Welcome to 2022! 2021 has been a year of burn outs, huge volatility and filled with epic events. I sincerely hope that everyone is well and charged up for a fresh start! In any case, this article is a simple reporting for my SRS updates.
Disclaimers: This is not and should not be taken as a buy/sell recommendation.
The performance is not pretty. The elephant in the room continues to be my exposure into Chinese Technology Stocks (SGX:HST). You can read why I like SGX:HST in March2021 review. It continues to drag the portfolio down despite good fundamentals.
I continue to be positive in this exposure as this ETF is invested into quality Chinese companies that can deliver sustainable growth in the next 3 to 5 years. The undervalued sector has attracted Charlie Munger who has double down in to Alibaba. I have no doubt that the companies in this sector will do well and eventually the share price will follow.
SGX: BTOU (Manulife US REIT)
I first bought into SGX: BTOU as a recovery value play in the portfolio in March2021. However, things changed for BTOU as they pivoted from investing only in Class-A and Trophy assets in the traditional gateway city offices to Sun Belt states and emerging markets.
If I can create a Singapore reference, this REIT invest only into MBFC or One Raffles Place previously and are now investing into “emerging” locations like International Business Park at Jurong East or Woods Square at Woodlands. This is not a perfect reference and I hope you get the idea.
Generally, I like it when companies use data to look at emerging trends and are flexible to adapt to their new strategy. ProButtery wrote a very comprehensive article on BTOU and I very much agree with his thesis. You can find his thoughts here.
I look forward their future business performance.
Lastly, I added new capital into my SRS account for tax purposes. .
Final Thoughts
Disclaimer: this is not and should not be taken as a buy/sell recommendation. Like what Charlie Munger famously said: the big money is not in the buying or selling.. but in the waiting.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
This certainly did not age well. Previously, I wrote about Potential 50% Gain Boring Company: SBS S61. I had full optimism that this overlooked company would recover back to it’s usual level by finishing 2020 with a good 2H results. I was wrong.
Below are my learning lessons and the reasons why I have sold.
I remain ground on my principle of Wealth Management and will explain the reasons of doing so.
What Happened In Oct 2020?
I read about the 1H results for SBS (S61). I felt that during 1H of the financial reporting, bus ridership was heavily. This is due to the circuit breaker which started on 7 April 2020 and ended on 1 June 2020. The circuit breaker lasted for 1 month and 3 weeks. I believed that close to 30% of the revenue was “lost” because of that circuit breaker (1 months and 3 weeks out of 6 months).
Why I Sold SBS S61
As we continue to progress after Oct 2020, more and more people are starting to leave their house to work and explore. This can be felt as I personally took the public transport. The crowd was back and it did not slow. I was somewhat excited to see the improvement of revenue in the 2H.
I believed there would be revenue recovery, share price recovery and also a short term opportunistic play.
SBS Full 2020 Financial Report
Why I Sold SBS S61 2H Report
When the day finally arrived, I was terribly mistaken. Revenue for 1H is $603,225. Full year 2020 revenue is $1,230,947. This means that revenue for 2H is $627,722. Revenue for 1H and 2H is roughly the same. This would mean that even with the circuit breaker, 1H ridership for the first 4 months is roughly equals to the entire ridership for 2H. I cannot imagine how pack the MRT or buses were before the circuit breaker.
Looking at the top line only, it will take sometime for “normality” to happen again. I have underestimated the WFH culture. (I can’t explain the packed MRT/Buses though. Does this mean it used to be worse?).
Why I Sold SBS S61 2020 Dividends
SBS is also issuing dividends for shareholders. This will happen if the motion is approved by the Shareholders at the Twenty-Eighth Annual General Meeting of the Company to be held on 29 April 2021 and will be payable on 19 May 2021. I have my questions on the dividends. Currently, SBS is “profitable” after the JSS grant. I felt that the dividend was just a transfer of grant from the government to the shareholders (no matter how low the dividends are).
Why I Sold SBS S61
I sold SBS S61 with a slight profit. I entered the position with a short term opportunistic play mindset. However, as it didn’t turn out as per expected, I exited the position.
I’m also not looking for a dividend play counter. At the current level, it is giving around 2% dividend yield which is not attractive.
There is limited growth play to this industry. With new players coming in, the position of SBS might be shaken in future.
“Normality” may happen in 2021 as more and more people start to go back to work. However, I’m not willing to wait for that to happen as I believe there are better investment opportunities out there.
Final thoughts by Wealthdojo
I think I learn is that the investment mindset. “Buy on fundamentals, sell on fundamentals”. “Buy on momentum, sell on momentum”. The problem comes when you “Buy on momentum, but then hold on fundamentals” when you start making a lost. I can never further emphases on the investment mindset that one should adopt when approaching the market.
