What will I do about Sembcorp Industries? Part 2

After the announcement on the recapitalisation of Sembcorp Marine and demerger of Sembcorp Marine from Sembcorp Industries in Jun 2020, I have shared my opinion on the possible action plans for this demerger.
What will I do about Sembcorp Industries?

Sembcorp Industries has announced their poor but expected 1H 2020 results on 17 June 2020 and reported a $131m loss, compared to $191m profit in 1H 2019.

The urban segment is able to make profits of $38m. The energy, corporate and marine divisions all chalked up losses, with marine contributing up to $117m of losses.

It is important to note that the loss on paper is largely attributed to the one-off exceptional items of $191m. Writing off of asset values and impairment of investments are accounting treatments and do not result in actual cashflows.

The energy business actually has a net profit of $156m before a write off of $161m to become accounted with a net loss of $5m.

Source: Sembcorp Industries Presentation Slides for 1H 2020 Results

The energy business is still largely profitable from operations despite general drop of oil and gas prices in recent months. However, the profit from operations is dragged down by business operations in Singapore and India. In Singapore, the 47% drop in operational profit is due weaker demand caused by Covid-19 and lower price of high sulphur fuel oil (HSFO). In India, the $29m drop in operational profit is caused by lower electricity demand and lower prices by Thermal Power Project 2.

It is disappointing that there is no interim dividend declared for 1H 2020 as the company board has prudently decided to defer the dividend consideration to the full year.

Despite gauging $2 to be a fair value and having plenty of opportunities to sell it above $2, I am keeping my little shares in Sembcorp Industries after considering having to suffer a massive loss from an average holding cost of $3.30 and having kept them for more than 5 years already. I decided to give Sembcorp Industries a fighting chance for another 5 years to propel its energy utilities business if they can get rid of the disastrous marine sector.

Sembcorp Industries will be able to start off with a clean slate in Sep 2020 if the EGMs approve the recapitalisation and demerger plans by end Aug.

It is important to note that the ex-dividend price of Sembcorp Industries can drop to possibly as low as $1 and we should be conservative to not assume the share price of the "free" Sembcorp Marine shares will trade above $0.20. There is no free lunch. Institutional funds have pumped up the share price of Sembcorp Industries and unloaded to retail investors for the past month.

We should not buy Sembcorp Industries at $1.80 now thinking of getting a good deal from the "free" shares or eyeing a great trading opportunity speculating on the EGMs to approve the recapitalisation and demerger plans. We should buy Sembcorp Industries at $1.80 now only if we believe in the profitability and resiliency of its energy and urban business in the long run, and as an additional bonus, there is a possibility of a future merger of some sort between Sembcorp Marine and Keppel O&M.

I am doing nothing and will wait for the demerger to pan out. I will consider cutting loss above $2.

Thanks for reading.

Love & Peace,
Qiongster

Net Worth in Jul 2020 Inching towards SGD 1 million

My net worth increases $5k to $945.5k from Jun 2020, inching towards SGD 1 million.

More than half of my net worth (55%) is illiquid in CPF, SRS accounts and Insurance plans. Hence, I target to build up the percentage of my liquid net worth in cash and stocks.

The component of stocks (Equity & Reits) - 21% is almost on par with my Cash -19%. A short term target is to boost them to 25%.

I am fortunate to have a job immune from Covid-19 to allow me continue farming the monthly cashflows and CPF contributions.

My primary warchest in the Phillips POEMS money money fund is depleted. Funds in SRS account are fully invested. Recent actions:
Nibbled Frasers Centrepoint Trust
Bought Mapletree NAC Trust

Secondary warchests of $230k idling in Fixed Deposits and Savings Bonds will be activated only if market crashed again to attractive levels at STI below 2200 or S&P 500 below 2000.

As a late bloomer, having no liabilities such as car loan or housing mortgage allow me to continue  living frugally, conserving ammunition in war chests while staying invested to collect dividends and sleeping soundly in peace.

The coming months and years will be challenging for many people, companies and countries. Facing huge erosions of bottom lines and great operational impact due to the health crisis, it is difficult to survive in the new normal world. Inevitably, more companies will go bust and many more people losing jobs. The economic recovery, if it has not even started, will be long, gradual and uneven.

I am optimistic on the future yet also mentally prepared for the worst that could happen.

Stay on course, play safe and have no fear.

Thanks for reading.

With Love & Peace,
Qiongster

My frugal $2 hellthy meal from Mcdonalds

Lengendary investor Warren Buffet eats McDonald's for lunch at least 3 times a week even at 88 years old.

He enjoys junk food and coke.

Once a while, Qiongster enjoys fast food too.

But Qiongster is cheapo and frugal.

Following his $2 lunch from the hawker, he is trying to repeat the feat for a hellthy $2 lunch from McDonald's.

It is possible. By buying the cheapest chicken burger at $2, adding extra lettuce. And redeem a small unsalted fries.

