My 50% loss

Readers will noticed that I have updated a silly investment (SAIZEN REIT) made 1 year ago in my current holdings. I balloted for it through ATM for 10 lots and was given 2 lots, fortunately! I invested the REIT for dividends and since then, it has tanked about 50%. This is probably my worst investment paper loss till date. It doesn’t help as it reported a net loss of $50m for FY 08. The old saying of not investing into unfamiliar territory holds true for all investments.

The reasons I invested in this REIT was because Japanese Yen has been undervalued for many years. I was hoping that its appreciation will bring about interest in Saizen Reit. The fact is, Japanese Yen can continue to be undervalued for another 20 years.

Secondly, the housing ownership cost in Japan is too high (land scarcity) and risky (frequent earthquakes), hence renting accommodation in Japan is a more viable option in my opinion. This is a valid point as the annual report shows growing revenue and higher occupancy rates.

Thirdly, I was also inexperience and gullible to believe the prospectus of the 6.5% annualized yield! In actual fact, the yield will only be 4.67%.

Fourth point, based on historical records on Singapore listed REITS (at Sept 07), many did not incur losses upon IPO launches. I thought it was a “safe” investment. Again, Japanese property was an unfamiliar property play compared to Suntec, Capitalmalls and F&N commercial properties. It was a poor historical comparison on hindsight. The greed of selling it for a quick gain also did me no good.

Saizen Reit issued units as management fees which means that there will be large horde of selling the units for cash. This is a bad move by the management. This is one of the reasons I can think of for its share price volatility, other than the current bear market.

The good thing is that I will be receiving dividends. I will not be selling it as I want to remind myself of this mistake and also to hold it for its miserable semi-annual dividends. To be fair, the loss is less than $1000 dollars, representing only about 0.3% of my overall portfolio. The loss is unnecessary but I believe I will learn, grow and move on. Also, as long as the return on this investment is higher than 0.5%, it is better to keep it than realise the loss. Afterall the $2,000 I had invested last year will probably be idling in UOB current account anyway. Some consolation for me!

NO IPOs for me for the next 2 years!

Stock transactions and portfolio summary August 08

BUY (CASH)

DBS: 1,000 shares @ $18.48

SPH: 5,000 shares @ $4.02

Capitaland: 2,000 shares @ $4.85

SPC: 2,000 shares @ $5.42

HL Finance: 3,000 shares @ $ 3.28 (CD)

DBS: 1,000 shares @ $18.44 (CD)

SELL (CASH)

DBS: Contra 1,000 shares @ $18.80

SPH: Contra 5,000 shares @ $4.06

Capitaland: Contra 2,000 shares @ $4.95

SPC: Contra 2,000 shares @ $ 5. 53

Realised trading gains of $ 528

BUY (CPF)

SPH: 3,000 shares @ $4

HL Finance: 3,000 shares @ $3.40 (CD)

SELL (CPF)

SPH: 3,000 shares @ $4.05

Realised gains of $66

Dividends

Singpost: $625 (FY 08, first quarter dividends of 0.0125 cents/share)

Summary

In August 08, I received $625 dividends from Singpost and made $528 of trading gains. I also bought HL Finance and DBS mainly for their dividends. Together, I have a net cashflow of $1,153 in July 08.

It was actually quite exciting and fun to trade shares even for modest gains. I actually have the target to gain $400 so as to achieve a net cashflow of $1,000 for month of August.

The market is really bad for August 08. STI went down about 6.5% this month. Nobody knows if the bottom has been reached. For me, I will just stick to income investing and hopefully reach my target of minimum $1,000 a month cashflow.

I have about $20,000 of cash standing waiting for more opportunities to enter the market. I do hope that I can sell off DBS at about $18.80 and above in Sept to prop up my cash holdings for better opportunities.

I am expecting $450 dividends from DBS, HL Finance and Saizen Reits to be credited into my account in Sept. It will be a “poor” month for me!

Difficult to earn my money

Recently, 5 salesgirls and 2 salesmen came into my office during lunch time to promote their health products.

They started by giving my colleagues free body checkups and telling them their health are in bad shape after punching in some calculations through complex formulas.

Initially, they gave a lot of freebie samples like oatmeal vitamins, detox drinks, aloe vera wash etc.

Then, they started their sales pitch.

Their products are not cheap, typically $80 for some omega 3 fish oil capsules, $50 for vitamins. They broke up into teams and started promoting to different cliques. By the time I reached there, many of my staff had bought their products, as they felt embarrass to reject them after trying out so much samples from them.

