Scuttlebutt Report: Tianjin Eco City Visit

Regular followers of my portfolio would know that I am vested in Keppel Corp since the oil crash of 2015. I have divested some this year, but it still remains a part of my portfolio. The general perception of Keppel Corp is that it is mainly a company that constructs oil rigs and is highly correlated to the fate of the oil industry. Less is talked about its property or infrastructure division. And for good reason, as traditionally it’s a main driver of net profit.

Revenue breakdown

Net Profit breakdown

Source: Keppel Corporation Annual Report 2017

With the decline in O&M profits, Property and infrastructure will need to pick up the slack in the meantime.

Having attended this year’s AGM and read the annual report, Board Chairman Lee Boon Yang and CEO Loh Chin Hua seemed to signal a move towards more diversified streams of revenue. CEO Loh even mentioned that he hoped that the company’s shares will be “re-rated” given this new approach. This is evident in the theme of this year’s Annual Report: Solutions for Sustainable Urbanisation

Essentially, the direction revolves around Keppel Urban Solutions, the platform launched in 2017 to bring together Keppel’s various capabilities in property and infrastructure, marrying it with internal and external funds (through Keppel Capital) to design and manage smart sustainable cities of the future. The unwitting poster child of this approach is the Sino-Singapore Tianjin Eco City (SSTEC), a city designed and built from scratch on non-arable land as a collaboration between the Singapore and China governments, with Keppel Corp playing the leadership role in the Singapore half of the joint venture.

With Keppel Corp securing another project to develop Saigon Sports City in Ho Chi Minh City, coupled with the prospect of spending 2 weeks in Tianjin (which is not known as a tourist destination) for a work trip, it seemed like a productive use of my time to check out SSTEC to see if it is viable.

Overview

Tianjin map - with annotations

Above is a map of Tianjin municipality, to give you a rough idea of where the significant locations of Tianjin are located. Tianjin New Binhai Area is a Special Economic Zone intended to replicate the development seen in Shanghai Pudong and Shenzhen. The majority of the New Binhai area appears to be for industrial use at the moment, with some MNCs setting up shop here. The area’s Yujiapu financial district is still under construction. SSTEC is a sub-district of the New Binhai area.

SSTEC is a roughly 1 hour drive from the downtown area and 40 minute drive from the airport. There are roughly 80,000 people living in the city currently according to statistics.

The Journey

The journey by car from the Tianjin downtown area (where I was staying) took over 1 hour. Here are some pictures of the road to SSTEC to give you an idea of the surroundings:

The City

This aerial shot will help you understand the scale of the project:

Tianjin Eco City - Aerial view

Source: Tianjin Eco City website

Here are some street level shots I took:

 

As you can see, the vast majority of the buildings up are for residential use. There are some amenities already up like schools and neighbourhood malls. The city was not really bustling with activity at the time (early afternoon), probably because the people living there are at work in surrounding industrial district. I visited some of the local showrooms to get a better idea of the future developments of the city. Here’s the showroom for Shimao Property, a China property developer listed in Shanghai, which accounts for most of the residential properties you see in the earlier pictures:

Shimao Map

Another representation of where SSTEC is located

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I also wondered around the science and technology district and came across a familiar logo:

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Keppel Land also had a showroom for some residential developments they have in the area. According the sales persons, they are priced at RMB1,500 per sqm, set to complete in 2020 and with only 15-20% of units remaining available.

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As seen in the map shown, Keppel’s residential units are pretty well located with nearby amenities and close to the bridge that connects to the surround industrial developments and the expressway to the city. There is also a lake district nearby.

I left the city late afternoon, flanked by flags and wind turbines.

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My thoughts

Singapore is renown around the world as a garden city, to see that same vision realised in a foreign country under our guidance brings me a deep sense of pride as a Singaporean, just like how we managed to hold the Trump-Kim summit. From a business standpoint, it makes sense to sell that vision and expertise especially to developing countries who wish to do it right and not succumb to excessive pollution. Keppel is uniquely positioned to be able to execute with its track record and in house property and infrastructure divisions.

