STI has officially gave back all the gain it has for this year with the past 2 weeks of selling down and one of the sector that get badly hit is the S-Reits. The reason for the selling is none other than concern of US Fed starts to taper the QE3, by doing so it is like having interest rate hike though not physically and also anticipation of the physical interest rate hike might follow next. Well to be rationale and logical if the economic condition allows for such a move, it means that the economy can stand on its own and no need for "life support", that should be a good sign.
S-Reits sector taking the big hit mainly because the prices have gone up too much and valuation becomes over-stretched. 2 months ago, almost every S-Reits were hitting all time high and surprisingly then not a single analysts came out to sound the warning bell and it was at that time I started to pare off some stake in my long-term S-Reits holding (Journey To Retirement Part 2.1 -- First REIT) and have also sounded the warning asking long-term investors to consider selling off in a strategic move (Long term investor, time to trim fat on portfolio ???). Those articles were posted in March.
Now let look at whether the selling down of the S-Reits are justified. According to analysts, should an interest rate hike, S-Reits with now having average over 30% of leverage will have problem refinancing their current debts and also their assets will get re-rated due to readjustment of the interest rate. In a way, that claims are true. Without much cash in hold or having to pay higher interest rate to borrow to acquire more assets, the growth story of the S-Reits will be flat and hence whatever distribution will be difficult to grow further and indirectly affecting the further capital gain of the stock. Re-rating of the assets value could mean the NAV will be lowered and hence at a higher stock price it will be trading at a higher premier to its NAV. However, if you look at the overall and the bigger picture, S-Reits still remain attractive especially to Singapore investors (retail investors to be exact) given that their prices are relatively lower now (still higher than the November 2011 low though). Now let look at the reason why it is so still attractive.
Firstly, can you remember when was the last time Singapore banks were giving at least 3% interest rate on normal saving account (just plain normal saving account and not FD that we are talking about). From my memory that was like more than 2 decades ago when we still having banks like Tat Lee and OUB. Next, do you think that even if US Fed hike interest rate, Singapore banks can give saving bank account holder at least 3% interest rate ? Well there is a possibility it can happen but what is the possibility and if that happens what will happen to Singapore economy and those SME can they survive in those high interest rate environment. There are a lot of talking that US Fed hike rate and all those effects will be there but let face it, Singapore is not US, not Australia, not Europe, not New Zealand, etc. Those countries have record of high saving interest rate in the 2007 days but not Singapore. As such even putting money in Singapore banks will still corrode the value of the money. Cost of living in Singapore still high despite recent core inflation came down to below 2%, this is mainly because the hike in wages have not been keeping pace with standard of living and such still need investing in high-yield stocks,
The current drop in S-Reits prices have brought the average yield of the S-Reits sector back above the 5% level and probably moving towards the 6% level. Based on pure numerical value, a 6% yield is attractive in Singapore environment. The other side of the story which I classified as fundamental of the S-Reits is still strong and resilient. Lot of people when talked about fundamental will only look at the company balance sheet, P/L statement, ratios and cash flow but it is more than that. It is very easy to feel the fundamental of S-Reits as compared with rest of the companies. Take the example of CapitaMall Trust, the biggest retail players in Singapore with all those shopping malls like Raflfes City, Bugis, Plaza Singapura, Ion Orchard, J-Cube, etc. To know how their business is doing, simply visit those shopping malls owned by them, see the number of people flow, see the number of shops, see what those ships are selling, see whether they are having businesses and we are roughly judge how CapitaMall Trust is doing and it is a "live" tracking of how they are doing (looking at earning report is looking at what happened for the past 3 months). Having own eyes to see is nevertheless more trustworthy to plain listening to analysts about the company.
Now here is the second catch if you decide to invest in S-Reits, taking the opportunity of the selling down. If you are already vested during the 2009, 2010 period, you should be fully vested now and don't see any need to add further given that those prices then were much lower than now. Just hold on to it and have cash ready in case recession comes, you just double up. For those who have no S-Reits holding and thinking of it is still make sense to invest in S-Reits even if Singapore interest rate going up, you have to do it strategically. Prices are cheap but not as cheap as in 2011 level and definitely not as dirt cheap as in 2009 - 2010 level. As such, whatever you want to invest in will come with conditions. The conditions are :-
1. The yield must be good (different sector will have different yield, retail in general 5.3%, industrial in general 6.3%, commercial in general 5.7%, etc)
2. Have to factor it the yield getting now if recession comes, you can expect to minus off another 1% to 1.5% to it as then companies earning will also be affected and the amount distributed to unit holders will be lesser.
3. Maximum amount of capital that can invest in it must cap at 50%, save the rest of the 50% and wait for recession to come when prices are dirt cheap and you double .
4. Can only invest in S-Reits with strong sponsors like those from Capitaland group, Ascendas group, Mapletree group, F&N group, etc as normally they will have lesser problem in cash flow.
The above are the conditions and rules that must strictly follow to protect any downside. Remember when recession comes, the stock price can halve to what it is now.
Market in general is irrational so does most of the investors, one need to be know the rationale behind the irrationale in order to beat the market and get the rewards.
For quick reference of all the dividend yield of S-Reit, can refer to the following blog, SGX REIT Data
Showing posts with label Sector Analysis. Show all posts
Showing posts with label Sector Analysis. Show all posts
Thursday, June 13, 2013
Thursday, March 15, 2012
Offshore Sector
Last week Ezra, an offshore service provider company raise fund through private placement of share at $1.10 to shore up their working capital as they venture more into subsea business and through the placement as announced yesterday Temasek Holdings has became a shareholder through deem interest in its subsidary of DBS Nominee. Yesterday, Swiber, another offshore service provider company halt trading to announce of private placement of share at $0.635 to raise working capital. Within a period of one week, 2 promising companies in the offshore service provider sector dip into equity market to raise capital and that is something an investor need to give a deep thought about it.
Short-term wise, without any doubt, the private placement news will cause their share price to retreat to around the placement price level due to fear of dilution but investors should look at the bigger picture for their actions instead. Ezra according to its latest financial earning in January 2012, it has a backlog of over US$1.6 billion in its order book and lately has been gaining contracts in the subsea business where it sees rapid growth. Swiber on the other hand in its February 2012 financial earning citing an order book of over US$1 billion and like Ezra has been winning contracts lately and it is also in the pipeline of bidding for more contracts. Fundamentally, these 2 companies can be considered strong with their strong order books on hand and as they are not comparable to the bigger corporation like KepCorp or SembMar having strong cashflow, the raising funds for working capital in order to expand the company business is definitely not a surprising act.
Based on the actions by the 2 companies, investors might want to focus on the offshore sector as a whole, the prospect of the offshore sector. As we know of, KepCorp and SembMar have been winning oil rigs contracts lately too and they are in position to bid and maybe perhaps winning further contracts from Petrbras and should the smaller companies like Ezra and Swiber are also getting the momentum of winning contracts, that said something about the offshore sector in general. The growth prospect of the offshore sector is there and investors should start considering picking up the strong fundamental companies in the offshore sector while their price still at a relatively cheap level. Apart from KepCorp and SembMar, others relatively strong fundamental offshore related stocks are STX OSV, Ezra, Swiber and Ezion.
Short-term wise, without any doubt, the private placement news will cause their share price to retreat to around the placement price level due to fear of dilution but investors should look at the bigger picture for their actions instead. Ezra according to its latest financial earning in January 2012, it has a backlog of over US$1.6 billion in its order book and lately has been gaining contracts in the subsea business where it sees rapid growth. Swiber on the other hand in its February 2012 financial earning citing an order book of over US$1 billion and like Ezra has been winning contracts lately and it is also in the pipeline of bidding for more contracts. Fundamentally, these 2 companies can be considered strong with their strong order books on hand and as they are not comparable to the bigger corporation like KepCorp or SembMar having strong cashflow, the raising funds for working capital in order to expand the company business is definitely not a surprising act.
Based on the actions by the 2 companies, investors might want to focus on the offshore sector as a whole, the prospect of the offshore sector. As we know of, KepCorp and SembMar have been winning oil rigs contracts lately too and they are in position to bid and maybe perhaps winning further contracts from Petrbras and should the smaller companies like Ezra and Swiber are also getting the momentum of winning contracts, that said something about the offshore sector in general. The growth prospect of the offshore sector is there and investors should start considering picking up the strong fundamental companies in the offshore sector while their price still at a relatively cheap level. Apart from KepCorp and SembMar, others relatively strong fundamental offshore related stocks are STX OSV, Ezra, Swiber and Ezion.
Friday, February 11, 2011
S-Reits -- 11th Feb 11
S-Reits are renowned for their defensive play due to high dividend payout offsetting capital gain. However with recent market pull back as funds are selling out, S-Reits will not be spared the selling down either. Long term investors should take this opportunity to collect S-Reits.
1. S-Reits earnings so far have been stable resulting in stable distribution payout and should have no problem in maintain that in year 2011 and with some could even pay higher distribution after acquired quality assets lately. With the share price falling due to funds selling out, this would bring up the dividend yield to a more attractive level.
2. Singapore like other Asian countries are facing the risk of inflation and even though banks raise interest rate to curb inflation the dividend yield obtain from S-Reits still very much higher than putting the monies in banks to earn that interest rate.
3. S-Reits with strong sponsor, proven earnings record and distribution payout should have no problem in rebound in share price if the funds were to coming back.
Ascendasreit, Mapletreelog, MapletreeInd, CapitaMall Trust, SuntecReit, CDL HTrust, CapitaComm Trust and K-Reit are those that could attract funds to re-invest in if they moving back to Singapore.
1. S-Reits earnings so far have been stable resulting in stable distribution payout and should have no problem in maintain that in year 2011 and with some could even pay higher distribution after acquired quality assets lately. With the share price falling due to funds selling out, this would bring up the dividend yield to a more attractive level.
2. Singapore like other Asian countries are facing the risk of inflation and even though banks raise interest rate to curb inflation the dividend yield obtain from S-Reits still very much higher than putting the monies in banks to earn that interest rate.
3. S-Reits with strong sponsor, proven earnings record and distribution payout should have no problem in rebound in share price if the funds were to coming back.
Ascendasreit, Mapletreelog, MapletreeInd, CapitaMall Trust, SuntecReit, CDL HTrust, CapitaComm Trust and K-Reit are those that could attract funds to re-invest in if they moving back to Singapore.
Wednesday, January 5, 2011
Recap 2010 & Looking ahead 2011
FTSE STI closed 3,190.04 on 31st Dec 2010 making a +10.09% performance for the year 2010.
Recap on 2010, global economy continued its recovery with Asia lead but along the way couple of road bumps. European debt crisis ( Greece and Ireland bailout ), slow US economy recovery ( concern of double-dip recession ) coupling with high unemployment rate ( 9.8% ) leading to US Fed rolling out second round of stimulus aids in later part of 2010 and China fighting to curb its fast rising inflation ( which in a way the cooling measures will slow the economic growth ). Global markets including STI though reacted negatively for those events but still managed to hand in a positive performance in 2010.
Looking ahead in year 2011, consensus is that global economy will continue to recover with Asia taking the lead and US will be able to bring down the high unemployment rate. However, do expect a rough ride ahead 2.15as there are still couple of events that need to iron out.
1. European debts -- Investors are monitoring whether Spain and Portugal will be the next in line to request bailout from EU and IMF.
