Potential 50% Gain Boring Company SBS S61 Old Bus

Potential 50% Gain Boring Company: SBS S61

SBS (S61) first caught my eye in December 2018. At that time, the public transport counsel announced that fares will be going up soon. It soon lead to a 50% increase in share price at that time. An opportunity came again during COVID-19, share prices has came back to Pre-Dec 2018 levels. I will be sharing why I think there will be a potential 50% gain in this boring company.

If you are new here, please look at my disclaimer section and also my 6 Levels Wealth Karate Methodology before continuing.

Potential 50% Gain Boring Company SBS S61 Old Bus

Potential 50% Gain Boring Company SBS S61 Old Bus: Source

 

What do SBS do?

SBS is a boring business. Basically, they run the following routes in Singapore. They run basic bus services, Chinatown direct bus, services, Express bus services, Nite Owl bus services, City direct bus services, North East Line, Downtown Line, Sengkang LRT, Punggol LRT, advertisement on bus, trains, bus hubs, train station and management shop and road show space.

It is pretty much an essential services and they have a market share of 61.1% market share as a public bus operator in Singapore.

Bus services comes under the BCM (Bus Contracting Model). SBS have to obtain the license to run the bus fleet. You can see from the link that SBS has the license to run the fleet in different areas with the immediate upcoming renewal in 2021 all the way to 2026.

*As the provision of bus services now comes under the BCM, the fare revision (in Dec 2018) affects only on their rail revenue.

 

Why is it an opportunity now?

The effects were felt during circuit breaker as we were forced to be at home. We probably go to our nearest supermarkets and shopping centers. This affected bus ridership heavily and can be seen in the H1 financial report. The circuit breaker started on 7 April 2020 and ended on 1 June 2020. The circuit breaker lasted for 1 month and 3 weeks. However, this does not include any prelude and also the after effects of the circuit breaker where people were still asked to work from home if possible. After the circuit breaker, rail ridership was at about 50 per cent of what it was during the pre-pandemic period.

Potential 50% Gain Boring Company SBS S61 H1 Results

Potential 50% Gain Boring Company SBS S61 H1 Results

On the top line, revenue dropped by 14.9% as compared to the previous year. This is to be expected as most of us spent around 2 months at home during the circuit breaker. (Just think about it, are you taking more bus rides as compared to the circuit breaker period?) Therefore, I expect the Next Half Year report will show a strong growth.

Depending on how they report it 2nd Half Year, they probably will report ~75% growth of operating profits as compared to 1st Half 2020.

 

What other reasons?

SBS is in a strong cash position. As of 30 June 2020, it had short-term deposits and bank balances of $94.5 million. After accounting for borrowings of $75 million, it was in a net cash position of $19.5 million.

It pays a good and sustainable dividend yield of ~4.5%.

It is currently undervalued based on a simple discounted cashflow model.

It is a stock that is position nicely to be normalized and the public transport section remains to be disrupted.

 

Any downside?

Very simply, there is little/no growth story to this company.

Secondly, new contracts might be awarded to new competitors to create competition. Recently, Tower Transit edges out SMRT to win $1.03b Bulim and Sembawang-Yishun bus packages. Tower Transit bidded $1.03B as compared to SMRT $1.19B. Personally, I find this will become worrying if this becomes a price war. SBS and SMRT may no longer be good cash cows in future.

 

Final thoughts by Wealthdojo

Most people will not entertain any investment ideas if it doesn’t have SaaS or Data in their business model now. However, I find that there are many opportunities in good old boring businesses that are positioning themselves to recovery and SBS is one of them. If things normalised, I expect prices to return to $4 region early 2021 with an upside of 50%.

Potential 50% Gain Boring Company SBS S61 Share Price

Potential 50% Gain Boring Company SBS S61 Share Price

I think it is understood that this should not be taken as a buy/sell recommendation. Please do your own due diligence in your investment.

PS: Here is a video on an explanation of BCM.

 

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Chengkok, Sensei of Wealthdojo.

Confession I used to believe that millionaires were always right about money

Confession: I used to believe that millionaires were always right about money.

Confession I used to believe that millionaires were always right about money

Confession: I used to believe that millionaires were always right about money

I still remember the first Wealth Management Seminar that I went. I woke up early that morning to take a 1.5 hours bus ride to expo. It was going to be 3 days where millionaires were invited on the big stage to share how they become rich. There were various strategies. Properties, Tax Lien, Value Investing, Options Trading, E-commerce, SRS hacks, you just have to name it.