As for SSTEC, it is currently situated in a pretty bad location with the CBD and Airport about 1 hour away. There are also limited things you can do nearby. However, with further development on its way with more industries setting up shop in the Binhai area and the eventual completion of the Yujiapu financial district, the land bank and developments Keppel has in SSTEC will appreciate over time.

Overall, I like the direction Keppel is taking and will look closely at the development of SSTEC, Saigon Sports City and other potential future deals that could represent significant upside.

Bonus

Here are some of my favourite photos of the Tianjin downtown area:

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Sunset on the Tianjin Eye

Happy Hunting,
KK

Disclosure: I’m invested in Keppel Corporation and this is not a sponsored post. The views here are my own
Disclaimer: The information presented does not constitute a call to buy or sell shares. It is for general information purposes only. Do your own due diligence before making a decision, friends.

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Frasers L&I Trust preferential offering results

Greetings from Tianjin! I’ve been busy these 2 weeks as I’m currently on a work trip, so no regular content last weekend. Chilling in my hotel room at the moment so I decided to give a quick update on my portfolio.

Frasers Logistics & Industrial Trust

The Frasers Logistics and Industrial Trust PO results are in! As expected, I didn’t get all the excess rights I subscribed to:

  • Total units applied:
    • Entitlement: 1,500 units
    • Excess application: 6,100 units
  • Excess Units received: 1,500
  • Total units received: 3,000 units

Based on today’s closing price of $1.04 and rights issuance price of $0.967, that’s an automatic 7.5% gain. Sweet 🙂 The reason why I’m growing to love rights issues for REITs.

Yup that’s it for now. Stay tuned this weekend for a exclusive investment article about my time in Tianjin 😀

Happy Hunting,
KK

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Portfolio @ May 2018

May

Before I begin with my regular portfolio review, I would like to welcome the 7 email followers who subscribed after my last post on CPF Hacks. That single post garnered over 10k views, almost doubling the blog’s lifetime views over the course of a few days. Thank you for your support of this tiny blog and letting me know that I’m writing something worth reading.

Here’s my portfolio as the end of May 2018:

SG StocksUS Stocks

Portfolio Value

Committed cash relates to funds used for the Fraser’s L&I Trust PO

Performance Indicators / Dividends

  • YTD Time weighted return: 0.33%
  • Dividends collected: $917.76
  • Upcoming Dividend Receipts:
    • Frasers Logistics & Industrial Trust: SGD 645
    • SingTel: SGD 652.70
    • Bank of America: USD 16.80

Commentary

Sell in May and go away

This age old investor adage proved true this year. With increasing geopolitical risk thanks to the Trump circus and their crusade against world trade, and Italy’s government (or the lack of it) woes, we face another sad month in the markets with losses largely driven by declines in Keppel Corp and Singtel. That said, that didn’t stop me from making big moves this month. After all, stocks do get cheaper in a downturn. Will June be better? Or will the market decline during the World Cup (apparently that’s a thing)? We shall see.

Transactions for this month

This was another transaction heavy month as I continue my pivot towards income and bidding farewell to more US stocks.

Purchases:

  1. Bought 15,000 units of Frasers Logistics and Industrial Trust (SGX: BUOU) ahead of the preferential offering as mentioned previously. Subscribed my 1,500 unit entitlement and applied for excess 6,500 units. I personally don’t expect to get much excess units, if any, given the intense interest in the REIT. Going forward this REIT will be a substantial driver of my passive income.
  2. Bought 1,000 shares of SingTel (SGX: Z74) after yet more selling pressure from institutional investors after earnings. The earnings itself was ok in my opinion, given regional associate troubles. The commitment to maintain a 17.5 cent dividend for the next 2 years was welcome too. Where the bottom is, I do not know. All I know is I’m buying a best in class telco with a decent yield. Will look to add again if it reaches the $3.00 – $3.10 range.
  3. Bought 80 shares of Micron (NASDAQ: MU) as a small speculation. Analysts are signalling doom and gloom for NAND and DRAM prices, I’ll take the contrarian trade as I feel with demand for chips should still be strong. The company also upped guidance for the year and instituted a monster buyback.

