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SingPost – Analysis and Outlook

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The most popular post in Feb10 Capital blog is analysis of  SingPost (https://feb10capital.wordpress.com/2014/04/05/singpost-analysis-and-outlook-after-q3-fy1314/) and I am again doing analysis on Singpost. There were lot of changes in SingPost since my last analysis and lets have look at them.

Business:

  • Mail business – letters etc.
  • Logistics – delivery, customs handling, POP stations
  • e-commerce – End to End service from warehousing, selling and delivery
  • Retail & financial services – insurance selling, postal sales
  • Rental income – SingPost headquarters retail units
  • Present across 18 countries – mostly Asia, US, UK etc.
  • Digital services – SAM, Scan Mail etc.

Strengths:

  • Revenue is on rise for last 5 years – mainly driven by acquisitions.
  • Net Profit Margin is very good at 14% – 15%.
  • Monopoly on Singapore mail services – very high margin (30% operating profit) business and International mail business is on rise.
  • Wolfgang Baier (Resigned as CEO) set up company for future with extending to new businesses such as e-commerce etc.
  • Regional logistics hub in Tampines shall open in 2H CY 2016 – Shall improve efficiency and may lead to decrease in cost per unit handling.
  • Dividend yield is more than 4.5% based on current price of $1.38 and SingPost increased dividend in latest Q3 (from 1.25 cents to 1.5 cents).
  • Strong distribution network  in Singapore with post offices, POP stations, warehouses, delivery people – can leverage network to handle other retailers and consumer facing services.
  • Balance sheet is good with strong cash in hand of $185 million – may dilute due to continuous investments.

Weakness:

  • Growth is mainly driven by low margin (7.5% operating profit) business and high margin (30% operating profit) domestic mail business is in gradual decline at slow pace. The increase in scale of ecommerce business may gradually help margins and SingPost growth lies in low margin business.
  • Near term impact on revenue from SingPost Centre redevelopment.
  • Expenses are outpacing the rise in revenue – nature of e-commerce business.  Costs shall continue to rise due to investment in facilities, technology and people.
  • Resignation of Wolfgang Baier – Baier was majorly responsible for setting future vision for Singpost and he abruptly resigned. There after the corporate governance issues cropped up due to one of the acquisition and possible conflict of interest with one of the independent director. I am more worried about Baier resignation as SingPost will eventually come clean on corporate governance issues by putting proper procedure in place to avoid similar occurrences in future.  Can SingPost continue to prepare for future in absence of Baier?
  • P/E ratio is high at nearly 20times – was 30 around 3 months back.
  • Low NAV of around 70 cents.

Analysis:

  • SingPost is one of the rare public postal service company primed for future with strong emphasis on e-commerce, online retail etc.
  • Wolfgang Baier setup vision for medium term and it’s proper execution shall bode well for next 3 – 5 years.
  • Alibaba currently holds 15% of SingPost and may raise stake in future to be significant minority shareholder.
  • Online retail is gaining market share from traditional retailers and SingPost shall benefit from shift towards online retail.
  • Very capital intensive business in terms of real estate, technology and people. Costs shall usually increase along with revenue. Any potential drop in revenue shall impact bottom line significantly as aligning costs with revenue shall not be very imminent.
  • Lately SingPost is acquiring too many businesses and I personally would like them to give a pause to acquisitions and concentrate on deriving value from past acquisitions.
  • There were serious questions raised on corporate governance of SingPost and company engaged special audit to uncover the things and to recommend proper actions to avoid similar fate in future. Although it is a cause of concern but personally I am not too worried as eventually public shall keep tab on SingPost.

Verdict:

  • SingPost stock price was on decline in recent months and touched 52 week low of $1.28 as well. The share price can be volatile in near future due to corporate governance issues as well as potential impact from slow down in Singapore and ASEAN economy.  Singpost has good medium to long term potential and recommended to buy at $1.2 or below.

Thanks for reading my blog. Please leave comments for any queries/ views.

Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you take based on the information provided in this post.
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Lantrovision – Takeover offer by MIRAIT

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Today (27th Jan 2016) Lantrovision announced (SGX Announcement) that MIRAIT holdings (A Japanese company with main focus on telecommunications services) offered to buy all of Lantrovision at $3.25 per share. MIRAIT plans to delist Lantrovision provided it gets approval for enough shares (90%) to delist as per SGX rules.

Lantrovision Business

  • Involved in cabling from design, installation, testing and commencement for financial, data center and other industries
  • Presence across most of Asia, US.
  • Major markets are Singapore, Hongkong and China

Recent Takeover Offers

  • Lately SGX is seeing lot of voluntary acquisition activity with main aim to privatize the respective target company. Nepture Oriental Lines (NOL) & Tiger Airways are recent examples. Before takeover offer, both NOL and Tiger Airways are struggling big time and were reporting net loss in big numbers.
  • Lantrovision position is starkly different and is reporting decent profits and latest results reported on 25th Jan 2016 indicate that net profit grew by 21% compared to same quarter in last year. Last year was a bit of struggle as profit was on decline (compared to Year over Year) due to various business challenges. One of the strong points of Lantrovision is it’s strong balance sheet – nearly $90million cash in hand with no debt. Net profit Margin (NPM) is also good at 10% (Why NPM is important? ).

My Personal Investment

  • I personally liked Lantrovision for it’s line of business (Exposed to cloud technology through cabling for data centers) & strong balance sheet. I currently own 2000 shares (after consolidation at 5:1) and total purchase cost is around $4870. My purchases were made on 19th Jan 2015 @55 cents (5000 shares)  and 20th Aug 2015 @40 cents (5000 shares).

Take offer or wait for better offer?

  • The offer price of $3.25 is 42.54% premium to last traded price of $2.28. The price is just 18.18% premium to my first purchase price of $2.75 (after consolidation) and whopping 62.5% premium to my second purchase on 20th Aug 2015.
  • The top management accepted the offer and they collectively own around 40% of shares. They agreed not to accept any other offer although any alternate offer may cause MIRAIT to raise their own offer to match or beat the alternate offer.
  • If I accept the offer, shall make very good return of 35% including dividend payments. I am inclined to accept the offer as Lantrovision may not hit $3.25 level in very near future (6 – 9 months).
  • However Lantrovision is good long term investment (That is the reason I purchased more shares when things are going tough!!) and should see greater benefit as technology is making major shift towards cloud computing (More data centers – where cabling requirement is pretty high). The premium is just 12% when compared to 52 weeks high price of $2.9 . Lantrovision better days lie ahead although the path to higher share price shall have few bumps in the way.

Recommendation

  • WAIT FOR FURTHER DEVELOPMENTS. Please wait for Independent Financial Advisory report as well as wait for further developments on this offer such as detailed documents, book closure date, take up rate of the offer and any potential alternate offer from any other party.
  • I will further post when more details are available.

Thanks for reading my blog. Please leave comments for any queries/ views.

Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you take based on the information provided in this post.

Haw Par Corporation – Analysis

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Business:

  • Tiger balm & health care related business – Primary
  • Leisure – Under Water World Singapore & Pattaya
  • Property – Rental income – Singapore
  • Investment – stake in UOB bank, UOL  and UIC – All are listed on SGX.

Strengths:

  • Strong margins – 30%  -40%.
  • Sustainable business – need for health care remains strong
  • Significant stake in good companies – continuous dividend payments
    • United Overseas Bank Limited 69,692,097  shares
    • UOL Group Limited 42,760,918 41 shares
    • United Industrial Corporation Limited 68,197,350 shares
  • Very strong balance sheet – Net Asset Value is around $10 even with current stock market volatility.

Weakness:

  • Low liquidity – the spread between bid & ask is high.
  • Earnings are highly dependent on dividend payments from investments in UOB, UOL & UIC.
  • PE ratio is not cheap for non growth stock – 14 times
  • Big difference in q to q performance due to variability of dividend payments from financial instruments.

Analysis:

  • Without any one off gains, the FY15 EPS expected to be around 60 cents. At current price PE ratio shall be around 14.
  • NAV is very strong although subject to volatility of UOB, UOL & UIC share values.
  • Dividend is steady across years – 20 cents – 2.5% at current rates
  • Driver of the stock? – Mainly from investment division & to some extent healthcare division.
  • Need to be mindful about liquidity – when selling, spread may eat in to profit.