I have to admit. I was impressed by the seminar. I thought I was in the presence of legends. I was introduced to a few “self-made millionaires” and I thought that I was really blessed to be able to hear their sharing. I took notes of every single word they say, every single habit they have and every single tip they gave.

I was all fired up.

Today, I’m a little wiser and can tell you with 100% conviction that just because they are a millionaire (or appear to be), it does not mean they are right about money.

 

Confession #1: I look up to them without knowing their source of wealth

I know of a guy who was in his 20s (I will not be sharing his name to protect the identify of the speaker). On stage, he was explaining his methodology on how he became rich. He shared that to be successful you have to be humble, live within your means, invest and compound. He went from a $1000 portfolio to managing a 7 digits portfolio in 3 years and he was still in his 20s! That’s incredible.

After being acquainted with this person, I realised that he wasn’t really following any budget and was spending lavishly. I questioned his habits only be dismissed by saying he can make it back easily by selling his course.

I was really disturbed after I heard that. I acknowledge his ability to make money but lost respect for he did not practice what he preached.

I believe many young people (like myself) look up to these “rich” people hoping to be one of them. At the end of the day, you do need capital to invest. It is easier to grow toward 7 digits portfolio when you already have a property that you want sell or an high income skillset.

Don’t look up to “successful” people blindly without truly understanding where their source of wealth is from. It could be range from inheritance to insurance proceeds and not what you thought it is.

 

Confession #2: I get intimated by fanciful titles

Just because someone is financially educated or more experienced than you, doesn’t mean that they’re always right. “Fund manager”, “Assets Enhancing Specialist”, “Chief Investment Officer” etc are fanciful titles that you probably see on the newspaper. It could come in other forms like “Value Investing Guru”, “The Options Specialist” or “Asia Real Estate Guru”.

Those titles are impressive. My friend was “promoted” to be a senior manager in her company because her customers only want to work with someone from the management. Her pay scale was the same, her job scope was the same but the company had to inflate her title so that she will get a response from her customers. It sounds weird but titles do make an impression in our lives.

Another friend of mine is a Chief Financial Officer of a company. He was earning around $15,000 monthly (Our most popular article: Is $30,000 salary a month enough?) and I thought he probably had a good financial plan. It turns out that he have less than $1,000 in his bank account, owes 5 digit credit card bills and no asset under his name.

Morale of the story: Don’t be intimated by fanciful titles. (Not even wealth sensei)

Ridiculous job titles

Ridiculous job titles

 

Confession #3: I was impressed by jargons

When I first started investing, there were many times I felt being out-jargon in a seminar. The more jargons they said, the more I felt I needed to learn. I love it when the trainers pop out words like “50 days exponential moving average”, “cashflow conversion cycle” or the “gamma of the option” out of the blue. I was impressed on their wealth of knowledge and want to learn from them.

While they have the wealth of knowledge, I realised that some of them never invest before in the stock market. They were using “difficult terms” but when I asked about the practicality and the application, they don’t seemed to have the answer or able share any experience. I was really surprised.

Don’t be impressed by jargons.

 

Final Thoughts

Whether it is the love of jargons or fanciful titles, find someone who embodies the meaning of wealth to you. Follow them, learn from them, become wealthy yourself too.

True Wealth

True Wealth

PS: Wealthdojo was selected by Feedspot as one of the Top 75 Singapore Investment Blogs on the web. I would like thank our readers (yes you) for your support in reading and sharing our articles. We will strive to be better and better in the years ahead!

Top 75 Singapore Investment Blog

Top 75 Singapore Investment Blog

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

 

3 things you need to know about SRS if you plan to leave Singapore

3 things you need to know about SRS if you plan to leave Singapore

It is the Supplementary Retirement Scheme (SRS) contribution season. If you are 40 and above, do check out my previous post on the 5 things you need to know about SRS. Interestingly, someone emailed me on my 6 Level Wealth Karate System Page to ask about what will happen to their SRS account if they leave Singapore.

In this article, we will talk about 3 potential scenarios (i) if you are a foreigner and continue to stay in Singapore (you should!) (ii) if you are a foreigner but decide to leave Singapore (iii) if you are local and intend to retire in overseas (Thailand, Phuket, you name it).

3 things you need to know about SRS if you plan to leave Singapore

3 things you need to know about SRS if you plan to leave Singapore: Don’t leave =(

I’m a Singaporean and proud to be one. Singapore is a wonderful country. You should not leave =). Unfortunately, I do meet people who love Singapore but have no choice but to leave because they were asked to relocate to another country. Anyway, let’s set the context for the SRS. Most people will probably be concerned if it is worth it to contribute to their SRS when long term stay in Singapore is not confirm. We will touching on that.