Sell transactions:

  1. Sold Frasers Commercial Trust largely to fund my Fraser’s L&I purchase. Trading in a sub par commercial REIT for a better quality one makes sense to me. That said, those who have a greater patience than I can consider FCOT at its current price as it has crossed the 7% yield threshold recently.
  2. Sold Lockheed Martin and Raytheon largely due to poor price action. I remain bullish on the US weapons manufacturers as a whole, but short term this sector should be under pressure due to confusing guidance and trade war related issues. Divested also mainly to concentrate funds in more important positions.
  3. Sold Walt Disney. This one pains me, as I really love their Marvel and Star Wars films, but this has been a big time under performer for me and with the continued uncertainty over the Fox deal, I really don’t feel like waiting around for this stock. Should I have sold sooner? Probably. I kept this around largely for diversification and love of the company, but at the end of the day, stocks are just pieces of paper.

Here’s to a better June.

Happy Hunting,
KK

Information presented in this post is for general information and educational purposes only. It does not constitute a call to buy or sell any stocks. Do your own due diligence, invest carefully and wisely my friends.

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CPF Hacks you should be aware of

CPF

The CPF scheme was originally conceived as a Government assisted retirement contribution scheme. However, over years of reading blogs, you come across interesting ways people use it to achieve certain outcomes.

Here’s a collection of my favourite CPF Hacks that I feel everyone should know about.

Credits: Some of the ideas originate from A Singaporean Stocks Investor (ASSI), a veteran financial blogger who believes that CPF should be the cornerstone of your retirement.

Basic Hacks

1) When you contribute matters

Contributing in January or in December in any given year affects the eventual amount of interest you receive at year end. This is because of the way the CPF Board computes the amount of interest to pay its members.

CPF interest is computed monthly, then compounded and credited annually to your respective accounts. CPF interest earned in the preceding year will be credited to members’ CPF accounts by the 3rd working day in January.

Source: CPF FAQ

This means that you will earn 1 full year of compound interest if you contribute in January, versus 1 month if you contribute in December. So if you intend to contribute voluntarily to your CPF, do it as soon as possible.

2) Accrued interest and how you should handle it

Accrued interest is a controversial topic that contributed to the “Return My CPF” movement in prior years. Accrued interest is the concept that CPF monies withdrawn to fund a property purchase has to be returned to CPF with interest upon the sale of the property. This created a “Ownself pay ownself interest” scenario instead of the Government paying you the interest if you had left the CPF monies in your OA.

While I can understand that most Singaporeans cannot afford to own a home without using CPF funds, given the accrued interest issue, you should look to refund your CPF principal and accrued interest as soon as you are able so that you can let the Government compound your money, instead of doing it yourself. Or better, don’t use CPF monies at all to fund your home purchase.

3) Contribute voluntarily and save on tax

I have written on this in depth previously here and here.

Advanced Hacks

1) CPF as the bond component of your investment portfolio

Portfolio theory advocates that you should diversify your investments into different assets and asset classes to diversify away single asset risk. Bonds play a role in portfolio construction. Instead of buying government bonds that pay less or buying corporate bonds that are more risky (Hyflux 6% Perpetuals anyone?), ASSI advocates topping up your Special Account (SA) as a alternative. He views the CPF SA as a high interest up to 30 year bond backed by SG’s ironclad reserves.

Depending on your risk appetite, this might be a valid portfolio strategy.

2) Using your parents’ Retirement Account (RA) to earn higher interest

A ASSI reader came up with a pretty brilliant way of using her homemaker mom’s (i assume) RA account to earn high interest rates on her funds. As her parent’s RA is low, she can top up her parent’s RA without triggering CPF Life enrollment. This allows her top-ups to earn up to 6% interest. Plus, she can earn up to $7,000 in tax reliefs on her top-ups. She will ultimately receive back the funds by getting her mom to nominate her as the CPF beneficiary.