Verdict:

  • Recommended to Invest at less than $8.

Thanks for reading my blog. Please leave comments for any queries/ views.

Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you taken based oninformation provided in this post.

Hock Lian Seng Stock – Analysis

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Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you taken based oninformation provided in this post.

Business: 

  • Civil engineering – main business
  • Property development – Industrial dev, Condo (The Skywood – consortium)
  • Property investment – Dormitory

Strengths: 

  • Major player in civil engineering construction – contracts from LTA – Marina Coastal Expressway, MRT depot, Maxwell station etc. Changi Airport – taxi ways etc.
  • Awarded Tuas site for  development – Tuas shall be in demand by the time construction is completed due to impending move of Port
  • Most of civil projects run through many years providing cushion for any slowdown in property segment revenue – strong order book for public civil projects.
  • High exposure to public companies – public infrastructure spending to continue in near  to medium future
  • Potential to get contracts for Tuas Port as well – very long shot
  • Chance to get significant work from Changi Terminal 5 contracts
  • Potential contract from North – South express way
  • A1 contractor – can bid for any contract with unlimited value
  • Cash in hand is very strong at $150 million – Balance sheet is very strong
  • NAV is very good at current share price of 40 cents
  • Dividend is good when EPS is good – usually 30%  of earnings – 5% to 10% yield

Weakness: 

  • Exposure to legal fees & potential payment to electrical subcontractor for Gali batu depot.
  • Expect EPS to be in the range of 1 cents without one time recognition of property revenues. The skywood revenue is mostly recognized except unsold part of 25%.
  • PE can be very high in FY16 – around 40
  • Workers dormitory lease is expiring at end of FY2015 – there are no signs that lease shall continue
  • The FY16 might be challenging due to absence of any industrial projects, dormitory  and low margin nature of civil engg business.

Analysis: 

  • Most of FY16 revenue will be derived by lower margin civil engg business.
  • Dormitory lease extension is critical for earning improvement
  • Property development income shall be very small in FY16
  • Scope for further civil engg works with Changi, LTA
  • Expect dividend of around 2 cents in FY15

Verdict: 

  • Not recommended to invest at current price. The current price is very high considering future potential. Expect share price to drop significantly – less than 30 cents can be considered if dormitory lease is extended.

 

Thanks for reading my blog post. Post in comments for any suggestions/ views / queries.

Raffles Medical – Analysis

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Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you taken based oninformation provided in this post.

Business:

  • Hospital – Singapore (Bugis), new one in china
  • Clinics – Spread across Singapore, Japan, Hongkong, China, Vietnam & Combodia
  • Health care services
  • Raffles Health Institute – teaching
  • Raffles Research labs – research

 

Strengths:

  • One of the premier private hospitals in Singapore – Operating in mid premium category
  • New extension building being built – doubles the capacity in Singapore – seamless connection to existing hospital
  • Healthcare needs grow in Singapore as population ages
  • Singapore Govt recognized Raffles Hospital for handling emergency patients from SCDF
  • Hospital is located in center of the city – very convenient for many people
  • Most of new public hospitals are being built in deep suburban areas.
  • Net Profit Margin is nearly 18% – Revenue & Profit is on rise for last 5 years – excluding one off gains
  • Raffles clinics are part of CHAS & Pioneer package.
  • Collaboration with Duke NUS school
  • First medical group in Asia to join mayo clinic network
  • Balance sheet is very strong – no non current liabilities. No exposure to interest rate hikes. This may change due to funding of new hospitals in Singapore & Shangi.

