

You can make a copy of the spreadsheet here and play with it. Note that the prices are static and are as of 11th March 2020.

As for the rest of the companies in the STI components, you can decide if they are wonderful/fair companies at a wonderful/fair price :)

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What is Happening to Singtel?

Singtel (Singapore Telecommunications Limited) needs no introduction, it is a familiar name for everyone. Based on its latest results, it seems like it was an excellent year for Singtel at a glance.

Record net profit + the whole year this up and that up, only Q4 down, why would the price keep falling?! It is currently at a 5 years low (based on ShareInvestor). Why?

The record net profit is largely bumped up by the divestment on Netlink Trust which was recorded as an exceptional item (gain) of $1.93 billion. If we were to remove this gain from the record net profit of $5.45 billion, we will get $3,500 billion which is lesser than FY 2017 $3,853 billion.

Once we adjust its net profit, it becomes more evident that Singtel is not trading as "cheaply"/undervalued as it is, with its previously inflated earnings/EPS. Using the given EPS of 33.40 cents would mean that some of you may compute Singtel PE as ~9.79 (3.27 / 0.334). Realistically, the adjusted EPS should be ~21.42 cents giving a PE of 15.27 (3.27 / 0.2142). Not so surprising as to why the price has fallen so much anymore right? So why did we buy more Singtel? There are actually many many reasons. lol.

Firstly, I took some time to compile the financial numbers for the last 5/6 years to compute its PB, PE and dividend yield based on the closing price one day after the full year result was announced. Although PB is not relevant for Singtel, it is still worth noting that at the current price, Singtel is trading below its average and median PB and PE since 2013.

In addition, Singtel has "promised" to maintain dividends at 17.5 cents for the next two financial years. The price which we entered ($3.30) meant that we would be getting a dividend yield of ~5.3%. The next question to ask is will the dividends be sustainable? If you were to look at its FCF (Singtel Free Cash Flow = Net cash from operating activities - Payment for purchase of property, plant and equipment), you will see that its FCF is still relatively healthy and the dividend payout ratio is below 1. Hence, the dividends are in fact very sustainable.

Singtel businesses can be broken down into the above 3 groups - Group Consumer, Group Enterprise, and Group Digital Life. The general public impression of Singtel business is from the Group Consumer (the mobile, broadband, etc.) which contributes the most revenue, is unfortunately declining and facing fierce competitions. One example is Circles Life who recently launched a Flexi Plan for $0?!

Looking at the breakdown of the revenue, we can see that Singtel is trying to move the dependency of its revenue from the Group Consumer business by growing the other 2 businesses. It is also interesting to see the huge growth in the revenue of Group Digital Life (~100%) but I am pretty puzzled as to why it is still making losses (2013: make $111, lost $145. 2018: make $1,080 but still lost $120?!). The declining revenue/net profit of its businesses is the main cause of the drop.

Last but not least, are you familiar with the saying that banks that are too big to fail? Going by this logic, Singtel being larger than 2/3 banks would similarly be too big to fail. lol.

I am serious! Look at the top 2 substantial shareholders! Hahahaha.

On a side note, KPO started working on a new project to ingest stocks data in order to increase his efficiency in screening stocks, remove the typical limitation of 3/5 years stock data and to visualize them. The dashboard that I have created is still at its infant stage but looks cool enough for now. lol.

If you believe in mean reversion, Singtel current share price ($3.27) is way below its mean price of $3.799 using data from 2013. However, the mean price will always be limited/affected by the dataset that is available and the timeframe used for computation.

If I were to expand the dataset further to 2008, the mean price would be much lower at $3.48 due to the financial crisis. The current price is still below the mean :)

In comparison, SPDR STI ETF (ES3) is trading above its mean price since 2008. Time to sell? lol.

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Portfolio - May 2018

It was another roller coaster month but life goes on! CZM and I are preparing our wedding invitation cards, about 4 more months to our big day! Our portfolio decrease by -0.59% to $334,055 - $9,252.77 of capital injection and $11,218.72 of capital loss.

SOLD
- None

BOUGHT
- Keppel DC REIT (3,000 units) @ $1.353
- Lion-Philip S-REIT ETF (1,000 units) @ $0.997
- Capitaland (1,000 units) @ $3.54
- Singtel (1,000 units) @ $3.30

It seems like we lost and bought a lot this month. A total dividend of $2,683.38 was paid in May and we merely reinvested/redeployed the dividends into the market. In fact, apart from Lion-Philip S-REIT ETF which was a planned purchase as part of our new strategy - New Singapore Budget, New REIT Strategy!, the other purchases were either a surprise or an opportunity in our opinion.

I blogged about the Keppel DC REIT Private Placement and we were allocated 3,000 units (out of 8,000 units) from the placement. We bought more of Capitaland and Singtel when the market went down. It is interesting to note that both companies have been/are performing share buyback recently. You can refer to this - Why Would A Company Buyback Its Own Shares? by Investopedia to understand the significance of share buyback.