One of the salesmen started to pitch his sales talk to me. After just taking my body weight, he was able to calculate my body fats level, ideal weight, stress levels and gave the conclusion that my health was in dire straits!

He started saying things like:

You need my products to cure yourself!

Everything in life can wait, but not your health!

It is really up to you, whether you want to eat these or eat medicine in hospital.

This pollen is good for you!

Take this package, you will not regret! It is a “man package”.

You need to detoxify! You need to clear at least 2 bowels a day! You eat 3 meals right?? Where did the other 2 meals go to?

To be honest, I almost bought the products, until the man told me the last salesline.

This is a typical MLM product salesman punch line!

True enough, I went to the internet to research about the company’s US products and I was spot on!

We all know one of the characteristics of MLM products are obscene profits. A $6 product can be selling for $60 or more.

The reason for such huge mark up pricing is because there are many “uplines” waiting a cut of the profits.

I will not want to buy a product when I know the profits margins is a hefty 1000%. Basic economics tell me that such products do not give value to the consumer, wiping any consumer surplus available.

Consider Singpost and SPH. Their profits margins are only 40-50% and they have done so after eliminating 90% of market competition, operating in an almost monopolistic environment.

A profit margin of 1000% is definitely ridiculous from business ethics perspective, unless you are selling out of the world products. Don't tell me I can become God after eating your products!

Come to think of it, the sales talk was rather exaggerated, similar to what we had seen in Money No Enough 2.

I am proud that I said NO, despite some colleagues giving me the disgusted look that I was a typical Singaporean who only went for the freebies. I prefer to stay healthy the healthy way. Not through capsules and sales talk.

I guess it is just hard to earn my money!

PS: Due to potential legal liability, I will not be naming the brand of the products the salesman are selling.

Corporate: SPH

Compiled by DBS Vickers

Story: Nielsen Media’s latest AdEx figures show that SPH’s newspaper display and classified ad volumes for July 2008 grew by 12.6% y-o-y. For SPH’s 11 months to
date for FY08 (September to July), Nielsen Media’s estimates indicate that SPH’s display and classified volumes have risen by 6.9% yoy.

Point: We believe that these figures indicate that SPH is right on track to meet our assumption of 7% yoy growth in display and classified ad volumes for FY08, reflecting robust domestic consumption spending in Singapore thus far. Whilst growth in advertising revenue is expected to slow down, we remain positive on the Group’s longer-term prospects given its monopolistic position in print advertising, attractive property asset i.e. The Paragon and strong balance sheet. All these translate to firm, growing cash flows for SPH, which should help to continue to support the stock’s generous dividend payouts.

We expect SPH to reports its 4Q and FY08 results around mid-October and are projecting the Group to propose a final net dividend of 24cts (interim dividend was 8cts), given continued growth in its core publishing business, higher property rental income and further revenue recognition from the Sky@Eleven residential development.

Relevance: We continue to like SPH for its attractive valuation and as a defensive stock, backed by a net yield of >7.5% (premised on 90% payout of EBIT; in line with last 6 years), and re-iterate our BUY call. Our sum of the parts valuation for SPH is S$5.75.

Sgbluechip says: There are often many positive reports on SPH, many stating its fair value above $5. However, for the past 3 years, it has never gone beyond $4.82. DBS Vickers is projecting a total dividend of 32 cents per share which is unrealistic as it is only projecting net EPS of 32 cents for FY 08, which is what SPH earned for FY 07.

I think the CFA analyst is overly optimistic!

It is unlikely SPH can surpass last year results due to poorer investment income so I am projecting its FY 08 EPS to be 29 cents.

Final dividend per share should be 16-18 cents per share due to the one tier tax system. In the worst case scenario, dividend per share should be 15 cents per share after tax. In the best case scenario, dividend per share will be 20 cents per share.

It is likely SPH will go up to $4.40 upon nearing of dividend payout date. There is 30 cents or 7% upside for this stock at last traded price of $4.11.

Hong Leong Finance: Time to buy?

I have been observing this stock for the past few months. It has low trading volume and erratic share price movements. It sometimes moves to above $3.50 or at times it will just lie at $3.40. Today it fell as low to $3.22. As I subscribe to income investing, I find Hong Leong Finance suiting very well to my risk appetite.

I picked up 3 lots today @ $3.40 using CPF OA.

I picked up another 3 lots @ $3.28 using cash.