2. Inflation -- Not only China face with rising inflation risk, other Asian countries too and hence expecting various Governments to frequently introduce cooling measures. Those measures in longer term is good to tame inflation but will have short term negative impact on stock markets.
3. US economy recovery -- World number 1 economy still struggling in 2010 as high unemployment rate deter the recovery. US Fed has to introduce second stimulus injection ( QE2 ) in the later part of the 2010 and US has the tax cut deal extended to spur the economy recovery. Failure to bring down the high unemployment rate of 9.8% will continue to hurt the US economy recovery.
4. Currency war -- The massive printing of USD has weaken the dollar against especially Asian currencies which resulting in a currency war last year with US accusing China of not strengthening its Yuan and hurting US - China trade. This problem might still persist in 2011.
5. South and North Korea tensions -- With the North Korea shelling one of the South Korea's island and killing citizens along the way, tensions between the two Koreans piling up since and if war breaks out ( China siding the North and US with the South ), negative impact will be felt to the Asian economy as a whole and effecting global economy recovery.
6. Natural disaster -- This is something that cannot be predict or foreseen and yet could happen like earthquake, volcano eruptions, flooding, etc will have some negative impact on the economy. Australia's Queensland state currently facing flooding issue due to the impact of "La Nina" and that is threatening the coal mining business.
On the home front, Singapore recorded a +14.7% GDP growth for 2010, making it one of the fastest growing country in 2010 after stepping out of recession in 2009 and is projected to have a GDP growth of between 4% - 6% in 2011. Singapore economy should continue to grow in 2011 but external factors will also play a part in it as Singapore economy relying on export activities to US, China, Europe and rest of the world. Any slowing down on those will be curbing the economy growth. Inflation is also in the mind of the Government. Last year inflation of 3.8% was reported and Singapore Government wishes to curb the inflation to between 2% to 3% in 2011. The rising in housing prices has led the Government to implement cooling measures last year and so far the prices are stabilizing. Looking ahead in 2011, the following factors would determine Singapore economy growth.
1. General Election -- Due in 2012 but many believe it will be held this year. PAP should continue to gather majority in the parliament and hence continue to carry out its blue print for Singapore economy growth. This will give global investors confidence the continuation in investing in Singapore.
2. International events -- F1, international conventions, etc are the normal international events in Singapore calender year. These events bring in the spending power of the tourists which help Singapore retail sector growth.
3. Inflation -- Like other Asian countries, Singapore does face the issue of raising inflation especially when excessive liquidity is flowing in from the West. In particular property assets inflation is the main concern for the Singapore Government and do expect regular or frequent cooling measures to tame those. This will have short-term negative impact on property developers. Another aspect that need to monitor is inflation in necessity like food, clothing, transportation, etc.
4. External factors -- Any of the world top economy countries like US, China, Japan or Germany ( or EU region ) having economy growth issue will affect Singapore through the export/import activities.
Singapore economy in 2011 could be focusing on tourism and infrastructure works to sustain the growth and probably offsetting any potential downside from external factors ( export activities ) and manufacturing. In tourism, retail, hospitality and transportation related companies should benefit from those. In infrastructure works, utilities, construction and telco companies should benefit. Other key areas would be finance and property. When Singapore does facing property inflation risk, the constant cooling measures introduced by Government should be able to stabilize the price, fending off speculative. Those genuine demands will be able to sustain the growth of the property market. Singapore Government has been constantly releasing land parcel lately for residential, commercial and industrial usage and that is a good sign.
The following is sector by sector analysis of Singapore economy in 2011.
Financial Sector :-
The banking sector was one of the laggard performer in 2010 after sharp rebound in 2009 and it might continue to be lagging in the first half of 2011. Earning from the banks appeared to come to a saturation mode in 2010 as banks globally have to conserve reserve to meet the new banking rules ( implemented in 2010 to prevent another financial crisis ). For the banks to have a better performance in 2011, assets acquisition and increase in loan income are the key factors. With Government introducing cooling measures to curb property price from rising, loan income from that area will be slowed and that will have impact on the banks' revenue. With interest rate being low, company loans for expansion and M&A might be a bright spot for the banks. Stocks DBS, UOB and OCBC.
Property Sector :-
In a low interest rate environment and excessive liquidity, investors looking for high return will be targeting physical assets and hence causing the property prices to be speculated and rising. This will result in unwanted property bubbles and that is one of Singapore Government's aim in 2011, to tame property inflation. In normal situation having cooling measures will hurt property developers' earning in the short-term. With that in mind, do expect property developers profit margin to be squeezed. Singapore itself is a small country with land limitation and as such most of the developers are or already shifting their investment to overseas like China, Vietnam, etc. The current hot topics is investing in China. China does having property inflation presently but that is confined to their first tier cities like Beijing and Shanghai. Those second and third tier cities like Tianjin, Chengdu, Guangzhou, etc still have lot of opportunities for developing. Singapore developers venturing into China should be able to find good opportunities in those cities. Stocks CityDev, Capitaland, Kepland, UOL, SC Global, Allgreen, Ho Bee, Yanlord and Ying Li.
Offshore/Marine Sector :-
Crude oil price ended year 2010 staying above US$90/barrel and the rising in crude oil price could continue in 2011. That is beneficial to Oil & Gas related companies as that will lead to more oil related projects. Currently, KepCorp and SembMar are bidding for the Petrobras contracts which come in US billion dollar worth. A winning of those contract could see KepCorp or SembMar's orders book back to the peak level in 2007 and that will have very positive impact on their earning. Companies that doing supporting role for oil-rig building or drilling will also benefit from the rising demand. Shipping and ship building related companies might have mixed performance for 2011. Despite the recovery, shipping business still a laggard in 2010 and with Euro zone debt still questionable issue, the demand of freight business to/from Europe zone might still be slow as compared with other regions. Ship building business could be in strong demand as normally for freighting companies to order more vessels to cope with shipping demands, they will have to place order typically 1.5 to 3 years in advance ( that is the typical duration of building a vessel ) and shipping business could become rosy again then as countries are spending on infrastructure ( Brazil to host World in 2014 and Olympics in 2016 and UK Olympics in 2012 ). Nowadays China shipping builder companies are getting lot of spot light with orders piling up. Stocks KepCorp, SembMar, Ezra, Swiber, Falcon Energy, KS Energy, Rotary Engineering, Tat Hong, PEC, Enzion and Swissco for Oil & Gas related. NOL, Cosco, Yangzijiang, JES, Mermaid, Mercator, STXOSV and ASL Marine for shipping & ship building related.
Commodity Sector :-
Weak USD, excessive liquidity and low interest rate normally associate with rising in demand of commodity ( regardless hard or soft type ). Year 2011 is expecting to see those signs again and with inflation as a threat, the demand of commodity is there. Crude oil price moving up will allow people to seek alternative like palm oil which in turn will drive up the demand for it. Countries spending in infrastructure play ( building rail road, facilities for mega events like World Cup, Olympics ) will see hard commodity in demand too. Stocks NobleGrp, Olam, Wilmar, GoldenAgr, IndoAgri, StraitsAsia, FirstRes, KencanaAgri.
Transportation Sector :-
Air travel was recovered in 2010 as both passenger and cargo loads were up as compared with previous year. As more and more air traveling regardless for business or leisure, the trend in air travel has developed into branded airlines vs budget airlines since then. 2011 will also be seeing the same trend again. There could be 3 things to lookout for in air travels in 2011. Traveling to US ( mainly from Asian tourists ) due to weaken USD, traveling to Europe ( mainly from Asian tourists ) partly also due to weakening of Euro and air travel within Asia itself as Asian countries building up tourism activities to spur their own economic growth ( Singapore IRs, Hongkong Disneyland, Osaka and South korea Universal Studio park, etc ). Air travel should continue to growth in 2011. The demand for land transportation in Singapore will be occupied by the 2 IRs, international events ( F1, international conventions, etc ) and increasing Singapore population. So far there is no sign of this demand slacking. Downside for transportation companies is the rising crude oil price which could eat into their profit margin due to higher cost for fuel usage. Stocks SIA, SIA Engg, SATS, ST Engg, TigerAir, ComfortDelGro, SMRT and SBS Transit.
Telco Sector :-
Telco companies in its nature is a defensive play and should be expecting the same for 2011. There were questions being asked can a small country like Singapore accommodate 3 telco companies and that view remain unchanged in 2011. SingTel last year was hurt by its overseas investment ( revenue slipped ) and causing it to underperform. StarHub despite it strong cash flow, question being asked was saturation of cable TV business and does StarHub need to venture overseas in order to expand its business. M1 being the smallest of the 3 telco was being talked about a potential take over target. Smart phones business was what kept the 3 telcos revenue in sustaining form in 2010. Tablet devices could be the one replacing smart phones in 2011. Stocks SingTel, StarHub and M1.
Construction Sector :-
Construction sector was pretty much quiet for 2010 but could be in focus in 2011 due to Government potentially focusing in infrastructure spending to sustain the economic growth. Expanding existing MRT network, enhancement of road infrastructure, housing upgrading, developing facilities for commercial expansion and building of facilities for international events are namely which construction companies can get contracts from. Stocks Yongnam, OKP, Koon and Tiong Woon.
Technology Sector :-
US economy recovery was led by technology sector and nothing has changed since then. Year 2010 was all about smart phone ( iPhone and Android ) and for 2011, tablet devices ( iPad ) could be the one in focus. However, Singapore technology sector is rather a small sector as compared with those in US, Japan, Taiwan and South Korea. The closet to benefit from the technology demand would be technology manufacturing companies and telcos. Other than that, investors would have to dig into US, Taiwan or South korea for the tech stocks and investors could do so via the ETFs channel that access those countries. Stocks Venture, SingTel, StarHub and M1.
Retail Sector :-
Tourism is what Singapore relied on as one of the component to sustain the economic growth. With the 2 IRs operating and gathering good revenue last year, international events ( F1 and conventions ) being held in Singapore too, this area will continue to provide the economy growth for Singapore in 2011. Tourism provides the driver for Singapore retail sector and with Singaporeans resume the spending power, the retail sector should not under-perform as relative to last year. Stocks Genting SP, SPH, F&N, CapitaMall Trust, Suntec Reit, FrasersCT, ComnfortDelGro, SMRT, SIA, TigerAir, CDL HTrust, UOL, FJ Ben, MetroHlg, Osim, Starhill Global, AscottREIT and ARA.
Utilities Sector :-
Renowned for its defensive nature as company's business is targeted towards daily necessity like water, gas and logistic provider. Unlikely to see large capital appreciation for these stocks but mostly backed by reasonable and above average dividend yield. Assets acquisition is a key factor for these companies to raise their companies profile and earning. Stocks Hyflux, K-Green, SembCorp, SingPost, CitySpring and MacqIntInfra.
Health Care Sector :-
Another of those defensive in nature business type of companies. Regardless of economy condition, health care is always in demand and cannot be shun away from. Singapore is also renowned for being a health care hub for the South-East Asia region and with last year acquisition of Parkway and Thomson Medical by private investor, focus will be on which will be the next to be being acquired. Stocks Plife REIT, Raffles Medical, First REIT, Biosensors, Q&M Dental and Healthway.
