Why I Sold SBS S61

Why I Sold SBS S61

by with No Comment Investment AccumulationMoney MindsetStock Analysis

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
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
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
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.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

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.

Potential 50% Gain Boring Company SBS S61 Old Bus

Potential 50% Gain Boring Company: SBS S61

by with 3 Comments General EconomyInvestment AccumulationStock Analysis

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.

 

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.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

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.