The dividends for the past 4 years are as follows:

2004: 18 cents

2005: 33 cents

2006: 27 cents

2007: 26 cents

Average: 26 cents per annum

Trailing PE ratio is @ 11.2 at the price of $3.40.

I am projecting a modest 20 cents dividend for FY 08 which translates to roughly 6.1% yield (cash) and 5.9% yield (CPF).

HL Finance does not hold any CDOs or have no vested interest in Fannie Mae or Freddie Mac.

One thing to note is that it has only single digits ROE around the region of 8% on average. However, it has higher dividend yield than DBS, UOB and DBS.

Tomorrow is the last day to buy the stock to be entitled 5 cents dividends. It goes XD on Monday. I will pick up more if it falls further tomorrow.

Slow and steady now

Bloodbath. That would how many would describe the market. Few would expect the market to drop so quickly in a span of 2 weeks. Well, it is happening now. STI has breached the 2746 level and at a new low since Nov 2006.

For investors still holding on to cash, do not give the market a miss entirely. There are excellent blue chips out there at attractive valuations and dividend yields.

Invest in different market low points if you are not sure where the bottom is. Do not be afraid to sit on paper losses.

For me, I bought DBS @ $18.44 yesterday for its dividends. Though I am aware it will drop more than $0.20 after XD, I still couldn’t resist the lure of its dividend yield! True enough, it went to as low as $17.90 today.

The consolation is that I have locked in $200 dividends for Sept. Though it is too late to have regrets!

I have already contra my SPC for another modest $150 or so gain.

If the market dips even more tomorrow, I will pick up more blue chips and wait for a technical rebound. If not, I will also be happy to keep it for dividends and long term capital appreciation.

SGX and Capitaland will be on my radar tomorrow.

Foreigners: Boon or bane?

“I feel foreign in my own country.”

This sentence has been lamented by many Singaporeans recently. If you were to look at coffeeshop helpers, waitresses, students, teachers, bus drivers, sports athletes and neighbours around you, foreigners are everywhere.

Schooling pupils are feeling the heat of academic pressures from more competent foreign students.

University students often have to settle for 2nd class results as Asian scholars from China, Vietnam, India bagged all the As.

A friend who is working as a cook complained about low pay and long hours as his Malaysian colleagues work harder and longer hours for even lower pay. Employers prefer to employ them as they do not have to go for reservist as well!

A drive along Geylang showed that many steamboat shops have sprouted recently, majority being owned by China nationals.

Even Malaysian bus drivers from SBS face increasing competition from China bus drivers brought over to mitigate the shortage of bus drivers in Singapore.

I went to Ang Mo Kio S11 for dinner and I saw pretty China babes selling beer. It did occur to us (I was with friends) to buy beer and chat up with them, though we didn’t!

I have many new neighbours and colleagues from China as well. Many eventually gave up their China citizenship and become Singaporeans.

A friend from the education sector also confirmed that PRC teachers are employed from Primary school to university levels to teach Chinese. I believe this is true also, considering the small number of Singaporeans competent enough to teach Chinese when majority cannot even string a Chinese sentence properly without the aid of English.

So does this mean we should hate them?

I do understand the frustration of many Singaporeans who view foreigners, particularly PRCs in negative light because of their intrusion to our space, culture, jobs and perhaps even families. Many speak in their dialects in public areas in which though sounds familiar but even more irritating.

If you feel that way, I guess you are not alone.

However, from an investment perspective, the influx of migrants into Singapore is necessary for local businesses to increase revenue.
For instance, the Straits Times claims that it has been able to retain daily readership of 1.3m, comparable 10 years ago. Well, the percentage of readership has dropped at least by 30%, if they had indicated that our population was 3m in 1998, compared to 4m today.

I believe foreigners helped to sustain their readership numbers, together with their advertising revenue and share prices.

Our telcos also benefited from foreigners’ dollars. Starhub cable TV is likely to attract most PRCs, Hongkongers and Malaysians to subscribe to its service.

Pre paid cards, will go well with foreign students, maids and contract workers.

Overseas calls revenue has increased tremendously over the years for the same reasons.

Singpost has also benefited from the increased population. More mail volume has been generated from businesses to consumers over the years due to our trend of increasing foreigners’ population.

The rental market for property has been buoyant due to foreign students and workers too. This translates to better returns in the property counters for the past few years.

The list can go on, but really, a higher population should translate to higher revenue to businesses.