REIT Sector :-
REIT sector is not a sector by itself but rather a category of investment instrument as REIT companies can be among of the Retail, Commercial, Industrial and Health care sectors. Defensive by nature due to backing by their dividend ( offering average higher dividend yield than STI ), REIT has been lagging in 2010 partly due to fewer acquisition to enhance their assets. Most of the REITs managed to raise capital for the past 2 years and with current low interest rate environment, might see more assets acquisition in year 2011 ( which is a good news to REITs ). Assets acquisition is the key to unlock the value of REITs in 2011. Retail class type of REITs would be continued to be in demand in line with tourism demand in Singapore and stocks are CapitaMall Trust, Suntec Reit, Starhill Global and FrasersCT. Commercial class type of REIT would see better earning from previous year due to the rising office rental. Stocks CapitaComm Trust, Suntec Reit and K-Reit. Industrial and logistic provider class type of REIT was a laggard in 2010 as companies were not expanding much then. The demand for that in 2011 could be different as most of the companies are looking at expansion of business. Stocks A-Reit, MapletreeInd, Mapletreelog, Cambridge, Cache, Sabana REIT and GLP. Health care class of REIT will continue to perform as per last year. Stocks Plife REIT and First REIT. Hospitality class type of REIT would be in demand in line with tourism demand in Singapore for this year. Stocks CDL HTrust and AscottREIT.
S-Share Sector :-
S-Shares are renowned for high beta and volatility class of stocks in Singapore market. They have mostly under-perform in last year as investors taking cautious stand towards them. Property related stocks are concerned with property bubbles and constant tightening measures in China. Retail consumption related stocks attracted not much interest as the branded and biggest companies in China are not listed in Singapore and with past cases of corporate governance issue, investors are skeptical about investing in those despite the cheaper prices. The only bright spot for S-Share listed in Singapore last year was probably those offshore/marine related namely Cosco, Yangzijiang and JES whereby global demand in shipping business enable these companies to gather contracts. These companies should be able to continue to perform in 2011. Furthermore, couple of S-Shares listed are seeking option to dual list in either Hong Kong or Taiwan as the interest over there is better than Singapore. Despite all those, there are still some good quality S-Share to be found and with cautious investing, investors could minimize those risks. Stocks are Cosco, Yangjizang, JES, Yanlord, Ying Li, Midas, ChinaMinzhong, SinoGrandnes and Sound Global.
Year 2011 blue chip companies might have limited upside in price appreciation since the sharp rebound in 2009 as their earnings entering temporary saturation phase. This year potentially could be for the second liner and below stocks to play catchup in their earnings and provide better price appreciation that could out-perform the index. With the higher potential gain in investing in penny stocks, tag along will be higher risk also and hence careful selection of the stocks should be priority for investors in 2011. Companies with good order books of contracts, strong cash flow and sustainable profit level should be focus on as a selection criteria.
Personal preferred choice of stocks for 2011 :-
DBS, NobleGrp, NOL, SIA Engg, A-Reit, ComfortDelGro, CDL HTrust, Mapletreelog, Swiber, K-Green, Yongnam, Yanlord, Ying Li, JES, and Midas
Recap on 2010, global economy continued its recovery with Asia lead but along the way couple of road bumps. European debt crisis ( Greece and Ireland bailout ), slow US economy recovery ( concern of double-dip recession ) coupling with high unemployment rate ( 9.8% ) leading to US Fed rolling out second round of stimulus aids in later part of 2010 and China fighting to curb its fast rising inflation ( which in a way the cooling measures will slow the economic growth ). Global markets including STI though reacted negatively for those events but still managed to hand in a positive performance in 2010.
Looking ahead in year 2011, consensus is that global economy will continue to recover with Asia taking the lead and US will be able to bring down the high unemployment rate. However, do expect a rough ride ahead 2.15as there are still couple of events that need to iron out.
1. European debts -- Investors are monitoring whether Spain and Portugal will be the next in line to request bailout from EU and IMF.
2. Inflation -- Not only China face with rising inflation risk, other Asian countries too and hence expecting various Governments to frequently introduce cooling measures. Those measures in longer term is good to tame inflation but will have short term negative impact on stock markets.
3. US economy recovery -- World number 1 economy still struggling in 2010 as high unemployment rate deter the recovery. US Fed has to introduce second stimulus injection ( QE2 ) in the later part of the 2010 and US has the tax cut deal extended to spur the economy recovery. Failure to bring down the high unemployment rate of 9.8% will continue to hurt the US economy recovery.
4. Currency war -- The massive printing of USD has weaken the dollar against especially Asian currencies which resulting in a currency war last year with US accusing China of not strengthening its Yuan and hurting US - China trade. This problem might still persist in 2011.
5. South and North Korea tensions -- With the North Korea shelling one of the South Korea's island and killing citizens along the way, tensions between the two Koreans piling up since and if war breaks out ( China siding the North and US with the South ), negative impact will be felt to the Asian economy as a whole and effecting global economy recovery.
6. Natural disaster -- This is something that cannot be predict or foreseen and yet could happen like earthquake, volcano eruptions, flooding, etc will have some negative impact on the economy. Australia's Queensland state currently facing flooding issue due to the impact of "La Nina" and that is threatening the coal mining business.
On the home front, Singapore recorded a +14.7% GDP growth for 2010, making it one of the fastest growing country in 2010 after stepping out of recession in 2009 and is projected to have a GDP growth of between 4% - 6% in 2011. Singapore economy should continue to grow in 2011 but external factors will also play a part in it as Singapore economy relying on export activities to US, China, Europe and rest of the world. Any slowing down on those will be curbing the economy growth. Inflation is also in the mind of the Government. Last year inflation of 3.8% was reported and Singapore Government wishes to curb the inflation to between 2% to 3% in 2011. The rising in housing prices has led the Government to implement cooling measures last year and so far the prices are stabilizing. Looking ahead in 2011, the following factors would determine Singapore economy growth.
1. General Election -- Due in 2012 but many believe it will be held this year. PAP should continue to gather majority in the parliament and hence continue to carry out its blue print for Singapore economy growth. This will give global investors confidence the continuation in investing in Singapore.
2. International events -- F1, international conventions, etc are the normal international events in Singapore calender year. These events bring in the spending power of the tourists which help Singapore retail sector growth.
3. Inflation -- Like other Asian countries, Singapore does face the issue of raising inflation especially when excessive liquidity is flowing in from the West. In particular property assets inflation is the main concern for the Singapore Government and do expect regular or frequent cooling measures to tame those. This will have short-term negative impact on property developers. Another aspect that need to monitor is inflation in necessity like food, clothing, transportation, etc.
4. External factors -- Any of the world top economy countries like US, China, Japan or Germany ( or EU region ) having economy growth issue will affect Singapore through the export/import activities.
Singapore economy in 2011 could be focusing on tourism and infrastructure works to sustain the growth and probably offsetting any potential downside from external factors ( export activities ) and manufacturing. In tourism, retail, hospitality and transportation related companies should benefit from those. In infrastructure works, utilities, construction and telco companies should benefit. Other key areas would be finance and property. When Singapore does facing property inflation risk, the constant cooling measures introduced by Government should be able to stabilize the price, fending off speculative. Those genuine demands will be able to sustain the growth of the property market. Singapore Government has been constantly releasing land parcel lately for residential, commercial and industrial usage and that is a good sign.
The following is sector by sector analysis of Singapore economy in 2011.
Financial Sector :-
The banking sector was one of the laggard performer in 2010 after sharp rebound in 2009 and it might continue to be lagging in the first half of 2011. Earning from the banks appeared to come to a saturation mode in 2010 as banks globally have to conserve reserve to meet the new banking rules ( implemented in 2010 to prevent another financial crisis ). For the banks to have a better performance in 2011, assets acquisition and increase in loan income are the key factors. With Government introducing cooling measures to curb property price from rising, loan income from that area will be slowed and that will have impact on the banks' revenue. With interest rate being low, company loans for expansion and M&A might be a bright spot for the banks. Stocks DBS, UOB and OCBC.
Property Sector :-
In a low interest rate environment and excessive liquidity, investors looking for high return will be targeting physical assets and hence causing the property prices to be speculated and rising. This will result in unwanted property bubbles and that is one of Singapore Government's aim in 2011, to tame property inflation. In normal situation having cooling measures will hurt property developers' earning in the short-term. With that in mind, do expect property developers profit margin to be squeezed. Singapore itself is a small country with land limitation and as such most of the developers are or already shifting their investment to overseas like China, Vietnam, etc. The current hot topics is investing in China. China does having property inflation presently but that is confined to their first tier cities like Beijing and Shanghai. Those second and third tier cities like Tianjin, Chengdu, Guangzhou, etc still have lot of opportunities for developing. Singapore developers venturing into China should be able to find good opportunities in those cities. Stocks CityDev, Capitaland, Kepland, UOL, SC Global, Allgreen, Ho Bee, Yanlord and Ying Li.
Offshore/Marine Sector :-
Crude oil price ended year 2010 staying above US$90/barrel and the rising in crude oil price could continue in 2011. That is beneficial to Oil & Gas related companies as that will lead to more oil related projects. Currently, KepCorp and SembMar are bidding for the Petrobras contracts which come in US billion dollar worth. A winning of those contract could see KepCorp or SembMar's orders book back to the peak level in 2007 and that will have very positive impact on their earning. Companies that doing supporting role for oil-rig building or drilling will also benefit from the rising demand. Shipping and ship building related companies might have mixed performance for 2011. Despite the recovery, shipping business still a laggard in 2010 and with Euro zone debt still questionable issue, the demand of freight business to/from Europe zone might still be slow as compared with other regions. Ship building business could be in strong demand as normally for freighting companies to order more vessels to cope with shipping demands, they will have to place order typically 1.5 to 3 years in advance ( that is the typical duration of building a vessel ) and shipping business could become rosy again then as countries are spending on infrastructure ( Brazil to host World in 2014 and Olympics in 2016 and UK Olympics in 2012 ). Nowadays China shipping builder companies are getting lot of spot light with orders piling up. Stocks KepCorp, SembMar, Ezra, Swiber, Falcon Energy, KS Energy, Rotary Engineering, Tat Hong, PEC, Enzion and Swissco for Oil & Gas related. NOL, Cosco, Yangzijiang, JES, Mermaid, Mercator, STXOSV and ASL Marine for shipping & ship building related.
Commodity Sector :-
Weak USD, excessive liquidity and low interest rate normally associate with rising in demand of commodity ( regardless hard or soft type ). Year 2011 is expecting to see those signs again and with inflation as a threat, the demand of commodity is there. Crude oil price moving up will allow people to seek alternative like palm oil which in turn will drive up the demand for it. Countries spending in infrastructure play ( building rail road, facilities for mega events like World Cup, Olympics ) will see hard commodity in demand too. Stocks NobleGrp, Olam, Wilmar, GoldenAgr, IndoAgri, StraitsAsia, FirstRes, KencanaAgri.