Singtel is pretty interesting and I am writing a separate article for it. If you read the news or the financial statement, at one glance, you will see that FY 2018 was a record year in terms of net profit and earnings and you are wondering why the price is dropping lower and lower. However, if you were to remove the divestment gain from Netlink Trust, one will see that hidden beneath those record net profit/earnings is actually a declining business/revenue. Why did we still buy the share then? Keep a lookout for the next post :)

Dividends
The total dividends collected this month is $4,067.59. The breakdown is as follows:

Company	Symbol	ExDate	Shares	Total
Thai Beverage Public Co Ltd	Y92	25-May-18	10,000	$62.67
CapitaLand Commercial Trust	C61U	23-May-18	2,000	$69.80
NetLink NBN Trust	CJLU	21-May-18	3,000	$194.40
Frasers Logistics & Industrial Trust	BUOU	16-May-18	8,000	$344.00
Ascendas Hospitality Trust	Q1P	16-May-18	15,000	$469.50
OUE Ltd	LJ3	15-May-18	10,000	$200.00
Raffles Medical Group Ltd	BSL	14-May-18	14,000	$245.00
Hong Fok Corporation Ltd	H30	8-May-18	16,500	$165.00
CapitaLand Ltd	C31	8-May-18	5,000	$600.00
Parkway Life Real Estate Investment Trust	C2PU	7-May-18	2,000	$63.40
Chip Eng Seng Corporation Ltd	C29	4-May-18	8,000	$320.00
QAF Ltd	Q01	3-May-18	3,000	$120.00
Far East Hospitality Trust	Q5T	3-May-18	10,156	$95.47
Starhill Global Real Estate Investment Trust	P40U	3-May-18	12,000	$130.80
Mapletree North Asia Commercial Trust	RW0U	3-May-18	5,000	$226.55
Sheng Siong Group Ltd	OV8	3-May-18	18,000	$315.00
Wilmar International Ltd	F34	3-May-18	2,000	$140.00
Tuan Sing Holdings Ltd	T24	2-May-18	11,000	$66.00
APAC Realty Limited	CLN	2-May-18	12,000	$240.00

Total dividends collected for 2018: $6,765.11
Average dividends per month for 2018: $1,353.02

StashAway

Capital: $8,000.00
Current: $8,095.42 (IRR: 2.8%)

Health - KPO Needs to Lose Weight
Date: 2018-06-01
Weight: 69.2 kg (Yay! 3 more weeks to our prewedding photoshoot!)

BMI: 23.1

Do like any of the following for the latest update/post!
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4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right -->)

Portfolio Update - October 2017

Our portfolio grew by 6.76% to $286,449 - $8,217.65 of capital injection and around $9,925.66 of capital growth! I got to say the whole of October has been a really good month for property, construction and REIT stocks which form majority of our portfolio :)

There is a lot of activities this month!

SOLD
- Saizen REIT (8,900 units) @ $0.03223 (Delisted - P&L: $3,184.64)
- Sing Holdings (4,400 units) @ $0.47 (P&L: $321.04)
- Wee Hur (5,000 units) @ $0.285 (P&L: -$313.21)
- Croesus Retail Trust (6,801 units) @ $1.17 (Delisted - P&L: $3,339.89)

Saizen REIT was one of our first investment in REIT and we have been holding on to it for about 3 years. I was hoping the reverse takeover would happen but it did not. The huge loss in P&L is because when it got bought over, it distributed its capital in the form of dividends last year. Overall, we made an absolute +39.9% from it and an annualized return of +12.4%.

I was just blogging about Sing Holdings last month that it should trade nearer to its peers PB and it came faster than I expected! It was sold as the trailing stop loss I set got triggered. Fortunately, the price was near what I had in mind and there was a better opportunity (Singtel). Overall, we made an absolute +18.4% and an annualized return of +514.6% for holding 34 days. lol.

I have always wanted to sell Wee Hur because it is not my kind of stocks (not an asset play or a dividend stock). I bought it years back when I was blindly following people in the forum without analyzing the fundamentals myself (I did not know how to do it then). The opportunity came this month when the price shot up too and I sold it on the same day as Sing Holdings for Singtel. Overall, we made an absolute loss of -16% and an annualized loss of -5.8%.

Croesus Retail Trust is another stock that got delisted this month as it was bought over at a premium to its NAV (similar to Saizen). Japan stocks are my lucky star. lol. Overall, we made an absolute +57.8% from it and an annualized return of +20.6% after holding for about 2.5 years.