A pretty niche hack, but fascinating nonetheless.

3) CPF as a legacy planning tool

Did you know that any Singapore citizen can have a CPF account, including your new born baby? You only need to contribute to it for the first time for it to be opened.

So let’s say you want to leave a sum of money for your children to secure their future and are worried that they become snobbish little brats? You can either create a trust to manage the funds till they are of age. Or you can top up your child’s SA and let the Government be the gatekeeper like how this couple is considering. What’s more, the Government is helping your child compound the sum at 4% p.a. for 65 years!

4) Government subsidised medical insurance

As you might know, the Medisave account (MA) funds attract a 4% interest. You might also know that health insurance like the Integrated Shield plans can be bought using Medisave account funds. This effectively means that the Government is subsidising your medical insurance costs.

In fact, if your MA has the current Basic Healthcare Sum (the current MA balance cap) of $54,500, your annual interests from your MA would be at least $2,180. This should be sufficient to cover your health insurance costs.

As such, if healthcare and insurance costs is concerning to you, top up your MA to give yourself that necessary peace of mind.

Summary

The CPF can be a very versatile tool. From saving for retirement, to tax planning, to legacy planning and health insurance, CPF has a part to play.

Do you have any other CPF Hacks that you know and use? Do let me know in the comments!

Happy Hunting!
KK

Don’t Freeze

Mind.jpg

I have always maintained that I suck at trading and timing the market. That said, from time to time, intense short term pain in the markets sometimes compel me to think about making a high percentage trade. Recent volatility in the Singapore stock market presented some opportunities for me to do just that.

This blog covers mostly the actions I did take, so a story of how I sat on my fingers might be useful learning too.

Venture Corp (SGX:V03)

Venture Corp is Singapore’s largest contract manufacturer. It is the most recent addition to the STI. Venture has been on a bull run for the past 2 years on strong earnings largely from strong contract demand.

Recently, Venture had been in a free fall mainly due the emergence of a short seller alleging that 30% of their sales are from Phillip Morris International (PMI). This was compounded by the cigarette maker’s poor earnings for its e-cigarettes division, the division most likely to be Venture’s customer. This prompted the stock to plummet from $28 to $19 in almost a straight line over the course of about 1.5 weeks.

V03

Like jumping off a cliff

It was in the $19-20 region where I was extremely tempted to take the opposite trade for a technical rebound to the $22 range. The charts kinda supported this view and technical indicators I semi-trust screamed oversold. Plus, the fact that the company had strong fundamentals added some conviction to my thoughts.

But I didn’t act. But as you can see in the chart it bounced to $22 as expected.

Whoops.

Valuetronics (SGX:BN2)

Valuetronics is a Hong Kong headquartered manufacturer with all its operations in Huizhou, China. The key product it sells is smart light bulbs like the Philips Hue. In fact, I think they are one of or the supplier for Philips Hue bulbs. It is kind of a IoT play that pays decent dividends.

Market sentiment on SG tech stocks have been heavily dampened lately due to weaker than expected guidance from their customers (Intel, etc). But the real dagger to the heart of Valuetronics bulls was Philips’ latest quarter indicating oversupply of smart lighting that will last to H2 of 2018. This prompted short sellers to pile into Valuetronics, driving the price from about 88 cents to the intraday low of 65 cents.

BN2

Another cliff

A truly monstrous decline. Having done a bit of work in the past on this counter, I knew this company could be bought into weakness due to its large cash position. Inventory issues was likely to be a short term problem with IoT being a long term trend that will only drive long term demand.

However, I didn’t pull the darn trigger as I let memories of catching the falling knife get the better of me again.

You know what happens next, as shown above.