Transportation Sector :-
Air travel was recovered in 2010 as both passenger and cargo loads were up as compared with previous year. As more and more air traveling regardless for business or leisure, the trend in air travel has developed into branded airlines vs budget airlines since then. 2011 will also be seeing the same trend again. There could be 3 things to lookout for in air travels in 2011. Traveling to US ( mainly from Asian tourists ) due to weaken USD, traveling to Europe ( mainly from Asian tourists ) partly also due to weakening of Euro and air travel within Asia itself as Asian countries building up tourism activities to spur their own economic growth ( Singapore IRs, Hongkong Disneyland, Osaka and South korea Universal Studio park, etc ). Air travel should continue to growth in 2011. The demand for land transportation in Singapore will be occupied by the 2 IRs, international events ( F1, international conventions, etc ) and increasing Singapore population. So far there is no sign of this demand slacking. Downside for transportation companies is the rising crude oil price which could eat into their profit margin due to higher cost for fuel usage. Stocks SIA, SIA Engg, SATS, ST Engg, TigerAir, ComfortDelGro, SMRT and SBS Transit.
Telco Sector :-
Telco companies in its nature is a defensive play and should be expecting the same for 2011. There were questions being asked can a small country like Singapore accommodate 3 telco companies and that view remain unchanged in 2011. SingTel last year was hurt by its overseas investment ( revenue slipped ) and causing it to underperform. StarHub despite it strong cash flow, question being asked was saturation of cable TV business and does StarHub need to venture overseas in order to expand its business. M1 being the smallest of the 3 telco was being talked about a potential take over target. Smart phones business was what kept the 3 telcos revenue in sustaining form in 2010. Tablet devices could be the one replacing smart phones in 2011. Stocks SingTel, StarHub and M1.
Construction Sector :-
Construction sector was pretty much quiet for 2010 but could be in focus in 2011 due to Government potentially focusing in infrastructure spending to sustain the economic growth. Expanding existing MRT network, enhancement of road infrastructure, housing upgrading, developing facilities for commercial expansion and building of facilities for international events are namely which construction companies can get contracts from. Stocks Yongnam, OKP, Koon and Tiong Woon.
Technology Sector :-
US economy recovery was led by technology sector and nothing has changed since then. Year 2010 was all about smart phone ( iPhone and Android ) and for 2011, tablet devices ( iPad ) could be the one in focus. However, Singapore technology sector is rather a small sector as compared with those in US, Japan, Taiwan and South Korea. The closet to benefit from the technology demand would be technology manufacturing companies and telcos. Other than that, investors would have to dig into US, Taiwan or South korea for the tech stocks and investors could do so via the ETFs channel that access those countries. Stocks Venture, SingTel, StarHub and M1.
Retail Sector :-
Tourism is what Singapore relied on as one of the component to sustain the economic growth. With the 2 IRs operating and gathering good revenue last year, international events ( F1 and conventions ) being held in Singapore too, this area will continue to provide the economy growth for Singapore in 2011. Tourism provides the driver for Singapore retail sector and with Singaporeans resume the spending power, the retail sector should not under-perform as relative to last year. Stocks Genting SP, SPH, F&N, CapitaMall Trust, Suntec Reit, FrasersCT, ComnfortDelGro, SMRT, SIA, TigerAir, CDL HTrust, UOL, FJ Ben, MetroHlg, Osim, Starhill Global, AscottREIT and ARA.
Utilities Sector :-
Renowned for its defensive nature as company's business is targeted towards daily necessity like water, gas and logistic provider. Unlikely to see large capital appreciation for these stocks but mostly backed by reasonable and above average dividend yield. Assets acquisition is a key factor for these companies to raise their companies profile and earning. Stocks Hyflux, K-Green, SembCorp, SingPost, CitySpring and MacqIntInfra.
Health Care Sector :-
Another of those defensive in nature business type of companies. Regardless of economy condition, health care is always in demand and cannot be shun away from. Singapore is also renowned for being a health care hub for the South-East Asia region and with last year acquisition of Parkway and Thomson Medical by private investor, focus will be on which will be the next to be being acquired. Stocks Plife REIT, Raffles Medical, First REIT, Biosensors, Q&M Dental and Healthway.
REIT Sector :-
REIT sector is not a sector by itself but rather a category of investment instrument as REIT companies can be among of the Retail, Commercial, Industrial and Health care sectors. Defensive by nature due to backing by their dividend ( offering average higher dividend yield than STI ), REIT has been lagging in 2010 partly due to fewer acquisition to enhance their assets. Most of the REITs managed to raise capital for the past 2 years and with current low interest rate environment, might see more assets acquisition in year 2011 ( which is a good news to REITs ). Assets acquisition is the key to unlock the value of REITs in 2011. Retail class type of REITs would be continued to be in demand in line with tourism demand in Singapore and stocks are CapitaMall Trust, Suntec Reit, Starhill Global and FrasersCT. Commercial class type of REIT would see better earning from previous year due to the rising office rental. Stocks CapitaComm Trust, Suntec Reit and K-Reit. Industrial and logistic provider class type of REIT was a laggard in 2010 as companies were not expanding much then. The demand for that in 2011 could be different as most of the companies are looking at expansion of business. Stocks A-Reit, MapletreeInd, Mapletreelog, Cambridge, Cache, Sabana REIT and GLP. Health care class of REIT will continue to perform as per last year. Stocks Plife REIT and First REIT. Hospitality class type of REIT would be in demand in line with tourism demand in Singapore for this year. Stocks CDL HTrust and AscottREIT.
S-Share Sector :-
S-Shares are renowned for high beta and volatility class of stocks in Singapore market. They have mostly under-perform in last year as investors taking cautious stand towards them. Property related stocks are concerned with property bubbles and constant tightening measures in China. Retail consumption related stocks attracted not much interest as the branded and biggest companies in China are not listed in Singapore and with past cases of corporate governance issue, investors are skeptical about investing in those despite the cheaper prices. The only bright spot for S-Share listed in Singapore last year was probably those offshore/marine related namely Cosco, Yangzijiang and JES whereby global demand in shipping business enable these companies to gather contracts. These companies should be able to continue to perform in 2011. Furthermore, couple of S-Shares listed are seeking option to dual list in either Hong Kong or Taiwan as the interest over there is better than Singapore. Despite all those, there are still some good quality S-Share to be found and with cautious investing, investors could minimize those risks. Stocks are Cosco, Yangjizang, JES, Yanlord, Ying Li, Midas, ChinaMinzhong, SinoGrandnes and Sound Global.
Year 2011 blue chip companies might have limited upside in price appreciation since the sharp rebound in 2009 as their earnings entering temporary saturation phase. This year potentially could be for the second liner and below stocks to play catchup in their earnings and provide better price appreciation that could out-perform the index. With the higher potential gain in investing in penny stocks, tag along will be higher risk also and hence careful selection of the stocks should be priority for investors in 2011. Companies with good order books of contracts, strong cash flow and sustainable profit level should be focus on as a selection criteria.
Personal preferred choice of stocks for 2011 :-
DBS, NobleGrp, NOL, SIA Engg, A-Reit, ComfortDelGro, CDL HTrust, Mapletreelog, Swiber, K-Green, Yongnam, Yanlord, Ying Li, JES, and Midas
Thursday, September 23, 2010
Property Sector -- 23rd Sep 10
Since year 2009 property market has been constantly been pressurized by the Government with the various cooling measures to curb the property price from rising causing potential property bubbles while the general economy is on her recovery. However, despite all the curbing measures ( Singapore, China and Hong Kong ), property prices still on the rise. Does that mean the various measures by the Government is insufficient or there could be something underlying to explain for the rising of the property prices ?
Starting from the point whereby global economy gone into recession in 2008 and came out of recession in 2009. Government from various countries all injected stimulus ( in term of monetary ie printing money ) to the economy to aid the economy from coming out of recession and spur growth along the way. With the excessive of cash and uncertainty in the economic recovery, most people would want to use the money to acquire physical assets ( property, since prices were depressed to low level during the recession ) as a safeguard. With that, property prices were fast driving up. In addition, Government also proposal numerous of infrastructure spending to boost the economy like building/upgrading roads, railway and etc. With all the infrastructure works going on, this only jacks up the land prices around the area with those infrastructure works being carried out. Hence, property price will just keep on rising despite all the curbing.
Take the case of Singapore, Government has planed to enhance the MRT system within the next decade and during the recession period of 2008, the Circle line and the Downtown lines were being constructed. With those fully functional, the value of property around those areas will no doubt be increased. China is another country that is having the same scenarios as in Singapore. The much talk about Tianjin city ( where it is currently being undergoing development to become a first tier city ) is building its subway network and expecting to be completed either in 2011 or 2012. The completion of the subway will bring a lot of conveniences to people doing business in Tianjin city. Another city Hangzhou ( very rich in history as it was the capital during the South Song dynasty ), a very popular tourist spot is also planning to build its own subway network and that will bring a lot of conveniences to the tourists as the city is current being served by buses only.
Even in US, California also proposing to build a high speed railway network at the moment. Spending on infrastructure is probably one of the best method at the moment to continue the global economy from recovery and at the same time it can create a lot of jobs to help bring down unemployment.
With spending in infrastructure as the main focus to spur and sustain economic growth at the moment, it is very difficult for the property prices to drop despite all the curbing measures. Potentially, property developer ( CityDev, Capitaland, Kepland, SC Global, Allgreen, Ho Bee, Yanlord, YingLi ) could be a good upside with an at least 5 years of time frames.
Starting from the point whereby global economy gone into recession in 2008 and came out of recession in 2009. Government from various countries all injected stimulus ( in term of monetary ie printing money ) to the economy to aid the economy from coming out of recession and spur growth along the way. With the excessive of cash and uncertainty in the economic recovery, most people would want to use the money to acquire physical assets ( property, since prices were depressed to low level during the recession ) as a safeguard. With that, property prices were fast driving up. In addition, Government also proposal numerous of infrastructure spending to boost the economy like building/upgrading roads, railway and etc. With all the infrastructure works going on, this only jacks up the land prices around the area with those infrastructure works being carried out. Hence, property price will just keep on rising despite all the curbing.
Take the case of Singapore, Government has planed to enhance the MRT system within the next decade and during the recession period of 2008, the Circle line and the Downtown lines were being constructed. With those fully functional, the value of property around those areas will no doubt be increased. China is another country that is having the same scenarios as in Singapore. The much talk about Tianjin city ( where it is currently being undergoing development to become a first tier city ) is building its subway network and expecting to be completed either in 2011 or 2012. The completion of the subway will bring a lot of conveniences to people doing business in Tianjin city. Another city Hangzhou ( very rich in history as it was the capital during the South Song dynasty ), a very popular tourist spot is also planning to build its own subway network and that will bring a lot of conveniences to the tourists as the city is current being served by buses only.
Even in US, California also proposing to build a high speed railway network at the moment. Spending on infrastructure is probably one of the best method at the moment to continue the global economy from recovery and at the same time it can create a lot of jobs to help bring down unemployment.
With spending in infrastructure as the main focus to spur and sustain economic growth at the moment, it is very difficult for the property prices to drop despite all the curbing measures. Potentially, property developer ( CityDev, Capitaland, Kepland, SC Global, Allgreen, Ho Bee, Yanlord, YingLi ) could be a good upside with an at least 5 years of time frames.
Monday, January 11, 2010
Technology Sector -- 11th Jan 10
The demand of smartphones ( iPhone, Android based Nexus One, HTC, etc ) are increasing as people are now able to connect to the internet at anytime any place without the requirement of a PC. The change in lifestyle could potentially lead the world into another new era of technology. With the global economies still healing from the sub prime crisis in 2007, this new era could lead the second leg of global economy recovery and at the same time prevent a possible double dip in recession.