I would also need to point out the withdrawal tax concession and the 5% early withdrawal penalty.

 

SRS Early Withdrawal Penalty (Local and Foreigner)

Withdrawal after retirement age (current age 62): You can start making penalty-free withdrawal from your SRS account. You will only be taxed 50% of the amount you withdraw for the calendar year.

Withdrawal before retirement age (current age 62): Although you can make withdrawal from your SRS account at any time that you want, you will be subjected to a penalty of 5% of the amount withdrawn. In addition, the full amount withdrawn will also be subject to income tax.

There are other special circumstances which we will not be going into detail (Death/Medical Grounds/Bankrupt)

 

SRS Additional Withdrawal Criteria (Foreigner)

As a foreigner, you can withdraw your SRS monies without the 5% penalty if you meet the following criteria:

(i) a foreigner for a continuous period of at least 10 years preceding the date of withdrawal.
(ii) one lump sum after maintaining your SRS account for at least 10 years from the date of your first contribution.

For such withdrawal, you will be taxed 50% of the withdrawal amount.

After understanding the above criteria, let’s consider a the few scenario that might happen to you.

 

Case #1: Foreigner and continue to stay in Singapore

James is a foreigner who is staying in Singapore for many years. When I first met James, he told me that he really love Singapore. He likes the sunny weather, he likes the hawker food (his favourite is chicken rice) and also a father of 2 beautiful young children.

He has an intention to stay in Singapore to raise his family.

James contributes to his SRS account every year. This is because as a foreigner, he does not have CPF contribution. By contributing to the SRS, he is able to reduce his taxable income, save on taxes and also save for retirement.

James is 45 this year and he is plan to contribute the full $35,700 into his SRS every year. He makes around $160,000 a year. Assuming no other personal tax deduction.

Without SRS: James pays $13,950 of taxes that year.

With SRS: James pays $8,595 of taxes that year. (His chargeable income is $160,000 – $35,700)

In total, he saves $5,355 worth of taxes that year. He also saves $35,7000 in his SRS which he can use to invest for his retirement.

In 10 years time, he save a total of $53,550 worth of taxes. At the same time, he would have accumulated nearly $481,462 if he decides to invest his monies in his SRS assuming it grows at 4%. He can decide if he wants to withdraw the lump sum.

If he does so, he have to pay 50% taxes on withdrawal amount. Let’s assume he does not have any income that year. He will be taxed on $241,000 (50% of $481,462). He pays a tax of $28,945. He saves about $24,605 ($53,550-$28,945) if he contributes to SRS. In this case, he benefits from this.

However, James may not want to do this at all. At age 55, he is still young and most likely have a good income, saving or investment to depend on if he does proper wealth management. James is a happy man.

3 things you need to know about SRS if you plan to leave Singapore happy family

3 things you need to know about SRS if you plan to leave Singapore happy family

 

Case #2: Foreigner and decides to leave Singapore

In an unfortunate case where you have to leave Singapore, there are some strategies that you might want to consider for the SRS. I met Lucy a few years back. Lucy has been in Singapore for 3 years now but have not contributed to her SRS. She’s working in an MNC in Singapore and earns around $160,000. She fears that the economic downturn will affect her job opportunities in Singapore and asked to be returned to her country. This has been escalated due to COVID-19. Similarly, if she contributes $35,700 to her SRS, these are her numbers.

Without SRS: Lucy pays $13,950 of taxes that year.

With SRS: Lucy pays $8,595 of taxes that year. (Her chargeable income is $160,000 – $35,700)

In total, she saves $5,355 worth of taxes that year. She also saves $35,7000 in her SRS which she can use to invest for her retirement.

What if Lucy were to leave Singapore? Her fears are valid. It would mean that $35,700 would be stuck in her SRS. What if she leaves Singapore AND really needs the money? In this unfortunate situation, she will have to pay a 5% penalty and also be taxed on 100% of the withdrawal amount. This can be avoided if Lucy plans using the 6 Level Wealth Karate System.

Ideally, she can wait for 10 years from her first contribution to avoid the penalty and be taxed on 50% of the lump sum.