Frasers Industrial and Logistics Trust (SGX:BUOU)

Frasers Industrial and Logistics Trust (FLT) is a REIT that invests in Australian logistics properties (essentially warehouses). It recently launched a 1 for 10 preferential offering (PO) and private placement to raise funds to buy 21 European logistics properties. These properties are mainly located in Germany, with a few in the Netherlands.

The uncertainty caused by the time delay between the announcement, to the EGM to approve the offering, to the release of the specific details of the offering applied pressure to the stock. This drove the REIT down from $1.08 when it was first announced to about $1.03 the day before the announcement of the offering details.

BUOU.JPG

Excluding dividends this represents a cost of $1 if I had bought then, inferring a solid 7% yield. Having done some work prior on the REIT, I knew the management was solid, the Australian properties were of high quality, the proposed European assets were of high quality, there was only currency risk to worry about.

In this case, it was a matter of penny wise, pound foolish. I queued an order for $1.03 almost the entire day. Even at the close, I didn’t adjust it to $1.04, where it closed for the day. As you can see above, the REIT announced the details of the PO and the price shot up.

Having missed 2 boats earlier, you can imagine I was pretty pissed with myself at missing yet another boat. I did a quick analysis of the offering and felt that at current market prices it was still acceptable to me. I promptly bought it and am looking forward to subscribing for excess rights during the PO period to further bring down my cost basis.

So at least there’s a semi-happy ending to this story haha 🤣

Moral of the story

As the investment guru Okoye from Black Panther says:

Don't freeze.gif

When you see opportunity, trust your research and act accordingly. Blink and it might be gone.

And don’t be penny wise, pound foolish.

Happy Hunting,
KK

Malaysia Boleh, Malaysia stocks Tak Boleh?

In the wake of the tsunami that swept the Malaysian opposition alliance Pakatan Harapan and Dr Mahathir to power, the iShares MSCI Malaysia ETF promptly tanked 6% in US trading to close near to its 1 year low.

EWM.JPG

Source: Yahoo Finance

The investor in me started to click into gear. Putting aside all the political rancor and name calling, what does this earth shattering election mean for Malaysia businesses and equities? Is it time to buy?

Personally, I usually don’t follow Malaysian politics too closely, but here are some of my initial ignorant thoughts / ramblings.

What Mahathir and Anwar stand for

Throughout the 11 day campaigning process, there has been little discussion on economic policy except for a few stated populist measures (which I will cover later). As such, I could only form my opinion based on their past terms in office more than 15 years ago, when they were part of UMNO.

During his time as PM, Dr Mahathir was a renown as a strongman and the epitomy of Malaysia’s brand of race-based politics. As a child of the late 80s and 90s, I always remembered Mahathir’s inflammatory statements towards non-Malays and foreigners, in particular Singapore. He was also a protectionist, backing favourable policies to the Bumiputras while sidelining non Malays. Under his care, Malaysia felt inefficient and not as business friendly.

That said, Mahathir has struck a more conciliatory tone in his comments since the election. Can a leopard change its spots? Or is this simply a facade? Only time will tell.

In contrast, Anwar seems to be more progressive and inclusive based on his Wikipedia page. Honestly, I don’t know much about him in terms of policy, only the salacious details of his jailing, so don’t take this to be fact. He clashed with Mahathir over nepotism and held more progressive financial policies, before he was removed from office. His comments seems to be more moderate compared to Mahathir.

Comparing the 2, Anwar seems better for business than Mahathir. But I would love to hear any first hand views you may have.

General policies announced

1) GST change to sales tax

Nothing much to say here, just a limitation of scope of GST to only tax certain products. This should imply a reduction of taxes which is pro consumer and business. Doesn’t help the Government budget deficit though. The devil is in the details.

2) Reintroduction of petrol subsidies

Personally, I’m against this type of subsidies as it promotes abuse (Petrol is so cheap! Let’s just drive everywhere) and a crutch mentality. It is also fiscally unsustainable as oil is a cyclical market. In up cycles, the government will have to bear huge subsidies that could have been better spent elsewhere.

That said it is pro consumer and maybe it will boost consumer spending. Also doesn’t help the Government budget deficit.