From the production of the smartphones to eventual users of those will no doubt beneficial to companies. From the R&D prospective, companies like Broadcomm, Qualcomm and Marvell ( all US companies ) creating the technology with their patented chipset solution. Manufacturing those smart phones will involve foundry companies like TSMC ( Taiwan ), UMC ( Taiwan ) and Chartered Semiconductor ( Singapore ), and turnkey services providers like Stats ChipPac ( Singapore ), Venture Corp ( Singapore ) and Flextronic ( US ). Branding companies like Apple ( US ), Nokia ( Finland ), Sony Ecrisson ( Japan/Sweden ), Motorola ( US ), Samsung ( South Korea ), HTC ( Taiwan ), Google ( US ), etc will be involved in selling to the consumers. Lastly, the telco companies like China Mobile ( China ), PCCW ( Hong Kong ), SingTel ( Singapore ), StarHub ( Singapore ), NTT DoCoMo ( Japan ), etc will complete the stages by providing connection services for the smartphones to the consumers.
In Singapore with the delisting of Chartered Semiconductor, investors could only focus on the 2 turnkey services provider Stats ChipPac ( with offices in US, China, Taiwan and South Korea ) and Venture Corp ( with offices in US, China and Europe ) and the telcos SingTel, StarHub and M1 to ride on the potential growth on this new era of technology. For investors which want exposure to China market for this technology trend, Sinotel would be appropriate candidate.
From the production of the smartphones to eventual users of those will no doubt beneficial to companies. From the R&D prospective, companies like Broadcomm, Qualcomm and Marvell ( all US companies ) creating the technology with their patented chipset solution. Manufacturing those smart phones will involve foundry companies like TSMC ( Taiwan ), UMC ( Taiwan ) and Chartered Semiconductor ( Singapore ), and turnkey services providers like Stats ChipPac ( Singapore ), Venture Corp ( Singapore ) and Flextronic ( US ). Branding companies like Apple ( US ), Nokia ( Finland ), Sony Ecrisson ( Japan/Sweden ), Motorola ( US ), Samsung ( South Korea ), HTC ( Taiwan ), Google ( US ), etc will be involved in selling to the consumers. Lastly, the telco companies like China Mobile ( China ), PCCW ( Hong Kong ), SingTel ( Singapore ), StarHub ( Singapore ), NTT DoCoMo ( Japan ), etc will complete the stages by providing connection services for the smartphones to the consumers.
In Singapore with the delisting of Chartered Semiconductor, investors could only focus on the 2 turnkey services provider Stats ChipPac ( with offices in US, China, Taiwan and South Korea ) and Venture Corp ( with offices in US, China and Europe ) and the telcos SingTel, StarHub and M1 to ride on the potential growth on this new era of technology. For investors which want exposure to China market for this technology trend, Sinotel would be appropriate candidate.
Monday, January 4, 2010
Recap 2009 & Looking Ahead 2010
FTSE STI closed 2,897.62 on 31st Dec 2009 as compared with 1,761.56 on 31st Dec 2008. The index has moved up 64.50% as the global economies recovered from recession due to the US sub-prime crisis surfaced in year 2007.
The first quarter of 2009 was the worst part of global economy when US banks were in danger of bankruptcy, companies revenue and profit were down, companies cutting jobs to save cost and unemployment rate rose. Countries went into recession and global stock markets also crashed to year low during the March period. Coordinated efforts of Governments around the world injecting stimulus and cutting of interest rate to save their respective country's economy were carried out which eventually ended the worst part of the year. Economy growth started to pick up from second quarter onwards so as the stock markets whereby excessive cash flowing back to the stock markets to cause a sharp rebound in the stock prices. Furthermore, all eyes will on China to lead global economies out of recession and China did with their 4 trillion yuan of stimulus being injected by the Government. V-shape recovery or green shoots were talked about while some still cautious of it was just another bear rally. In addition, all eyes also looking at Asia to sustain the global economies. With improving in the economy in the later part of the year, countries started to emerged out of recession, companies revenue and profit level started to improve too. Some countries also started to hike interest rate to curb inflation caused by excessive printing of money.
FTSE STI hit a low of 1,456.95 on 9th March 2009 and since then rebounded 98.89% at the end of 2009. Singapore also officially out of recession in the later part of the year as GDP rebounded from second quarter onwards. However, for full year 2009 GDP, Singapore still stand at -2.1%. Singapore should be able to return to positive growth for 2010 with a projection of between 2.5% to 3.5% when companies start hiring, registering better revenue and profit.
Looking ahead in year 2010, another sharp rally in the stock markets might not be possible as economy growth will be slowing down and stabilized as the Government is expecting to withdraw the stimulus. There will be several factors to be considered in year 2010.
1. Valuation.
The valuation of a stock price is determined by the company earning. In general, companies earning for the first half of 2010 should be better than the same period as of 2009 and this could be providing catalysts for stock prices to march up further as analysts will be upgrading of target prices.
2. Inflation.
With excessive printing of money, inflation will always be the main concern. With economy yet to be fully recovered a sharp rise in inflation coupling with still high unemployment rate will result in stagflation and that will be a bigger problem to solve. Hence, central banks around the world will have to time the hiking of interest rate precisely so that its effect could curb inflation and at the same time will not jeopardize the recovery of the economy. An increase in interest rate will have a downside effect on the stock markets in general and time frame of that happening could be in the second half of 2010.
3. Unemployment rate.
As economy recovered, countries out of recession, unemployment rate still at a considerable high figure as this was the norm of what a recovery economy should be. It will be pro-long period to bring down the unemployment rate in particular in US whereby its unemployment rate skyrocketing to more than 10% in 2009. In Singapore, companies is already showing sign of hiring again and the unemployment rate will be coming down. The opening of the 2 IRs this year has played a big part in bringing down the unemployment rate.
4. Property bubbles.
This could be another potential dent to the recovery of the economic if appropriate measures are not implemented in time to curb it. The excessive cash has caused investors snapping up property assets hence driving up the prices. Measures to curb property bubbles in short-term will have a downside effect on the stock markets but in long-term this will be good as it prevent another deadly bubbles from bursting that could derail the recovery economy.
5. M&A activities
In a crisis, there will be a clear division between strong and weak companies. Companies with strong cash flow will take this opportunities to acquire weaker companies to kill off competition which they faced during economy good times. There should be more M&A activities happening in 2010 as stronger and bigger companies aiming to restructure for the next growth phase while weaker companies hoped to survive by being acquired.
6. USD carry trade
With virtually 0% interest rate, many have borrow USD to pour into stock markets to salvage capital gain. If US Federal Reserve raises interest rate, this will cause investors to withdraw the money from stock markets and that will have a downside impact on the stock prices in general.
As economy recovered in 2009, not all sectors were behaving the same and hence an analysis of the performance in each sector in 2010 is critical for investors. Sector and stock selection would be important in stock market for 2010.
1. Banking sector
Banking sector was the first to get hit in 2009 when the crisis was at its worst part. Default debts and low loan growth were hurting the bank's profit and revenue then and as such, banks have to perform cash call to shore up their cash flow. Bank stock prices also crash to or below than their book value. However, with the recovery in the second half of 2009, banks were amongst the first few to rebound and their stock prices also rebound at least 50% from their respective low prices in 2009. Loan growth will be critical part in how the banks perform in 2010. Stocks on the lookout will be DBS, UOB and OCBC.
2. Property sector
Even though property prices have yet to reach the pre-crisis level in 2007 but there already concern of over-heating and measures have to implemented to curb a bubble being formed. Property sector would be considered a high beta stock in 2010 and investors would have to stomach a bigger risk if investing in it. Property sector should be volatile in 2010 with projects launching providing the upside for the prices whereas measures to curb property bubble and raising of interest rate will weigh heavily on the stock prices. Stocks on the lookout will be CityDev, Capitaland, Kepland, SC Global, UOL, Ho Bee, Allgreen, Yanlord and F&N.
3. Commodity sector
The weakening of the greenback has caused investors to pour their money into commodity stock to fight potential inflation and drove commodity stock prices up. For the first half of 2010, commodity stocks should still be in focus as most do not expect the US Federal Reserve to raise interest rate until the second half of the year. Stocks on the lookout will be Wilmar, NobleGrp, Olam, GoldenArgi, IndoArgi and First Resources.
4. Offshore/Marine and Oil/Gas sector
Crude oil price has retreated from at least USD140/barrel in 2008 to as low as USD60+/barrel in 2009 and currently rebound to between USD70 - USD80/barrel. Crude oil price should be moving up in 2010 to probably USD80 - USD100/barrel range. The recovery of the crude oil price will have a positive impact on Oil/Gas sector whereby potentially more contracts will be rolled out as compared with year 2009. Ship building/repairing and freight demand which were still weak in 2009 should be seeing rebound in 2010 as the economy continues on the mend. Stocks on the lookout will be KepCorp, SembMar, Ezra, Swiber, KS Energy, NOL, Yangzijiang, Cosco and ASL Marine.
5. Aviation and Transport sector
2009 saw many aviation companies suffered loss in their earnings as air travel demand dropped. Airlines have to resort to cutting route/flights to save cost and even slashing airfares to attract travelers. However, recent figure showed that air traveling demand is improving and should continue to improve in 2010. Aviation related companies will also be gaining due to the spill over effect of the recovery. Transportation sector in Singapore might be seeing more demand in 2010 with the opening of the 2 IRs. Stocks on the lookout will be SIA, SIA Engg, ST Engg, SATSvcs, SMRT and ComfortDelgro
6. Retail sector
Retail sector took a hit in 2009 when country went into recession, people cut spending. With economy recovering, people are starting to spend again which provided the recovery for retail sector. In particular the opening of the 2 IRs, the hosting of the Olympics Youth Games, the annual F1 and other mega events would spur more spending in the retail sector. Stocks on the lookout will be CapitaMall Trust, Suntec Reits, CapitaRChina, CapMallsAsia, StarHill Global and FraserCT.
7. Hospitality sector
As per the retail sector, this sector was badly hurt in 2009. With air traveling improving and mega events happening in Singapore in 2010, the demand of hotels should be in focus again. Stock on the lookout will be CDL H Trust.
8. Office/Industrial sector
Office renting and industrial demand have yet to recover as companies still emerging from bad periods and will take some time for them to expand their business. Stocks on the lookout will be AscendasReits, CapitaComm Trust, Suntec Reits, K-Reits, Mapletreelog, Cambridge Industrial Trust and FraserComm.
9. Health Care sector
This sector is pretty much a defensive sector as it was not affected badly in 2009 and will not be a super performer in 2010 either. Health care is essential regardless of what economy condition it is in. Stocks on the lookout will be Parkway, Plife Reit and First Reits
10. Telco sector
This sector should continue to grow in 2010. As technology advances, means to communicate between people will be getting easier and affordable and that will benefit very much the telco sector. The demand of smart phone is current the talk of the town and with the 3 telcos offering affordable subscription plan for that and potentially a better broadband services in 2010, the revenue and profit level for the telco companies should be improving. Stocks on the lookout will be SingTel, StarHub and M1
11. Construction sector
When Singapore went into recession, the Government rolled out infrastructure projects to boast the economy which benefit the construction companies. As the construction of the 2 IRs coming to an end, the demand and performance on construction sector will be relying heavily on property developers and infrastructure projects.
