Bye Sheng Siong! Hi SATS!

We decided to sell all our Sheng Siong shares (18,000 units) at $1.64 today and it has been our top/best investment after all these years.

After holding for about 1358 days (~3.7 years) with an average price of $0.907, we have almost doubled our capital with an absolute return of 94.54% and an annualized return of 19.58%.

We felt that Sheng Siong is currently trading at a pretty high valuation and the market seems to be overly optimistic. Sheng Siong Q1 financial report has been very impressive, almost doubling its profit/EPS when compared against the same period last year.

However, when we looked at the breakdown, the increase in revenue is mostly due to the "hoarding" effect whenever PM Lee gave his speeches. lol.

Anyway, if we were to look at the last few years, Sheng Siong has been trading at an average/median PE of 20-21. Based on the current price and its average/median PE, the market is expecting its EPS for 2020 to increase by 55% to 7.86 cents as compared to 5.04 cents last year. It just didn't look realistic when we forecast it, hence it felt overvalued when we were looking at it.

Will it goes higher? Maybe, just look at Tesla!

We have also decided to redeploy a bit of the cash from the sale of Sheng Siong to buy SATS (4,000 units) at $2.84. SATS came tumbling down from its high of $5+ due to COVID-19 where it even reported losses for the last quarter (ending 31 March 2020). The management was also being very prudent by cutting dividends by ~68%! We decided to buy it as we see this as an excellent opportunity to accumulate a good business (it is essentially a monopoly in Singapore) and it is a recovery play. I can see it returning to $5 once a vaccine is found but can't say the same for SIA especially after its right issues.

Similarly, I computed its average/median PE which is around 19-20. Based on the current price and its average/median PE, the market is expecting its EPS to decrease to 13.9 cents. In my opinion, this is still quite optimistic as its Q1 losses should be a lot more when travel restriction is placed around the world compared to the last quarter when it was just beginning.

In addition, there were multiple share buy back around ~$2.90 which could be a sign that the company is undervalued. You can read more about share buy back here - Why Would a Company Buy Back Its Own Shares?

Unfortunately, SATS has dropped quarterly reporting so we can only wait till around October for its half year financial statement to get a better overview of its business.

What's the worst that can happen? Getting kick out of STI lor like SPH. lol.

You can take a look at the above spreadsheet here.

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Lion-Phillip S-REIT ETF - High Cost and Low Yield

About a year ago, we made the decision to invest $1,000 every month on Lion-Phillip S-REIT ETF after it was announced in the Singapore Budget 2018 that REIT ETFs will be able to enjoy tax transparency (withholding tax of 17%) - New Singapore Budget, New REIT Strategy!

We have sold all 12,000 units of Lion-Phillip S-REIT ETF after doing a review and concluded that it is unable to meet our target dividend yield of 5%. After holding it for 300+ days and including all the dividends collected, the total annualized return should be around ~7-10%. Seems like there is a bug with the computation of average days leading to incorrect annualized return...

The tax transparency took effect on or after 1st July 2018 and I have been waiting for the latest dividend to make a more accurate estimation of its yield. The latest dividend that was declared in January 2019 for the period from 01/08/2018 to 31/12/2018 (153 days) was $0.0211. The annualized dividend will be ($0.0211 / 153 * 365) ~ $0.05034.

Using the 52 weeks high and low price, the dividend yield will be between the following:

High: 1.042 ---> 0.05034 / 1.042 ~ 4.83%

Low: 0.944 ---> 0.05034 / 0.944 ~ 5.33%

The expense ratio was unavailable in the initial prospectus (indicated to be around 0.5%) but can now be seen in their Semi-Annual Report and it turns out to be higher at 0.59%. In addition, it does not include brokerage and other transactions costs. Now if we were to look at the portfolio turnover ratio, it is also very high at 34.01%. The portfolio turnover ratio is a measure of how frequently assets within a fund are bought and sold by the managers. Let's compare this with SPDR STI ETF ratios.

In comparison, both the expense ratio and the portfolio turnover ratio of Lion-Phillip S-REIT ETF are much higher. With such a high portfolio turnover ratio, the brokerage fees involved should be quite significant but is not reflected in the expense ratio.

Lion-Phillip S-REIT ETF

Interestingly, with the high turnover ratio, Lion-Philip S-REIT ETF still has a higher tracking error as compared to SPDR STI ETF based on data from trackinsight.

SPDR STI ETF

If you think STI ETF isn't a fair comparison, you can take a look at the tracking error/difference for the other 2 REITs ETF:
- Phillip SGX APAC Dividend Leaders REIT ETF
- Nikko AM StraitsTrading Asia ex Japan REIT ETF

It just didn't look like a well-managed ETF with a relatively high (hidden) cost.

Bye Lion-Phillip S-REIT ETF!

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Unethical SingPost

We made our first transactions for the year and you might have guessed it based on the title of the post.

After holding it for 512 days (~1+ years) and including all the dividends collected, the total return is -26.3% and the annualized return is -19.5%. CZM has been sharing lots of news on SingPost and insisted that we should sell SingPost. You know - happy wife, happy life.

- SingPost apologises after getting caught trying to trick man who paid S$7,000 to distribute flyers
- SingPost fined S$100,000 for not delivering mail on time in 2017
- Mechanical fault caused letterboxes to be left open in Bedok

CZM's point of view is their business will continue to decline because people don't like doing business with unethical people/company? Regardless, looking at SingPost's latest Q3 financial statement, it might be true to a certain extent.

At one glance, it may look like its business is improving with net profit rising but if you were to look deeper...

We can see that their operating expenses have increased but its underlying net profit has actually decreased. Underlying net profit is a more accurate measure of its business because it does not include exceptional items which are one-off items such as asset impairment, fair value changes on investment properties, gains or losses on sale of investments and property, plant and equipment and M&A related professional fees.

SingPost has also recently announced immediate measures to improve service quality.

The way I see it is that their operating expenses will definitely increase further without any guarantee that their revenue/net profit will improve accordingly (at least not in the near future)...

SingPost's current dividend policy (changed 2 years back) is based on a payout ratio ranging from 60-80% of the underlying net profit for the financial year.

The payout ratio for last year was already ~75.6% (3.50 / 4.63). Assuming if operating costs increase without an increase in underlying net profit, there is also a possibility where the EPS will drop and DPS will be cut again.

Based on the current price of $0.95, its dividend yield would be ~3.68% (assuming dividend is kept constant at 3.50 cents per share) which is lower than our target dividend yield of 5% hence there is really no reason to hold on to it.

Bye SingPost!

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