The freebie is earned from giving feedback in McDonald's app, which integrates delivery feature with feedback and rewards functions.

There is option of free small coke, fries or cone ice cream with any purchase. 

A McDonald's lunch for $2.

Recession proof and inflation beating. 

Thanks for reading. 

With love & peace, 

Qiongster

Possible to buy lunch with $2 in Singapore?

Buying lunch with $2 in 2020 in Singapore?

It is actually possible. 

Many hawker centres in Singapore generally offer affordable meals. 

I got my packed rice from a mixed vegetable stall in Kim Keat hawker, Toa Payoh Lorong 7 for $2!

Rice with fried dory fish and vegetables. 

My humble and frugal meal for a cheapo me. 

For 20 cents more, there will be one more vegetables.

For 50 cents more, one more meat. 

For 80 cents more, one more veggie and one more meat. 

Too bad I only have $2 in my wallet. Other payment modes are not accepted. Only cash.

No wonder this stall has the longest queue in the hawker centre. 

Cheap, affordable value meals at its best for the workers, low income and elderly. 

Similar to hunting for undervalued stocks to invest in, I enjoy undervalued meals to beat inflation and boost my savings rate, especially during recession and uncertain times now amidst a global health pandemic.

I do not crave for overpriced dining in restaurants but I enjoy collecting dividends from the Reits that own the land upon which the restaurants reside. 

I believe Singapore is still a relatively cheap for food and essentials but expensive for large items like car and housing.

In this capitalist society, it is important to be frugal, to save up and boost emergency funds and war chests to own more income producing assets so as to always be well prepared for retirement, rainy days or retrenchment which will be a popular corporate action in the coming future, if not to achieve financial freedom ASAP. 

Thanks for reading. 

With Love & Peace, 

Qiongster

Lessons from Singapore GE2020 for Investment

The Singapore General Election is done and dusted. The PAP government returned to power with 83 of 93 seats and an overall vote of 61.24%, a drop of 8.7% from 69.9% in 2015.

I just wanna share some takeaways and thoughts from observing the whole campaign and results.

1. What goes up will come down
Since the independence of Singapore in 1965, the PAP has held 100% of the Parliament seats until 1984, the first time it lost 2 out of 74 seats to opposition parties. Nevertheless, the PAP has held more than 90% of all the seats till the 21th century. This 2020 GE is the first time PAP has less than 90% of all the seats as it lost 10 seats to the WP.

Similar to the stock market, strong resistance will be experienced by the index and stock price at high levels. A retracement or correction to the next support level is a natural process of a moving indicator. Just like how a stock price or index is reflective of expectations of the buyers and sellers on the value and earning prospects of the underlying company business, the number seats or votes obtained by a political party is testament of its popularity and mandate given by the people.

2. Risk management
With a clear mandate given to the incumbent government, it is obvious that Singaporeans are risk adverse and prefer stability over volatility. By sticking to the proven and existing government to lead Singapore out of the crisis, it is a lower risk investment decision compared to overhauling the government into unproven hands of opposition political parties that have no experience in governance which is too high risk to bear.

However, by swinging more votes towards the opposition parties, it is a clear signal that Singaporeans are willing to hedge their portfolio by taking on more risk to order to provide more balances and checks on the PAP government.

In investment, we should also manage the risk of our portfolios, adjust our equity to cash to bond ratio according based on varying risk appetites in various circumstances.

3. Quality is more important than Quantiy
While there are 11 political parties competing in the GE, only 2 managed to get seats in the Parliament. Singaporeans are shrewd to elect only the high calibre politicians into the parliament and not Tom, Dick or Harry.

In investment, we should focus on choosing quality stock and reits with high earnings visibility to invest instead of having a large number of mediocre counters in our portfolio.

4. Character
While there have been varying character reviews and assassination attempts on some candidates during the process of election campaigning, some candidates with outstanding character traits such as exuding humility, humbleness, hardwork, compassion, intelligence, grit eventually prevail and achieve positive results deservedly.

In investment, it is important to possess the positive character traits to achieve  to achieve great results. By being  disciplined to stick to own investment plan and philosophy, hardworking in research of company financial, being humble to accept all opinions and criticisms even after attaining financial freedom or success, one will continue to learn, improve and eventually reap more fruits of own labour.

5. Minimal impact of polls on stocks as government and economy are status quo

The Singapore government remains the same. Economy is still sluggish. We should not forget that we are still in the midst of a health pandemic.

As past trends of STI shows, after a GE, there will only be minimal volatility on the stock market as the fluctuation of STI before and after GE is within 10%.

The utmost and most immediate task by the newly elected government is to lead Singapore out of the present crisis and economic slump.

In life, the only constants are death and taxes. This GE has very little bearing on our lives as everything is status quo. Thanks for reading.

With Love & Peace,
Qiongster

Top up CPF Retirement Account of parent to save tax

I just topped up $5k cash into my mum's CPF Retirement Account and will top up another $2k next month.