Stocks on the lookout will be Yongnam, CSC, LianBeng and ChipEngSeng.
12. Service and Utilities sector
Sign of service sector recovering could be seen in the later part in 2009, condition will be continue to improve in 2010 but do not expect a fast pace recovery. Stocks on the lookout for service sector will be SPH and SingPost. Utilities sector is pretty defensive in nature as it involves daily essential components like water, electricity, gas, etc. Same as in health care sector, the performance will be a slow and steady one in 2010. Stocks on the lookout for this sector will be SembCorp, Hyflux, Epure and HyfluxWaterT.
Sectors recommended for year 2010 on a medium time frame would be :-
1. Offshore/Marine
2. Oil/Gas
3. Aviation
4. Retail
For longer investment time frame would be :-
1. Office/Industrial
2. Transportation
3. Hospitality
For more defensive play to reduce risk, would be :-
1. Health care
2. Service
3. Utilities
4. Telco
Sectors to remain cautious due to higher risk would be :-
1. Bank
2. Property
3. Commodity
The first quarter of 2009 was the worst part of global economy when US banks were in danger of bankruptcy, companies revenue and profit were down, companies cutting jobs to save cost and unemployment rate rose. Countries went into recession and global stock markets also crashed to year low during the March period. Coordinated efforts of Governments around the world injecting stimulus and cutting of interest rate to save their respective country's economy were carried out which eventually ended the worst part of the year. Economy growth started to pick up from second quarter onwards so as the stock markets whereby excessive cash flowing back to the stock markets to cause a sharp rebound in the stock prices. Furthermore, all eyes will on China to lead global economies out of recession and China did with their 4 trillion yuan of stimulus being injected by the Government. V-shape recovery or green shoots were talked about while some still cautious of it was just another bear rally. In addition, all eyes also looking at Asia to sustain the global economies. With improving in the economy in the later part of the year, countries started to emerged out of recession, companies revenue and profit level started to improve too. Some countries also started to hike interest rate to curb inflation caused by excessive printing of money.
FTSE STI hit a low of 1,456.95 on 9th March 2009 and since then rebounded 98.89% at the end of 2009. Singapore also officially out of recession in the later part of the year as GDP rebounded from second quarter onwards. However, for full year 2009 GDP, Singapore still stand at -2.1%. Singapore should be able to return to positive growth for 2010 with a projection of between 2.5% to 3.5% when companies start hiring, registering better revenue and profit.
Looking ahead in year 2010, another sharp rally in the stock markets might not be possible as economy growth will be slowing down and stabilized as the Government is expecting to withdraw the stimulus. There will be several factors to be considered in year 2010.
1. Valuation.
The valuation of a stock price is determined by the company earning. In general, companies earning for the first half of 2010 should be better than the same period as of 2009 and this could be providing catalysts for stock prices to march up further as analysts will be upgrading of target prices.
2. Inflation.
With excessive printing of money, inflation will always be the main concern. With economy yet to be fully recovered a sharp rise in inflation coupling with still high unemployment rate will result in stagflation and that will be a bigger problem to solve. Hence, central banks around the world will have to time the hiking of interest rate precisely so that its effect could curb inflation and at the same time will not jeopardize the recovery of the economy. An increase in interest rate will have a downside effect on the stock markets in general and time frame of that happening could be in the second half of 2010.
3. Unemployment rate.
As economy recovered, countries out of recession, unemployment rate still at a considerable high figure as this was the norm of what a recovery economy should be. It will be pro-long period to bring down the unemployment rate in particular in US whereby its unemployment rate skyrocketing to more than 10% in 2009. In Singapore, companies is already showing sign of hiring again and the unemployment rate will be coming down. The opening of the 2 IRs this year has played a big part in bringing down the unemployment rate.
4. Property bubbles.
This could be another potential dent to the recovery of the economic if appropriate measures are not implemented in time to curb it. The excessive cash has caused investors snapping up property assets hence driving up the prices. Measures to curb property bubbles in short-term will have a downside effect on the stock markets but in long-term this will be good as it prevent another deadly bubbles from bursting that could derail the recovery economy.
5. M&A activities
In a crisis, there will be a clear division between strong and weak companies. Companies with strong cash flow will take this opportunities to acquire weaker companies to kill off competition which they faced during economy good times. There should be more M&A activities happening in 2010 as stronger and bigger companies aiming to restructure for the next growth phase while weaker companies hoped to survive by being acquired.
6. USD carry trade
With virtually 0% interest rate, many have borrow USD to pour into stock markets to salvage capital gain. If US Federal Reserve raises interest rate, this will cause investors to withdraw the money from stock markets and that will have a downside impact on the stock prices in general.
As economy recovered in 2009, not all sectors were behaving the same and hence an analysis of the performance in each sector in 2010 is critical for investors. Sector and stock selection would be important in stock market for 2010.
1. Banking sector
Banking sector was the first to get hit in 2009 when the crisis was at its worst part. Default debts and low loan growth were hurting the bank's profit and revenue then and as such, banks have to perform cash call to shore up their cash flow. Bank stock prices also crash to or below than their book value. However, with the recovery in the second half of 2009, banks were amongst the first few to rebound and their stock prices also rebound at least 50% from their respective low prices in 2009. Loan growth will be critical part in how the banks perform in 2010. Stocks on the lookout will be DBS, UOB and OCBC.
2. Property sector
Even though property prices have yet to reach the pre-crisis level in 2007 but there already concern of over-heating and measures have to implemented to curb a bubble being formed. Property sector would be considered a high beta stock in 2010 and investors would have to stomach a bigger risk if investing in it. Property sector should be volatile in 2010 with projects launching providing the upside for the prices whereas measures to curb property bubble and raising of interest rate will weigh heavily on the stock prices. Stocks on the lookout will be CityDev, Capitaland, Kepland, SC Global, UOL, Ho Bee, Allgreen, Yanlord and F&N.
3. Commodity sector
The weakening of the greenback has caused investors to pour their money into commodity stock to fight potential inflation and drove commodity stock prices up. For the first half of 2010, commodity stocks should still be in focus as most do not expect the US Federal Reserve to raise interest rate until the second half of the year. Stocks on the lookout will be Wilmar, NobleGrp, Olam, GoldenArgi, IndoArgi and First Resources.
4. Offshore/Marine and Oil/Gas sector
Crude oil price has retreated from at least USD140/barrel in 2008 to as low as USD60+/barrel in 2009 and currently rebound to between USD70 - USD80/barrel. Crude oil price should be moving up in 2010 to probably USD80 - USD100/barrel range. The recovery of the crude oil price will have a positive impact on Oil/Gas sector whereby potentially more contracts will be rolled out as compared with year 2009. Ship building/repairing and freight demand which were still weak in 2009 should be seeing rebound in 2010 as the economy continues on the mend. Stocks on the lookout will be KepCorp, SembMar, Ezra, Swiber, KS Energy, NOL, Yangzijiang, Cosco and ASL Marine.
5. Aviation and Transport sector
2009 saw many aviation companies suffered loss in their earnings as air travel demand dropped. Airlines have to resort to cutting route/flights to save cost and even slashing airfares to attract travelers. However, recent figure showed that air traveling demand is improving and should continue to improve in 2010. Aviation related companies will also be gaining due to the spill over effect of the recovery. Transportation sector in Singapore might be seeing more demand in 2010 with the opening of the 2 IRs. Stocks on the lookout will be SIA, SIA Engg, ST Engg, SATSvcs, SMRT and ComfortDelgro
6. Retail sector
Retail sector took a hit in 2009 when country went into recession, people cut spending. With economy recovering, people are starting to spend again which provided the recovery for retail sector. In particular the opening of the 2 IRs, the hosting of the Olympics Youth Games, the annual F1 and other mega events would spur more spending in the retail sector. Stocks on the lookout will be CapitaMall Trust, Suntec Reits, CapitaRChina, CapMallsAsia, StarHill Global and FraserCT.
7. Hospitality sector
As per the retail sector, this sector was badly hurt in 2009. With air traveling improving and mega events happening in Singapore in 2010, the demand of hotels should be in focus again. Stock on the lookout will be CDL H Trust.
8. Office/Industrial sector
Office renting and industrial demand have yet to recover as companies still emerging from bad periods and will take some time for them to expand their business. Stocks on the lookout will be AscendasReits, CapitaComm Trust, Suntec Reits, K-Reits, Mapletreelog, Cambridge Industrial Trust and FraserComm.
9. Health Care sector
This sector is pretty much a defensive sector as it was not affected badly in 2009 and will not be a super performer in 2010 either. Health care is essential regardless of what economy condition it is in. Stocks on the lookout will be Parkway, Plife Reit and First Reits
10. Telco sector
This sector should continue to grow in 2010. As technology advances, means to communicate between people will be getting easier and affordable and that will benefit very much the telco sector. The demand of smart phone is current the talk of the town and with the 3 telcos offering affordable subscription plan for that and potentially a better broadband services in 2010, the revenue and profit level for the telco companies should be improving. Stocks on the lookout will be SingTel, StarHub and M1
11. Construction sector
When Singapore went into recession, the Government rolled out infrastructure projects to boast the economy which benefit the construction companies. As the construction of the 2 IRs coming to an end, the demand and performance on construction sector will be relying heavily on property developers and infrastructure projects.
Stocks on the lookout will be Yongnam, CSC, LianBeng and ChipEngSeng.
12. Service and Utilities sector
Sign of service sector recovering could be seen in the later part in 2009, condition will be continue to improve in 2010 but do not expect a fast pace recovery. Stocks on the lookout for service sector will be SPH and SingPost. Utilities sector is pretty defensive in nature as it involves daily essential components like water, electricity, gas, etc. Same as in health care sector, the performance will be a slow and steady one in 2010. Stocks on the lookout for this sector will be SembCorp, Hyflux, Epure and HyfluxWaterT.
Sectors recommended for year 2010 on a medium time frame would be :-
1. Offshore/Marine
2. Oil/Gas
3. Aviation
4. Retail
For longer investment time frame would be :-
1. Office/Industrial
2. Transportation
3. Hospitality
For more defensive play to reduce risk, would be :-
1. Health care
2. Service
3. Utilities
4. Telco
Sectors to remain cautious due to higher risk would be :-
1. Bank
2. Property
3. Commodity
Monday, August 31, 2009
S-Reits -- 31st Aug 09
S-Reits have been moving up lately in probably catching up or valuation adjustment. S-Reits have been in limelight for past months due to the amount of debts maturing this year. Since then cash call in the form of Rights issue, Share Placement and loan refinanicing have eased some of the concerns of S-Reits high gearing ratio. From the first half of the year earnings, S-Reits also recorded mixed performance. Some still have the ability to distribute out better than last year dividend, some maintain the payout ratio whereas some have to reduce in order to shore up their cash flow position. The average yield of S-Reits as of today stands at 9.886% ( http://reitdata.blogspot.com/ ) which is almost double that as compared to 2 years ago. The main reason was due to the depressed of price level for the S-Reits as global financial meltdown has caused concern on debts worrying and depreciation of assets value. If the worst of the economy is over then at current average yield of 9.886%, S-Reits as a long term constant income investment instrument is at a very attractive price level presently.