Lastly, it is understood that this should not be taken as a buy/sell recommendation. Please do your own due diligence in your investment.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
Ant Group IPO has been halted! Does it have problem with the Chinese government or does it present us more time to understand the company?
Is Ant Group an overhyped? Ant group announced that it would want a market valuation of USD $200B and later raise it to USD $313B. In the latest valuation I can find, Ant is going to be listed at HKD$80 on 5 Nov 2020. It will be listed on Hong Kong and Shanghai and will be the largest IPO of all time. We aim to find out if Ant Group is an valuable company to invest in.
Disclaimer. Please read. To set the context right, in the 6 Levels Wealth Karate, investing in an excellent business at an overvalued price is a lousy investment idea.
Is Ant Group An Overhyped
Introduction
Ant Group is started as Alipay created by Alibaba in 2004 as a payment tool of online market place. Besides logistical issues, there was a lack of something important in the internet space: Trust. It is not hard to imagine people losing their money via scams. Hence, people were generally more skeptical towards online payment at that time (probably even today). To create trust, Alipay did something different. Alipay held the buyers payment first. They then released it to the sellers after the buyers confirmed that they have received and are happy with the purchases. This deterred fraud and scams.
To further build trust, Alipay launched a campaign in 2015. If a user were to suffer a lost due to an online fraud/scam while using Alipay services, Alipay will compensate them.
It has also gone from being a digital payment (wallet) to having digital solutions (place to spend money). Ant Group is a middle man who is working with service providers (bank/insurance companies/investment funds). Consider this an expansion of the current application at Alibaba where people buy products from companies. With 1.3B active users, I cannot imagine the amount of transactions going on with this application.
Today, I present the following reasons why I think Ant Group is an excellent company to be invested in.
#1 – Ballie Gilford is invested in them
Call me bias. Ballie Gilford has been investing in growth opportunities since 1908. They are an early investor into some of the world’s most valuable private and public tech companies, boasting a roster of portfolio companies that includes unicorns from nearly all generations in modern tech, including everything from Amazon, Google and Salesforce to Tesla, Airbnb, Spotify, newly public Lyft, Palantir and even SpaceX.
I got to know about this company when it first made its’ appearance when it partner with AIA. After looking at Ballie’s growth investing strategies and its’ track record, I am more confident of Ant Group.
#2 – They are profitable
This speaks volumes. In the current trend where people don’t mind investing in non-profitable companies, Ant demonstrated that there is real demand and there is REAL money being made. There is so much to interpret from this table and I hope you can look closer at it.
Is Ant Group An Overhyped Profits
Ant Group has been in profits since 2017. Though it has not been a consistent trend, it is unlike the other unicorns who are not in profits yet.
Secondly, digital payment and merchant service has seen increasing revenue. However, the percentage of revenue has been reducing. This means not only digital payments (their original bread and butter) has been growing, their new technology platform has been picking up even faster! People are starting to get credit, investment and insurance using Alipay.
Thirdly, who knows what other businesses they can complement with which leads us to point 3.
#3 – They do not compete. They complement.
Ant Group is a middle man and the ultimate place to do business. Instead of starting a bank or insurance company, Ant Group partners them to provide their services. Ant Group takes less risk and yet is able to command a profit whenever someone needs a service with a bank or an insurance company.
They are the ultimate middle man that is impossible to remove because you would need to do your trusted payment using Alipay. In many investment courses, we call this an efficient scale moat.
Their only direct competitor is Wechat. The good news is that there is a tread that Alipay has been chipping away Wechat’s market share slowly.
Is Ant Group An Overhyped Overview Wechat Pay VS Alipay
#4 – Valuations are reasonable
I wanted to get into an Pre-IPO deal. However, my broker from CGS-CIMB wasn’t able to get a retail placement for us. Being >800X oversubscribed, that is understandable.
Currently, Ant Group profits are USD$3B for the first 6 months. If we assume that their profits will be the same in the second half of the year, it will mean that their profits are USD$6B in 2020.
In a simple analysis, the PE ratio for Paypal (02 Nov 2020) is 86. This gives a valuation of $516B. The current valuation is $313B.
For some of the advanced folks who have been following my blog and webinars, you know that I use the discounted cashflow frequently to valuate companies. Using a discount rate of 10.5% and the growth rates assumptions, my 20 years DCF shown a figure of $88HKD.
All these points to that fact that the valuations are reasonable.
Is Ant Group An Overhyped Discounted Cashflow
Final thoughts by Wealthdojo
It is always fun and exciting when a company IPOs. Please treat your investment seriously. My wish is for everyone to invest wisely. If you have not started investing, there are basically 2 ways to do so.
Do it Yourself (DIY) – Learn about investing successfully and invest on your own.
Do For You (DFY) – Get someone who can invest successfully to invest on your behalf
We wish you good fortune for the rest of 2020. It is not too late to start.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
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.