Take note that inflation will have to go up too. Should our “China-Singaporean” athletes win a gold medal in table-tennis tomorrow, they will have one million dollars to spend. All things remaining equal, it will create more demand for fewer goods, thus fuelling inflation here. If they decide to send their money back, selling Sing dollars for RMB, it will theoretically hasten depreciation of Sing dollars, again fuelling inflation of imported goods. The effects will of course be negligible, but if we are talking about all the foreigners in Singapore doing the same thing, I cannot say for sure if the effects will not considerable.

No, I am not against foreigners or anything. I know I don't sound convincing, but I am speaking from a neutral stand on foreigners. Honestly, the financial gains they bring to our personal investments are immeasurable. Since nothing can be done no matter how much we dislike them, might as well enjoy the financial returns they provide us?

I do hope they spend more here, buy more stocks here and improve our economy and pockets.

It does not make financial sense to be jealous that they can be one of us without going through NS or reservist; neither will it do any good to ostracize them as many are really capable.

I rather find it more worthwhile to face them, learn from them and if possible, make money from them! Hence, do look out for businesses that will be benefiting from these migrants!

More trading

I contra off my capitaland @ 4.95 and SPH @ 4.06 for a total modest gain of $190 yesterday. My gain from DBS (contra) was $190 earlier this month. It can get a tad addictive to glue my eyes on the computer screen while working. However, it does add just a bit of excitement in my working life!

Today I bought 2 lots of SPC @ $5.42 mainly for trading purposes. Again, if it falls badly tomorrow, I will not be cutting loss and will keep it till the next dividend payout.

SPC share price has been plunging due to crude oil prices. It doesn’t really make sense as it does not profit from high oil prices either. It is likely the fall in crude oil signals falling demand for oil refinery products as well.

In any case, the US markets and crude oil prices will dictate my realise gains or unrealised paper losses. I do suspect that many traders were shorting SPC shares today. Hence, there is a slight chance of a small rebound tomorrow where I can exit for a modest gain.

Readers are reminded that my trading will be limited to $9k-$12k contract value, as it has never been my intention to substitute trading for income investing. The stocks I shortlist for trading will also be blue chips, for liquidity and dividend reasons.

Singpost went XD today. I have secured $625 dividend payout receivable on 29th August.

Exit Interview Questions

Today I read with interest the kind of questions managers should ask their staff during their exit interviews (in Straits Times, Recruit).

Below are my frank answers:

1) What did you enjoy most about working here?

Ans: Not my colleagues, not my stakeholders, not my bosses. The only thing I enjoy is my often interrupted leave. It made me realised that a bad day at home is always better than the best day at work.

2) What did you enjoy least?

Ans: Working with kaisu, kiasi and cannot make it bosses. They are there to make sure they do not get fired and will go to great extend to cover their ass. I can only feel stupid working with such people. In fact, I have scolded a few superiors when they repeatedly cannot see my point and keep forcing me to do stupid silly work!

3) What comments or suggestions can you make to help our organisation grow stronger and more successful in the future?

Ans: Stop asking the majority of the staff to work on silly nitty gritty administrative work. We studied till postgraduate levels (90% of staff) not to be asked to do some silly work. Let us do our core work we had specialised in.

4) Do you feel we dealt with complaints and problems on the job in a timely and effective way? How could we have done better?

Ans: You have dealt with complains in the most patronising way. Your one and only strategy is to increase our pay and bonuses. You could have done it better by not doing anything at all. You only make things worse.

5) Did you have a clear picture of your specific career possibilities within our organization?

Ans: Yes. But I do not want to see myself become another Mr. Kiasi boss and force my colleagues to quit.

6) What one thing would have possibly made you re-think your decision to leave?

Ans: I have to start from scratch earning $2500 monthly after a career change. If I had stayed on to this job, I can comfortably retire upon reaching 50 (seeing most of my colleagues doing so, some even younger!). If I were to change my current job, I may regret and never retire!

It was then I realized that my current job is really unsuitable for me. In fact, I have been sharing with my close colleagues my intention to resign from my industry altogether. I would have resigned if not due to contactual obligations. Honestly, $2000 a month is more than enough to sustain my current lifestyle. Why do I have to slog so hard and live like a dog everyday? Sometimes work can be so stressful that I have insomnia at night. I come back home so drained that I cannot even summon strength to literally put food into my mouth. Many of my colleagues complained of the insomnia problems, sleeping only 2 hours daily. Some turn up for work with no sleep at all! Others end up spending large amount of money on sleep specialists, TCM (myself included) and other forms of treatments.