Technically, both the short and long term indicators of some of the S-Reits are on an uptrend and if the momentum is able to sustain, they could move to the following target price.
1. A-iReit :- tp $1.10
2. A-Reit :- tp $2.00
3. AscottReit :- tp $1.08
4. Cambridge :- tp $0.62
5. CapitaComm :- tp $1.16
6. CapitaMall :- tp $1.84
7. CapitaRChina :- tp $2.12
8. CDL HTrust :- tp $1.85
9. FrasersCT :- tp $1.16
10. K-Reit :- tp $1.25
11. Mapletreelog :- tp $0.73
12. Starhill Global :- tp $0.705
13. Suntec :- tp $1.40
Strategically, for a long term investor on S-Reits, at present price level could slowly accumulate given the attractiveness of the dividend yield. If the coming earnings season ( staring from mid October 09 ), these S-Reits are able to produce another set of improving result, the present price level might be the cheapest one could ever get.
Technically, both the short and long term indicators of some of the S-Reits are on an uptrend and if the momentum is able to sustain, they could move to the following target price.
1. A-iReit :- tp $1.10
2. A-Reit :- tp $2.00
3. AscottReit :- tp $1.08
4. Cambridge :- tp $0.62
5. CapitaComm :- tp $1.16
6. CapitaMall :- tp $1.84
7. CapitaRChina :- tp $2.12
8. CDL HTrust :- tp $1.85
9. FrasersCT :- tp $1.16
10. K-Reit :- tp $1.25
11. Mapletreelog :- tp $0.73
12. Starhill Global :- tp $0.705
13. Suntec :- tp $1.40
Strategically, for a long term investor on S-Reits, at present price level could slowly accumulate given the attractiveness of the dividend yield. If the coming earnings season ( staring from mid October 09 ), these S-Reits are able to produce another set of improving result, the present price level might be the cheapest one could ever get.
Tuesday, June 9, 2009
Offshore & Marine -- 9th Jun 09
Offshore/Marine stocks have been corrected down for past 1 to 2 weeks. They are appearing to be bottoming up in the process.
KepCorp the world #1 rig builder hit an intra-day high of S$7.70 on 25th May and since then the price has retreated to an intra-day low of S$6.70 on 8th Jun. Looking at the Stochastic indicator, it is slowing flattening and potential could take another 1 to 3 days to really bottom out. It is having a support at the S$6.70 level and resist at around the S$6.94 level to create a bottom. If the S$6.70 level failed to hold, the next massive support would be at the S$6.25 level. RSI indicator has turned up hence signal the down side could be limited to S$6.70. A breakout from the S$6.94 level could see it heading towards S$7.50 level.
SembMar the world #2 rig builder after hitting an intra-day high of S$3.16 on 2nd Jun corrected down to an intra-day low level of S$2.81 on 8th Jun. The intra-day low level is resting at the short-term GMMA support level and a breakdown from this level could see it heading towards S$2.65 level; the long-term GMMA line. Stochastic indicator has yet to flatten hence suggesting the selling pressure might not be finished. However, the turning up of the RSI could suggest the downside is limited at the moment and at S$2.81 level, could be the support for bottoming up. If the S$2.65 level failed to provide the support, the massive support level would be at the S$2.45 level. As compared with KepCorp, SembMar might take slightly longer to bottom out. A trend reversal could see it testing the S$3.00 resistance level.
SembCorp is having a similar pattern to SembMar. Yet to see any clear sign of flattening but with RSI starting to show sign of turning up, the downside could be limited for the time being. It hit an intra-day high of S$3.30 on 2nd Jun and corrected down to an intra-day low of S$2.96 on 8th Jun. S$2.96 level is the first level of support from the long-term GMMA signal and appear holding up quite well for the moment. Currently, it is ranging between S$2.96 to S$3.04 trying to bottoming out there. A support failure at S$2.96 would see it finding the next support level at S$2.56; this should be a massive support level. The rebound from the bottom could see it retest its $3.30 level.
Swiber, perhaps is the strongest among the offshore/marine stocks now. It has a placement at S$0.88 level and its 200d EMA level is also around that level. This has potentially forming a good support around that level. Technically, Swiber appears to showing sign of rebound asa compared with KepCorp, SembMar and SembCorp. Stochastic appears to start to cut up while RSI has turned up already. Swiber could be the first to rebound among the Offshore/Marine stocks. The long-term GMMA first level support is around the S$0.84 level which failed to be tested and this suggests at current price level, the downside could be limited. A rebound could see it re-testing S$0.95 as first level of resistance.
KepCorp the world #1 rig builder hit an intra-day high of S$7.70 on 25th May and since then the price has retreated to an intra-day low of S$6.70 on 8th Jun. Looking at the Stochastic indicator, it is slowing flattening and potential could take another 1 to 3 days to really bottom out. It is having a support at the S$6.70 level and resist at around the S$6.94 level to create a bottom. If the S$6.70 level failed to hold, the next massive support would be at the S$6.25 level. RSI indicator has turned up hence signal the down side could be limited to S$6.70. A breakout from the S$6.94 level could see it heading towards S$7.50 level.
SembMar the world #2 rig builder after hitting an intra-day high of S$3.16 on 2nd Jun corrected down to an intra-day low level of S$2.81 on 8th Jun. The intra-day low level is resting at the short-term GMMA support level and a breakdown from this level could see it heading towards S$2.65 level; the long-term GMMA line. Stochastic indicator has yet to flatten hence suggesting the selling pressure might not be finished. However, the turning up of the RSI could suggest the downside is limited at the moment and at S$2.81 level, could be the support for bottoming up. If the S$2.65 level failed to provide the support, the massive support level would be at the S$2.45 level. As compared with KepCorp, SembMar might take slightly longer to bottom out. A trend reversal could see it testing the S$3.00 resistance level.
SembCorp is having a similar pattern to SembMar. Yet to see any clear sign of flattening but with RSI starting to show sign of turning up, the downside could be limited for the time being. It hit an intra-day high of S$3.30 on 2nd Jun and corrected down to an intra-day low of S$2.96 on 8th Jun. S$2.96 level is the first level of support from the long-term GMMA signal and appear holding up quite well for the moment. Currently, it is ranging between S$2.96 to S$3.04 trying to bottoming out there. A support failure at S$2.96 would see it finding the next support level at S$2.56; this should be a massive support level. The rebound from the bottom could see it retest its $3.30 level.
Swiber, perhaps is the strongest among the offshore/marine stocks now. It has a placement at S$0.88 level and its 200d EMA level is also around that level. This has potentially forming a good support around that level. Technically, Swiber appears to showing sign of rebound asa compared with KepCorp, SembMar and SembCorp. Stochastic appears to start to cut up while RSI has turned up already. Swiber could be the first to rebound among the Offshore/Marine stocks. The long-term GMMA first level support is around the S$0.84 level which failed to be tested and this suggests at current price level, the downside could be limited. A rebound could see it re-testing S$0.95 as first level of resistance.
Monday, November 24, 2008
SG Sector Analysis -- S-Reits
Singapore Real Estate Investment Trusts ( S-Reits ) theoretically is a defensive stock backing by their physical assets and high dividend yield ( higher than dividend yield of STI on average ). A Reits company functions by acquiring assets and lease out the assets to collect rental income from tenants. In return, at least 80% of the rental income collected is distributed back to the unitholder ( same as shareholder ) as dividend ( known as distribution per unit, DPU ). S-Reits is further classified into sector category. Namely, Retail, Residential, Office Space, Industrial, Healthcare, etc. Normal Reits investors are those risk adverse type who looking at constant income per annually ( dividend yield ) rather than looking at the price appreciation component of the stock price. Like any other investment, there is risk in investing in Reits too. Once the fundamental of the Reits changes, the risk will increase. The change in fundamental to the worse appears when the Reits company loosing its physical assets through possible natural disasters, political reason or bankruptcy, etc.
To invest in Reits, one should not just look at its dividend yield ( high doesn't mean good though ). One has to look at the followings :-
1. quality of the physical assets ( will it be affected by bad economic times like no tenants etc, FA valuation is looking at its NAV )
2. company cashflow ( strong cashflow means no need to borrow from banks to acquire assets to grow their portfolio )
3. ability to grow its physical assets ( that is acquiring more to boost better rental income )
4. gearing ratio ( debt-to-asset ratio, the lower the better )
5. dividend yield
The problem for most Reits now is refinancing problem. During the good ecomoy times they have borrowed from banks to acquire assets at reasonable "high price" and now with economy bad times coming, they are facing the problem of possible decrease in rental income and hence difficulty in repaying the loan.
Below is the list of some of the better quality Reits in SG Market.
CapitaMall Trust
---------------------
NAV = $2.21
Gearing = 43.3%
DPU estimate = 14.48 cents
Price ( 21st Nov 08 ) = $1.55
Yield = 9.34%
Ascendasreit
----------------
NAV = $1.85
Gearing = 41.4%
DPU estimate = 16.04 cents
Price ( 21st Nov 08 ) = $1.27
Yield = 12.63%
CapitaComm Trust
-----------------------
NAV = $3.11
Gearing = 36.3%
DPU estimate = 10.60 cents
Price (21st Nov 08 ) = $0.795
Yield = 13.33%
CDL Hospitality Trust
---------------------------
NAV = $1.57
Gearing = 18.1%
DPU estimate = 11.75 cents
Price (21st Nov 08) = $0.635
Yield = 18.50%
Mapletreelog Trust
------------------------
NAV = $0.85
Gearing = 36.9%
DPU estimate = 8.16 cents
Price (21st Nov 08) = $0.34
Yield = 24.00%
ParkwayLife Reit
---------------------
NAV = $1.34
Gearing = 19.60%
DPU estimate = 6.66 cents
Price (21st Nov 08) = $0.800
Yield = 8.33%
Suntec Reit
--------------
NAV = $2.23
Gearing = 31.9%
DPU estimate = 11.35 cents
Price (21st Nov 08) = $0.630
Yield = 18.02%
For a detail listing of all the S-Reits information, the following site provides a good reference.
SGX - REIT - DATA
To invest in Reits, one should not just look at its dividend yield ( high doesn't mean good though ). One has to look at the followings :-
1. quality of the physical assets ( will it be affected by bad economic times like no tenants etc, FA valuation is looking at its NAV )
2. company cashflow ( strong cashflow means no need to borrow from banks to acquire assets to grow their portfolio )
3. ability to grow its physical assets ( that is acquiring more to boost better rental income )
4. gearing ratio ( debt-to-asset ratio, the lower the better )
5. dividend yield
The problem for most Reits now is refinancing problem. During the good ecomoy times they have borrowed from banks to acquire assets at reasonable "high price" and now with economy bad times coming, they are facing the problem of possible decrease in rental income and hence difficulty in repaying the loan.
Below is the list of some of the better quality Reits in SG Market.