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
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
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.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
Should you buy DBS Group Holdings Ltd (SGX D05) now? $19 seems to be a popular price that people will talk about DBS Group Holding. In wealth management, investing in good companies are essential to build up the capital to achieve our financial freedom. This article will hold some of my thoughts I have regarding DBS Group and some of it will shock you. Is it a mistake or will we have regrets? (Read all the way down).
Should you buy DBS Group Holdings Ltd (SGX D05) now? Introducing the cat indicator. Meow~
Is DBS Group a Good Company and Undervalued?
Should you buy DBS Group Holdings Ltd (SGX D05) now?
These are the numbers that I look for in a banking stock. You can find this numbers from the annual report of DBS Group. We want to analyse whether the bank is first a profitable and efficient bank.
To look at profitability, we want to look at the Net Interest Margin (NIM) to be as high as possible. Banks earns a spread by borrowing money from people like me and you and giving them out as loan. We also want to see non-performing loans (NPL) to be as low as possible. There will be people who will default on their loans given various situation, we want to see it as low as possible.
Next we want to see the efficiency of the bank in terms of operations and per dollar invested. We have used the cost to income ratio which we want as low as possible. A lower cost to income ratio means their expense is low as compared to the revenue. Return on equity (ROE) we want it as high as possible.
Personally, I think it is quite a good company based on these set of numbers.
The valuation is also attractive at PB 0.99. This means you are buying it at 99 cents for every dollar it is worth. On dividends, it gives a 6.95% dividends based on previous dividends.
Verdict
It really looks not bad isn’t it.
The Forgotten Track Record
As investors, we like to talk about track record. I realised that this only applies to numbers, valuations and also share prices. There are numerous things we forget and we are more forgiving and tolerant to these companies who have better numbers. Let’s talk about the forgotten track record that DBS Group has.
2020: Hin Leong Trading
DBS has the highest loan exposure to HLT at US$290 million, while OCBC and UOB are owed US$220 million and US$100 million, respectively. The sharp plunge in oil prices, along with the COVID-19 pandemic, had brought one of Asia’s largest oil traders to its knees. (Source: The Business Times: DBS, OCBC, UOB faced with over US$600m total exposure to Hin Leong)
The exposure is considered immaterial to DBS Group’s Profits.
2017: Energy Saga
DBS Group Holdings Ltd. reported a surprise drop in third-quarter profit as Southeast Asia’s largest bank boosted bad-loan allowances more than sixfold in an effort to deal with its problem lending to the regional oil and gas services sector. (Source: Yahoo Finance: DBS Profit Sinks as Bank Tries to Put Bad Energy Loans Behind It)
Allowances for bad assets of S$1.66 billion compared with S$261 million in the year-earlier period.
This would easily be blamed on the cyclical energy market when oil and gas services first got the worse hit.
2007: Lehman Brother Mini Bonds
Following the collapse of the Lehman Brothers, about 10,000 retail investors in Singapore lost all or a large part of their investments total-ling over S$500 million in structured investment products linked to the American investment bank. They were mis-sold these relatively high-risk products to investors, many of whom were the elderly and less educated. (Source: NLB: Lehman Brothers Minibond saga)
There are perhaps many more examples but forgotten with time.
The Way Forward
This section is my own personal opinion. While it may or may not contribute to the bottom line of DBS Group, I strongly believe it will contribute to a great brand which is largely intangible.
$500 minimum deposit of a fine of $2 will apply
I struggle to accept that DBS bank, our people’s bank have such a rule. The people who are most needy will be those with less than $500 as their minimum deposit. These people are from the lower income group and would need as much liquidity as they can get. I also struggle to accept that additional dormant accounts would cost the bank money. In my limited knowledge, I can only guess it will take extremely huge number of dormant accounts to really make a dent in the bottom line of the company.
Legacy Issues
DBS remains the bank to have the longest queue for its’ ATM or for bank tellers. I can only guess vast amount of paperwork that still continues to be done today. I’m also unsure of any technological advance in the company as we are only exposed to the mobile app and internet banking features which largely remains the same since 3 years ago.
Fintech
Fintech has disrupted lives around the world. I haven’t seen much in this space for DBS Group. The one that is most impressive on their website is was dated July 2018 for projects in 2017. (Source: Case study: DBS – the edge)
Negative Interest Rates
With the world moving towards negative interest rates, will we follow suit? Will our NIM will be affected in the future.
No one will care about your money as much as you do.
Before you invest in any company or popular investment opportunity, be sure to do your own due diligence. If you wish to learn more about investing, I hope to nurture genuine relationships with all of my readers. Please feel free to contact me on my Instagram (@chengkokoh) or Facebook Page or my Telegram Channel! Or subscribe to our newsletter now!