3 things you need to know about SRS if you plan to leave Singapore Sad Woman

3 things you need to know about SRS if you plan to leave Singapore: I don’t want to go

 

Case #3: Local but wants to retire overseas

This has been a dream of many Singaporeans. Andrew has been working in Singapore all his life and contributes to his SRS account regularly. He has been telling his colleagues about his retirement which is happening in a few years time. He dreams that he will be able to retire in Thailand. He enjoys Thai food a lot and can’t wake to wake up on the beach of Phuket every day for the rest of his life.

3 things you need to know about SRS if you plan to leave Singapore Phuket

3 things you need to know about SRS if you plan to leave Singapore Phuket

We are in the midst of checking if SRS will be taxed differently due to the change of tax residency. We will update this article accordingly.

Update: SRS will be taxed according to tax residency and it depends on the following factors.

3 things you need to know about SRS if you plan to leave Singapore Tax Resident

3 things you need to know about SRS if you plan to leave Singapore Tax Resident

Final Thoughts

Please check in with your tax advisors for the above strategies. We also note that the rulings change from time to time so we want to be mindful about that.

Whether you are a local or a foreigner, it make sense to contribute to SRS (as discussed in the previous article). I will be talking about what to invest in using your SRS in the next article. Stay tune.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

5 things you need to know about SRS when you are 40 and older

5 things you need to know about SRS when you are 40 and older

During the end of the year, the topic of Supplementary Retirement Scheme (SRS) and Central Provident Fund (CPF) contributions will become frequently searched topics for wealth management. This is because for every additional dollar contributed, we might pay lesser in taxes. If you are 40 and older, this article is for you. We are going to talk about taxes, retirement and worse case situations.

5 things you need to know about SRS when you are 40 and older

5 things you need to know about SRS when you are 40 and older

 

#1 Quick Summary of SRS

SRS is a voluntary program started in 2001 to help individual (local and foreigners) to save more money for retirement. You are eligible for tax reliefs by contribution to SRS subjected to the cap of the personal income tax relief (currently $80,000). There is also a maximum that you can contribute to SRS (currently $15,300 for Singapore Citizens and Permanent Residents; and $35,700 for foreigners).

For example, I earn $100,000. I contribute $15,000 into my SRS. My taxable income will now be $85,000 (assuming I have not hit the cap of the personal income tax relief).

Your returns in the SRS account will be tax-free and 50% of the withdrawals from SRS are taxable at retirement.

Your contributions must be made before the 31 Dec of the year to quality (hence, the interest at the end of the year).

You can make withdrawals on or after the statutory retirement age (currently at 62) for you to enjoy penalty free withdrawals. Withdrawals are made in a 10 years window.

For investments in life annuities, the 10-year withdrawal period does not apply. So long as you continue to receive your annuity streams in perpetuity, 50% of the annual stream will be subject to tax.

A 5% penalty will be imposed for early withdrawals.

For more information about withdrawals, head over to IRAS withdrawals to understand more.

 

#2 The Best Case Scenario

The best case scenario is to have $400,000 in your SRS account at the age of 62 and you are not working by then. We assume that we will be drawing out $40,000 evenly over the next 10 years. Since 50% of the amount withdrawn will be taxable, the taxable income is $20,000 (assuming no other income). At $20,000, there is no income tax payable.

This rigid best case scenario creates a conundrum because it creates a happy problem that you have ALOT MORE than $400,000 due to excellent investment returns AND you still have a well paying job by then.

 

#3 The “Worse Case” Scenario

Suppose you are 30 year old today and contribute the maximum of $15,300 into the SRS account every year until age of 62. If your ROI is 20%, you would have $31 million in your SRS account. You would have to withdraw around $3 million yearly and be subjected to the highest income bracket.

If we manage our expectations and have a reasonable ROI of 5%, you would have $1.2 million in your SRS account. In this case, you would have to withdraw roughly $120,000 yearly. If you are still working and at the peak of your career getting a good income, you will be possibly subjected to a highest income bracket.

The “worse case” is to have really good investment skills and still be working by then. However, I feel this as a “happy” problem to have.

 

#4 What if I’m just a normal human being?

$1.2 million sounds big and you might not even be sure you will still have a job then at 62. Most of my client ask me what if they are a normal human being, how does SRS still make sense to a layman?

Firstly, we have to start with the question of contribution. How much should you make a year before SRS contributions make sense?

5 things you need to know about SRS when you are 40 and older income tax contribution

5 things you need to know about SRS when you are 40 and older: income tax contribution

SRS is a tax planning tool. Hence, it is important to know at which chargeable income bracket (after CPF contribution, tax relief) will it make sense for us to contribute to SRS.