CapitaMall Trust
---------------------
NAV = $2.21
Gearing = 43.3%
DPU estimate = 14.48 cents
Price ( 21st Nov 08 ) = $1.55
Yield = 9.34%
Ascendasreit
----------------
NAV = $1.85
Gearing = 41.4%
DPU estimate = 16.04 cents
Price ( 21st Nov 08 ) = $1.27
Yield = 12.63%
CapitaComm Trust
-----------------------
NAV = $3.11
Gearing = 36.3%
DPU estimate = 10.60 cents
Price (21st Nov 08 ) = $0.795
Yield = 13.33%
CDL Hospitality Trust
---------------------------
NAV = $1.57
Gearing = 18.1%
DPU estimate = 11.75 cents
Price (21st Nov 08) = $0.635
Yield = 18.50%
Mapletreelog Trust
------------------------
NAV = $0.85
Gearing = 36.9%
DPU estimate = 8.16 cents
Price (21st Nov 08) = $0.34
Yield = 24.00%
ParkwayLife Reit
---------------------
NAV = $1.34
Gearing = 19.60%
DPU estimate = 6.66 cents
Price (21st Nov 08) = $0.800
Yield = 8.33%
Suntec Reit
--------------
NAV = $2.23
Gearing = 31.9%
DPU estimate = 11.35 cents
Price (21st Nov 08) = $0.630
Yield = 18.02%
For a detail listing of all the S-Reits information, the following site provides a good reference.
SGX - REIT - DATA
Monday, November 10, 2008
SG Sector Analysis -- Property
Singapore has officially entered a technical recession and might have a real recession next year. Property developers are already delaying any launching of existing projects and the recent earnings showed that their net profit margin was down as compared to the same period last year. The demand for private properties has dipped also based on a recent survey. Even though the price of property stocks like CityDev, Capitaland and Kepland have already fallen like 50% from their peak value, there could be more downside if projection for next year fall further.
A look at the valuation of CityDev, Capitaland and Kepland for the period since 2001 till now :-
CityDev :-
current value = 1.13x NAV FY07 ( price = $6.45 as of 7th Nov 08, NAV = $5.72 FY07 )
SARS (02/03 ) = 0.61x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.70x NAV FY01
Capitaland :-
current valuation = 0.90x NAV FY07 ( price = $3.17 as of 7th Nov 08, NAV = $3.52 FY07 )
SARS ( 02/03 ) = 0.46x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.55x NAV
Kepland :-
current valuation = 0.65x NAV FY07 ( price = $3.07 as of 7th Nov 08, NAV = $3.18 FY07 )
SARS ( 02/03 ) = 0.48x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.55x NAV FY01
Based on the past reference, at current price for the 3 local developers there seem to have more downside to come especially their earnings will be projected downwards next year. The bottoming of property market might be in 2 years time and prices could reach estimated around 0.50x NAV FY07 and that could relate to CityDev at $2.86, Capitaland at $1.76 and Kepland at $1.59. Hence any purchase at current price level might not have a good margin of safety.
A look at the valuation of CityDev, Capitaland and Kepland for the period since 2001 till now :-
CityDev :-
current value = 1.13x NAV FY07 ( price = $6.45 as of 7th Nov 08, NAV = $5.72 FY07 )
SARS (02/03 ) = 0.61x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.70x NAV FY01
Capitaland :-
current valuation = 0.90x NAV FY07 ( price = $3.17 as of 7th Nov 08, NAV = $3.52 FY07 )
SARS ( 02/03 ) = 0.46x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.55x NAV
Kepland :-
current valuation = 0.65x NAV FY07 ( price = $3.07 as of 7th Nov 08, NAV = $3.18 FY07 )
SARS ( 02/03 ) = 0.48x NAV FY03
dot.com bubble & 911 ( 01 ) = 0.55x NAV FY01
Based on the past reference, at current price for the 3 local developers there seem to have more downside to come especially their earnings will be projected downwards next year. The bottoming of property market might be in 2 years time and prices could reach estimated around 0.50x NAV FY07 and that could relate to CityDev at $2.86, Capitaland at $1.76 and Kepland at $1.59. Hence any purchase at current price level might not have a good margin of safety.
Tuesday, October 28, 2008
SG Sector Analysis -- Offshore & Marine
With the crude oil price rocketing towards US$150/barrel just months ago, Offshore&Marine stocks were projecting a promising months ahead. Now with crude oil price potentially could drop to US$50/barrel, the whole projection totally turns south even with a strong order books supporting them. With a fear of global recession and a weakening USD ( contracts awarded were all quoted in USD ), the valuation of Offshore&Marine stocks will have to adjusted downward mainly due to lacking of further projects looking forwards and revenue decreased due to weakening of USD. There are also fear of the existing contracts could be cancel or clients unable to make payment. These are the factors that are worrying for Offshore&Marine stocks at the moment. Below is the valuation of KepCorp and SembMar in last 10 years during the bear market scenarios :-
KepCorp :-
current valuation = 5.78x PER; 1.14x P/B FY07 ( Price = $3.75 as of 24th Oct 08, Book Value FY07 = $3.28, EPS FY07 = $0.649 )
SARS ( 02/03 ) = 7x PER; 0.9x P/B
dot.com bubble & 911 ( 01 ) = 5x PER; 0.7x P/B
asian crisis ( 97/99 ) = 5x PER; 0.7x P/B
SembMar :-
current valuation = 10.5x PER; 1.52x P/B FY07 ( Price = $1.23 as of 24th Oct 08, Book Value FY07 = $0.81, EPS FY07 = $0.117 )
SARS ( 02/03 ) = 15x PER; 1.2x P/B
dot.com bubble & 911 ( 01 ) = 11x PER; 1.2x P/B
asian crisis ( 97/99 ) = 10x PER; 1.1x P/B
The valuation for both the world #1 and #2 rig builders at the moment has more or less entered into the SARS period however with crude oil price possible to drop to US$50/barrel coupled with decline in demand for oil rig building next year, revenue for the 2 companies for FY09 would have to be projected downward. Considering using the "projected downward" earnings of FY09 to valuate them, the present price might still be "expensive valuation" as compared with SARS period. Hence, further downside in stock prices might exist in near-term. The worst case scenario would be valuation drops to the "cheapest" level as in the Asian financial crisis period.
KepCorp :-
current valuation = 5.78x PER; 1.14x P/B FY07 ( Price = $3.75 as of 24th Oct 08, Book Value FY07 = $3.28, EPS FY07 = $0.649 )
SARS ( 02/03 ) = 7x PER; 0.9x P/B
dot.com bubble & 911 ( 01 ) = 5x PER; 0.7x P/B
asian crisis ( 97/99 ) = 5x PER; 0.7x P/B
SembMar :-
current valuation = 10.5x PER; 1.52x P/B FY07 ( Price = $1.23 as of 24th Oct 08, Book Value FY07 = $0.81, EPS FY07 = $0.117 )
SARS ( 02/03 ) = 15x PER; 1.2x P/B
dot.com bubble & 911 ( 01 ) = 11x PER; 1.2x P/B
asian crisis ( 97/99 ) = 10x PER; 1.1x P/B
The valuation for both the world #1 and #2 rig builders at the moment has more or less entered into the SARS period however with crude oil price possible to drop to US$50/barrel coupled with decline in demand for oil rig building next year, revenue for the 2 companies for FY09 would have to be projected downward. Considering using the "projected downward" earnings of FY09 to valuate them, the present price might still be "expensive valuation" as compared with SARS period. Hence, further downside in stock prices might exist in near-term. The worst case scenario would be valuation drops to the "cheapest" level as in the Asian financial crisis period.
Monday, October 20, 2008
SG Sector Analysis -- Bank
The current global meltdown is created none other than financial/investment banks in over leveraging, creating high risk and sophisticated structured investment products and retailed them globally. One failed will trigger a domino effect to the rest and eventually crippled the whole financial system. The sub-prime failure has so far caused banks around the globe to get hit. Some need capital injection to survive, some need to be acquired and the unlucky one like Lehman Brothers ended up declared bankrupt. With the fate of Lehman Brothers' fate sealed, it further triggered financial impact with its structured investment products, the minibonds. Even though the 3 local banks ( DBS, UOB and OCBC ) have minimum exposure to the CDO as compared to their peers in Europe and America, DBS is now facing the Lehman Brothers' minibonds and its high notes 5 issue. Furthermore, as Singapore economy enters a technical recession, a possible recession next year if job-cut and salary-cut start to kick in, the 3 local banks will be facing with slow loan growth looking ahead. With the write-down from their CDO exposure taken care of, the net cashflow of the 3 local banks still look pretty strong at the moment. Moreover, they recently managed to raise capital with their preferential share placement and this further enhanced their cashflow position. With slow loan growth and recession in mind, the earnings of the 3 banks for year 2009 will have to be projected down. As such whatever valuation at present deems cheap might be potentially be the fair value for FY2009 if the projection is adjusted down. The other concern is whether will there be any further structured investment products like the Lehman Brothers' minibonds need to be unwind. Below is the valuation of the 3 banks in last 10 years during the bear market scenarios :-
DBS :-
current valuation = 0.98x P/B of FY07 ( Price = $13.00 as of 17th Oct 08, FY07 Book Value = $13.20 )
SARS (02/03 ) = 0.8x P/B
dot.com bubble & 911 ( 01 ) = 1x P/B
asian crisis ( 97/99 ) = 0.4x P/B
UOB :-
current valuation = 1.3x P/B of FY07 ( Price = $14.76 as of 17th Oct 08, FY 07 Book Value = $11.37 )
SARS ( 02/03 ) = 1.12x P/B
dot.com bubble & 911 ( 01 ) = 1.13x P/B
asian crisis ( 97/99 ) = 0.48x P/B
OCBC :-
current valuation = 1.22x P/B of FY07 ( Price = $6.10 as of 17th Oct 08, FY 07 Book Value = $5.01 )
SARS ( 02/03 ) = 1.03x P/B
dot.com bubble & 911 ( 01 ) = 1.24x P/B
asian crisis ( 97/99 ) = 0.5x P/B
Typically, the valuation for the 3 banks could drop to around 1x P/B ( reference FY09, FY09 will have to projected down due to slower in loan growth ) and the worst case is fall till the valuation during the 1997-1999 Asian financial crisis period.
When the country's economy and equity market recover, the bank stocks will be the first to recover. Investors will a 3-5 year time frame could consider investing into the bank stocks when their prices fall into a very attractive price.
DBS :-
current valuation = 0.98x P/B of FY07 ( Price = $13.00 as of 17th Oct 08, FY07 Book Value = $13.20 )
SARS (02/03 ) = 0.8x P/B
dot.com bubble & 911 ( 01 ) = 1x P/B
asian crisis ( 97/99 ) = 0.4x P/B
UOB :-
current valuation = 1.3x P/B of FY07 ( Price = $14.76 as of 17th Oct 08, FY 07 Book Value = $11.37 )
SARS ( 02/03 ) = 1.12x P/B
dot.com bubble & 911 ( 01 ) = 1.13x P/B
asian crisis ( 97/99 ) = 0.48x P/B
OCBC :-
current valuation = 1.22x P/B of FY07 ( Price = $6.10 as of 17th Oct 08, FY 07 Book Value = $5.01 )
SARS ( 02/03 ) = 1.03x P/B
dot.com bubble & 911 ( 01 ) = 1.24x P/B
asian crisis ( 97/99 ) = 0.5x P/B
Typically, the valuation for the 3 banks could drop to around 1x P/B ( reference FY09, FY09 will have to projected down due to slower in loan growth ) and the worst case is fall till the valuation during the 1997-1999 Asian financial crisis period.
When the country's economy and equity market recover, the bank stocks will be the first to recover. Investors will a 3-5 year time frame could consider investing into the bank stocks when their prices fall into a very attractive price.
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