Weakness:

  • PE ratio is nearly 40 – Very expensive – new hospital operation would bring PE to more reasonable levels
  • NAV is very low at $1
  • Cash flows shall be negative in next few years due to continued investment in new hospitals.
  • Staff costs are nearly 50% of expenses – may increase even further with need for early recruitment & training.
  • Dividend yield is very low at 1.3%

 

Analysis:

  • Catalyst in earnings from new hospital & Holland v. Holland V shall contribute from 3Q FY16 & new hospital from 3Q FY17 & shangi hospital from FY19.
  • Once new extension is opened, existing hospital shall go under renovation. So the full impact of new hospital on revenue may get extended to 3Q FY18.
  • Growing reasonable presence through MCH acquisition (International SOS subsidiary)
  • Near term expenses can be high due to new extension & shangi hospital as well as staff recruitment costs for Holland V.
  • Holland V rentals shall contribute nearly $1 million per quarter. May be enough to cover potential increase in finance costs.
  • With more clinics, corporate demand should pick up.
  • MCH investment should be contributing positively from FY16 onwards.

 

Verdict:

  • Recommended to invest but current price is still high. Look for potential drop down in prices.
  • Anything below $3.5 is excellent chance and between $3.5 – $4 is considered good.
  • Recommended to hold for long term for full benefits. 

SATS Stock – Analysis

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Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you taken based on information provided in this post.

Business: 

  • Catering service to airlines at various airports – Singapore, Narita (Tokyo), KL
  • Cargo handling & Gateway services at Singapore Airport
  • Gateway services – passengers, cleaning & cargo handling
  • Food business – Catering of food to major events

Strengths: 

  • Strong customers (Airlines) & potential upswing for aviation due to low oil price
  • Net profit margin is around 10% – 15%
  • Costs are on decline – especially raw materials & utilities bill
  • As raw materials are around 25% of cost, current low commodity cycle offers very good chance.
  • Balance sheet is strong with 400 million cash in hand & little debt
  • High dividend payment of 14 cents – equivalent to 4.5% yield – 70% of earnings
  • Very volume centric business – high barrier to entry for new companies and difficult to survive for SME companies.

Weakness: 

  • Very low NAV
  • Cyclical business – highly dependant on airline business
  • High P/E Ratio  of 20

Analysis: 

  • SATS best days are ahead of it.
  • Low commodities price should help on cost decrease as well as increased air travel which shall boost revenue for SATS
  • FY16 shall see better returns

Verdict: 

  • Recommended to Invest around $4 or less.

 

Thanks for reading my blog post. Post in comments for any suggestions/ views / queries.

Kingsmen Creatives – Analysis

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Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you taken based on information provided in this post.

Business: 

  • Shop fixtures & decorations (51% of revenue)
  • Exhibitions & Museum (41% of revenue)
  • Marketing solutions
  • Singapore is biggest market with 41% of revenue

Strengths: 

  • Premium events handler – F1, WTA finals, Air show etc.
  • Shop fit out for major mnc fashion brands – Uniqlo, H&M, Dior, Tiffany, Ralph Lauren etc.
  • Revenue increased from FY10 to FY15
  • Balance sheet is good – liabilities are small except payables which are almost equal as receivables
  • Min exposure to high interest rates
  • NAV is reasonably good at 50 cents
  • Even at lower revenues the gross profit remains stable. It bodes well when revenue increases as higher gross profit shall contribute to higher net profit.
  • Dividend is good at 6%

Weakness: 

  • High exposure to china market (28% of revenue – may be impacted by slowness there)
  • Business is spread across various geographies – Currency risks
  • High fixed costs – drop in revenue will majorly impact bottom line
  • Very cyclical business – slowdown in economy shall impact opening or renovation of shops
  • FY15 revenue < FY14 revenue
  • Q3 NPM is around .5% – majorly impacted by drop in revenue of 10%
  • PE ratio is 50 based on 3Q & 10 based on 2Q. Such is the volatile nature of profit as drop in revenue or slight increase in expenses shall have significant impact on bottom line.
  • Cash flow is not good – 3Q is positive due to loans. The requirement for investment is less but operating cash is not enough to cover dividend or loan payments
  • Retail interior will continue to be challenging in near term.
  • Interim dividend is cut from FY14 by 33% to 1 cents.

Analysis: 

  • Highly cyclical & top line driven company.
  • Cost base is high & with lower revenue the probability of hitting loss is high.
  • Will be very challenging for next year & so due to softening retail demand across major markets.
  • High chance of losses in at least 1 quarter in near future

Verdict: 

  • Not recommended to invest at current price. There is more scope for fall than rise in price due to low earnings.  Can be considered if price goes below 50 cents.