This is under the CPF Retirement Sum Topping Up (RSTU) scheme.

Source: From CPF Website

Under the scheme, we can top up the CPF Retirement Account of our parent with cash or using our own CPF savings.

The benefits from topping up $7k to parent's CPF Retirement Account are:
a) Tax savings of $490 for tax bracket of 7%
b) Interest of $280 per annum earned in the retirement account based on 4% p.a rate and not factoring in the following

The first $60,000 of your combined CPF balances, of which up to $20,000 comes from your OA, earn an additional 1% interest per year. Since 2016, an additional 1% interest is paid on the first $30,000 of combined CPF balances for all members aged 55 and above.

Hence, I will enjoy at least $770 of "earnings" from this move.

I have already topped up my CPF Special Account $7k in Jan and Feb 2020 to enjoy the same benefits.

I have also topped up $15.3k into my SRS account to enjoy tax relief.

CPF is a controversial double-edged retirement financial instrument. There are advocates and naysayers on CPF. The advocates know how to make use of the system to their own benefit while those naysayers are pawned by the system.

I decided to make full use of the CPF and SRS system for my benefit.

Not forgetting today is General Election day with a possibility for a change of Singapore government but will not change the CPF system overnight. Happy voting folks! Thanks for reading.

With Love & Peace,
Qiongster

Bought Mapletree Nac Trust

After nibbling Frasers Centrepoint Trust at $2.31 last week and seeing it rebound towards $2.50 levels, I become greedier.

As I have depleted my cash war chest, I am looking to use the remaining funds in SRS for targets that are worth a quick punt and yet can be kept for long term if the punt fail.

I targeted Parkway Life Reit, Capitaland China Retail Trust, Mapletree Nac Trust and IReit. I placed orders for them at 3.37, 1.26, 0.95 and 0.72 respectively. In the end, order got filled for Mapletree Nac Trust and there I have it.

Priced at 0.95, it is at 0.67 of the book value of $1.412. Conservatively, if it is able to pay out DPU of $0.06 for FY2020/21, the yield is above 6%. Undervalued, at relatively attractively yield, backed by strong sponsor and the only Reit with properties all over North Asia, I believe this is a fairly good deal.

However, the downside risks can be attributed to worsening of political tensions in Hong Kong and dent to retail industry caused by the pandemic resulting in higher vacancy and negative rental reversion. In the long run, the retail spending power in China and Hong Kong is still a growing force not to be reckoned with.

Technically, supported by 20 day MA of 0.95 and 100 day MA of 0.93, the downside is limited relative to it possibly clearing the resistance at 1.03 and breakout to greater heights. Hence the risk reward ratio is very attractive.

Every crisis breeds opportunity. We need to seize the opportunities presented during crisis to our advantage. Thanks for reading.

With Love & Peace,
Qiongster

Nibbled Frasers Centrepoint Trust

Frasers Centrepoint Trust (FCT) SGX: J69U announced the acquisition of an additional 12.07% stake in PGIM Real Estate AsiaRetail Fund (ARF) on 1 Jul 2020 for S$197.2 million.

ARF owns Century Square,Tiong Bahru Plaza, Hougang Mall, White Sands Mall, Tampines Mall and Central Plaza office block in Singapore and a mall in Malaysia.

PGIM Real Estate is actually the property investment division of Prudential Financial.

FCT's stakes in this Fund will increase to 36.89% after the deal is completed by the end of Jul 2020.

Its sponsor, Frasers Property will own the remaining 63.11% in ARF.

This deal is fully funded by debt and possibly at its current low borrowing rate of 2.44%.

This acquisition is slightly yield accretive and reinforces FCT's strategy of investment in suburban malls in Singapore.

However, gearing will increase from 34.7% to closer to 40%.

As highlighted by DBS Research, “We see this as the key catalyst for both FPL and FCT if the group is able to gain further control of the properties and convert its stake into actual physical asset ownership,”

It is highly possible that FCT will slowly up its stakes in the ARF and eventually add 5 more suburban malls in Singapore into its portfolio to be a dominant suburban mall Reit.

Though my war chest is depleted, I am tempted to ride on this wave of sururban malls exposure by FCT.

I regret selling off the FCT that I nibbled in May 2020 as after I sold at $2.07, the share price of FCT climbed to hit $2.60 before tapering off to $2.30 in recent days.

I learnt my mistake from timing the market and decided to nibble a small byte of it at $2.31 this time, hopefully for long term keep.

Not too long ago in Jun 2019, FCT had a preferential offering of 31 for 1000 units at $2.35. Hence, I believe below $2.35 is a fair price to accumulate FCT. 

I still believe FCT, at current valuation, is still fairly discounted to factor in the impact from Circuit breaker due to Covid-19, lower DPU and negative rental reversions in the short term.

In the long term, I am confident FCT can rebound back to the $2.80 or $3.00 levels. Its DPU will also recover to above 12 cents annually eventaully.

Thanks for reading,
Qiongster