3) Raising minimum wages

Again, I’m against the minimum wage model as it has proven to not work in many countries. This is because businesses tend to simply comply with the minimum wage and have little incentive to drive productivity and wage growth. I find Singapore’s model of Workfare coupled with productivity drives and upskilling to drive wage growth more sustainable in theory.

At face value, this measure will increase business costs but increase consumer purchasing power to drive spending.

4) Review of foreign investment deals

This is one of the more concerning issues raised with regards to the investment thesis in Malaysia. Is Mahathir going to kick out all the Chinese investments in Malaysia? Is he going to shelve the SG-KL High Speed Rail project? Initial rumblings have not been promising and this is something we have to watch closely if we want to invest.

The wild card – potential structural reforms

With the rigid BN establishment out of the way, there is hope for structural reform in Malaysia to drive it forward as a business friendly destination. Malaysia always had good fundamentals – a enterprising and resilient citizenry, strategically located with a decent hinterland – just that it had been bogged down with its Governmental/societal biases and policies.

If they are able to enact the necessary changes to drive the Malaysian economy forward, I’m sure it can do well.

In summary

The ouster of BN from Government felt like a rallying cry to rid Malaysia of an evil. However, will the PH Government under Mahathir / Anwar present a better alternative?

Therein lies an interesting investment conundrum. There are still many unanswered questions on economic policy that will be fleshed out in the coming year. That said, I trust that our neighbours will find the strength to enact the necessary changes for the good of their country. After all, ending the more than 60 year rule of BN despite all the barriers in place seems comparatively difficult.

For now, I’ll be watching with great interest. And researching Malaysian equities. And looking for good brokers for Malaysia stocks. The SGX – Bursa Malaysia trading link can’t come soon enough.

Happy Hunting,
KK

A frontline view of Corporate Restructuring

Dilbert Strip

I have been pretty busy the past few weeks as work started to ramp up. This is due to my company’s restructuring process starting to reach it’s conclusion and the organisation starting to click back into gear. It is partly why I only post on weekends now. While I am happy to report that I still have a role in the company, I am saddened to see the amount of experience being let go from my department.

Having worked for 5 years now and only in my 2nd job ever, having to experience a corporate restructuring this early in my career has been thought provoking and mindset altering. With the process almost over, I thought I would share some of my initial thoughts and feelings, that would hopefully be useful for your own career plans and expectations.

Expect change

Corporate restructuring happens from time to time as a company struggles to keep pace with its competitors and satisfy shareholder demands for more. This is further accelerated by the technological advancements and disruptions companies constantly face.

Speaking to some of my colleagues who have lived through a few restructurings, change is constant, so constantly upgrading yourself and staying relevant is very important.

Company loyalty counts for little

The iron rice bowl or the one company man is a endangered species. Due to intense competition and shareholder return demands, companies do whats best for the company. If that means cutting the average performing 10 year director who’s job can be delegated to 2 – 3 managers/executives, done. This means that we have to adopt a less loyal perspective towards the company and be on the constant lookout for greener pastures as we can’t expect our employer to be loyal to us. To me, this is very sad but hey, that’s how it is now.

Diversify your experience

Companies value people with diverse backgrounds and cross functional experience. This helps when restructuring happens as you are less likely to be cut when compared to a staff who has experience only in one area. If you truly feel that you are in the right company and want to stay for the long term, expanding your experience into different departments and areas is crucial.

Networking helps, but not necessarily effective

Networking helps you get name capital with the bosses. This is useful mostly for your progression in the company under normal circumstances. That said, you have to stay relevant through actual skills and experience as when its time to restructure, all the warm and fuzziness goes out of the window.

Conclusion

It’s been a time for self reflection for me throughout this process. It gave me perspective and emphasized the continued need to stay relevant in the corporate world. It also reminded me of why I’m laser focused on the journey to financial freedom – so that one day, I’ll be free from worrying about my livelihood.

Happy Hunting,

KK