Personally, SRS contribution will start to make sense after the $80,000 chargeable income bracket. Any other income after the $80,000 is subjected to a tax rate of 11.5%. Hence, I find it reasonable to contribute to SRS unless I can find an investment instrument that can give me 11.5% easily. Of course, there are other reasons as well.

#4.1 Tax Savings

To give an example, Amy earns $120,000 annually (after all personal tax relief).

Without SRS, she pays $7950 on taxes.

With SRS, her chargeable income becomes $104,700. She now pays $6190 on taxes.

She saves $1760. (which is a probably an extra month of family expenses)

However, in a situation where by you need liquidity for big purchases such as down-payment for a property, you might want to skip this year’s contribution. The balance of liquidity and tax saving should be taken into consideration.

#4.2 Emergency Funds

If you already have money in your SRS and have a URGENT need for cash, you can still withdrawal from SRS with a 5% penalty instead of having it locked up like the CPF. Of course, we ideally do not want to withdraw from our SRS. However, in an event of a unforeseen circumstances, the funds are still available.

 

#5 Then why after age 40?

I’m assuming that after age 40, it is likely that our income is more than $80,000. Plus, we might need liquidity for housing/renovation/marriage/children purposes before that. There is also an (irrational) fear is that if we contribute too early, we might compound it too much by then.

Hence, 40 years is ideal because there will be possible substantial tax saving, not having a liquidity issue and also closer to retirement age (lesser compounding period).

A potential solution to the “worse case” scenario is to get an annuity (but you will still be effectively taxed on half the annuity’s payouts every year).

 

#6onus How should you open a SRS account?

To open a SRS account, simply go to the 3 SRS operators (DBS/POSB, UOB & OCBC) website and you can do it online. You can register an account with any of them. There is little difference which bank you choose because you can invest in SRS approved assets from any institutions.

OCBC SRS Account

UOB SRS Account

DBS SRS Account

I suggest that you wait until the end of the year before applying. Typically, there are promotions to open a SRS account at the end of the year. On a side note, I’m don’t think there will be a promotion this year (2020) due to the COVID-19 situation. The banks have also been reducing their benefits this year.

5 things you need to know about SRS when you are 40 and older OCBC Promotion

5 things you need to know about SRS when you are 40 and older OCBC Promotion 2017

 

Final Thoughts

I believe that SRS is a great tax saving tool for you if you are 40 and above. Your contribution might save your family one month worth of household expenses. When we are younger, it is important to balance tax-saving and liquidity. Upon retirement, SRS can  provide a source of income for us in addition to possibly rental, dividends etc.

 

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Is Tesla in trouble Why is Tesla raising $5 billion now Impact

Tesla just raised $5 billion from stock offering. Are they really in need of cash?

On 1 Sept 2020, Tesla (TSLA) announced a $5 billion capital raise through equity distribution agreement. I thought it was a brilliant move as written in my previous article. (Is Tesla in trouble? Why is Tesla raising $5 billion now?). Just when the world just began to understand the news, they completed the deal on the 4th Sept 2020. Do they really need the money that urgently?

Tesla just raised $5 billion from stock offering Are they really in need of cash.

Tesla just raised $5 billion from stock offering. Are they really in need of cash?

 

I never expect to write this article that quickly. In any case, this presents my thoughts on why TSLA is doing this so quickly.

 

Non-inclusion into the S&P 500 Index

Previously, I speculated that the equity raise was to give more liquidity to prepare for the inclusion in the S&P 500 Index. However, that idea was snubbed out when TSLA were passed over for inclusion. Instead, Etsy, Catalent and Teradyne was included into the Index as part of the portfolio re-balancing.

The reason remains unknown. Personally, I feel that whoever is making this decision wants to make the S&P 500 Index less speculative in nature. TSLA has a relatively higher short ratio as compared to the other companies. An inclusion of TSLA might make the S&P 500 “correct” more often. (Donald Trump won’t want that to happen).

TSLA Short Ratio

TSLA Short Ratio

 

Buy Low. Sell High.

In any case, TSLA isn’t doing any buying. They are merely issuing out new shares. The best way to get more bang for its’ buck is to sell it at a higher price. We all know that TSLA YTD is around 325%. This is perhaps the best to time to “sell high” for whatever purpose they want to use the money for.

With regards to dilution, it is roughly around 1% dilution.

You can view their SEC Filing Form 8-K here.

 

Final Thoughts

This is not a buy/sell recommendation. Personally, I still think that Elon Musk is an expert in raising capital. I like his vision but have trouble understanding the valuation of TSLA. I have no positions in TSLA nor do I intend to start a position soon.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.