BOUGHT
- Geo Energy (18,000 units) @ $0.27
- Capitaland Mall Trust (4,000 units) @ $2.02
- Capitaland Commercial Trust (2,000 units) @ $1.643
- Singtel (1,000 units) @ $3.68

In short, Geo Energy is a stock with crazy growth potential and many many years of coal to mine. lol. I will not even try to tell you how to value it because I know I cannot do a better job than these people:

ThumbTack Investor: https://thumbtackinvestor.wordpress.com/?s=geo+energy
SmallCapAsia: Will Geo Continue to Deliver?
Heartland Boy: Geo Energy: Initiation Report
SG investors.io: https://sginvestors.io/sgx/stock/re4-geo-energy-res/analyst-report

We were pretty interested in the Lion-Phillip S-REIT ETF but eventually decided to buy the underlying. Hence, we bought the top 2 REITs in the ETF. I made a mistake with Capitaland Commercial Trust Rights too. You can refer to these articles if you have yet to read them:

1. Mistake on Rights Issue - CapitaLand Commercial Trust
2. How ETFs Work - Using Lion-Phillip S-REIT ETF as an Example
3. 3rd REIT ETF - Lion-Phillip S-REIT ETF

As mentioned above, there was an opportunity to buy Singtel. Given the limited capital and the timely stop loss of Sing Holdings, I went on to liquidate Wee Hur and top up another $200+. Why Singtel?

The above information is extracted from SGX StockFacts sorted by market capitalization. This may come as a surprise to you but the market capitalization of Singtel is actually larger than our 3 banks! Too big to fail? Their business is so diversified that the 4th telco has limited impact. Furthermore, a 4+% dividend yield for a blue chip with the potential for capital growth is extremely attractive!

The total dividends collected this month is $1572.30. The breakdown is as follows:

Company	Symbol	ExDate	Shares	Total
First Real Estate Investment Trust	AW9U	27-Oct-17	7,000	$149.80
CapitaLand Mall Trust	C38U	26-Oct-17	7,000	$194.60
GuocoLand Ltd	F17	26-Oct-17	9,000	$630.00
Mapletree Greater China Commercial Trust	RW0U	26-Oct-17	5,000	$185.70
Soilbuild Business Space REIT	SV3U	20-Oct-17	30,000	$412.20

Total dividends collected for 2017: $10,099.22
Average dividends per month for 2017: $841.60

StashAway

Capital: $2,000
Current: $2,032.56 (IRR: 3.2%)

StashAway made a few changes to their interface and we love it! I will be publishing a separate article to discuss them. Stay tuned :)

StashAway Referral Link for Our Readers
Here you go: KPO and CZM Referral Link

Health - KPO Needs to Lose Weight
Date: 2017-11-02
Weight: 75.6 kg (Lost close to 8kg already!)
BMI: 25.2

Bought a new toy - Mi Smart Scale!

Do like any of the following for the latest update/post!
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Just Another Netlink Trust IPO Analysis

This is one of the biggest IPO in recent years and by now there are many articles written about it. You can refer to these articles instead (if you have not), they definitely write and analyze better than me:

1. One cannot make a decision on IPO without Mr. IPO's chili ratings - Netlink NBN Trust (Update)

2. SmallCapAsia - NetLink Trust IPO: All You Need to Know About It In 10 Minutes

3. Investment Moat - The NetLink Trust IPO – A Good 5% Dividend Yield Stock to Hold?

4. SG Budget Babe - IPO Analysis: NetLink Trust

So the question is will KPO go for the IPO? Finally took some time to look at the prospectus and highlight sheet. I will be ignoring those forecast/projected numbers for 2018 and 2019 as they will always paint a bright and happy future. Who will forecast their business to lose money?? lol.

We know that the offer price is at $0.81 with total net assets of $3,070,815,000. Assuming the over-allocation option is exercised in full (3,021,456,001 units), the NAV will be $1.02. If there is no over-allocation, there will be 2,898,000,001 units instead and the NAV will be $1.06. That is about 20% discount, what a good deal?!

Unfortunately, if you were to look at its balance sheets, you can see $1,009,569,000 of intangible assets. To put it in simple terms, that is $1 billion of nothing. lol. KPO is very practical and does not like intangible assets. Digging deeper into the prospectus, one will be able to find the breakdown for the intangible assets which consists of 2 items - Licence and Goodwill.

Such a high goodwill?! Let me provide you a proper definition taken from Investopedia - Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

Do read these 3 articles for more information:
- Investopedia - Intangible Asset

- Investopedia - Goodwill
- Investopedia - Goodwill vs Other Intangible Assets: What's the Difference?

Personally, I like to be more conservative in calculating the NAV. Hence, removing the goodwill from the total net asset will result in the NAV dropping significantly to $0.79 or $0.75 if the over-allocation option is exercised. If they were to offer at the higher end of the indicative range ($0.80 to $0.93), I would not have participated in the IPO. It seems that the biggest winner is probably Singtel and the banks (bookrunners/underwriters).

With the most recent Yventures IPO, the offer price was at $0.22 and it closed at $0.255. So far 2017 continues to be a great year for IPO and my analysis still holds true! Do take a look if you have not - Will IPO Make Money - IPO Analysis for the Last 3 Years

Paying a little premium for a business with increasing positive operating cash flow year on year, operating in a monopoly market with a dividend yield of around 5.73% seems reasonable. KPO shall apply small small for 20,000 units and hold for 23 years.

Huat ah!