Is this the norm for Singaporeans? My teachers and parents told me then to study hard now, “suffer now than later in life”. Apparently they equate less education qualifications to more suffering. What kind of inverse relationship is that?!!

Or is there statistics to show that higher educated people are happier people?

Yet the happiest moments in my life was when I was in Secondary school, playing arcade and basketball, with only 50 cents for a can of Coke.

I shall look forward to tha day I have my freedom.

Random stocks at 52 weeks low

I am quite surprise to see some stocks trading at their 52 weeks low as at Friday’s closing price. I have used Share Junction to list down some stocks that are at their 52 weeks low (closing price). It is non exhaustive and may be inaccurate.

Allgreen: $0.895

Capitaland: $4.86

C&G Ind: $0.165

Starhub: $2.65

Pac Andes: $0.42

China Fish: $1.25 (also at all time low)

Cosco: $2.44

HK Land: US$3.76

Hongguo: $0.33

Kim Eng: $1.35

UOI: $3.39

Yangzijiang: $0.665 (also at all time low)

Almost 90% of SGX stocks are trading near their 52 weeks low.

Possibly a good signal to buy?

My response to Musicwhiz’s comments

I would like to thank Musicwhiz for his encouraging and honest comments left on my blog. In fact, I am happy that another local financial guru has noticed my blog. Thanks MW!

Below was his comment:

Hi there, just came across your blog which was linked through Nuffnang. Thanks for visiting mine recently and also adding a link to mine.

.

After reading some of your posts on portfolio buy/sell decisions, I still can't really get a handle on your investment philosophy. Are you a trader (speculator) or an investor? It would seem on one hand that you are going for regular income to act as passive income to work towards financial freedom (S$1K a month) but at the same time, also doing trading and contra (very risky) in the current bear market. Perhaps you can enlighten on your approach?

.

I also noted that you mentioned that volatile stocks are risky. Volatility to me assists one in getting a better margin of safety once you assess the underlying business, and thus should be exploited.

.

It's good that you start investing while young (with a very large war chest of S$300K!) and that you have time to learn from mistakes; but I personally feel it would be good to have a sound framework for buy/sell decisions moving into the future, otherwise it may be difficult to make consistent profits from the market.

.

Regards,

Musicwhiz

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P.S. - Also wondering if you could express your returns (nett all gains/losses) as a % of your total portfolio ? That would be more indicative instead of mentioning $-amount gains. Thanks!

MW, I understand your confusion on my investment approach. I seem to be a hybrid of trader and long term investor! Allow me to clarify my approach towards the market these days.

At current market, volatility reigns and fundamentals are thrown out of the window, almost entirely. My current take on the market is that there is still room for stocks to fall further. I feel that the downward trend is likely to last till at least 2H of 2009.

In the meantime, it does not make sense for me to keep my money in 0.5% deposit accounts. I rather sit on paper losses and earn 6% P.A on dividend stocks than keeping them in banks and wait for market to bottom out. I will not be able to catch the bottom anyway!

If you have seen my earlier portfolio summaries, you would have noticed that earning $1000 recurring income per month from a fully invested amount of $300,000 is actually quite easy. I would just need to earn 4% P.A to achieve that. I have about 50 lots of SPH and Singpost (coincidentally), which at a yield of 6% would earn slightly above that targeted amount after adjusting for paper losses.

In fact, it is also my ultimate wish to apply pure passivity into my portfolio of stocks so I can concentrate on other simple pleasures in life.

I do admit that the current bear market packaged with huge dips and rises have made me more inclined to trade the market for quick gains.

In the midst of all gloom and doom, while it might not be the best time to cherry pick, I do see quite a lot of trading opportunities around.

Example: Starhub reported a good set of results for 1Q. However, towards its XD period (for 1Q), it dipped from nearly $3 to $2.85, in which I picked up 35 lots and sold off after XD, netting $1575 dividends and $1100 capital gains. Had I held it till today, I would probably be missing out a lot of other trading opportunities. It doesn’t help as Starhub last traded at $2.65.

This is the same case of DBS and HL Finance. Earlier I contra off SPH (6 lots) when market went up sharply and bought back (5 lots) when market came down (within 2 days), also to participate in trading opportunities.

I will also sell off Capitaland tomorrow when market recovers (temporarily) if possible.

The current market in the short term does not reward long term investors in the short run. I am capitalizing on it.

The strategy I have adopted is simple: Buy blue chips on sharp dips and sell within a few days for a quick profit, while waiting for the next lower entry price of the stock. At the same time, I have a core portfolio likely to generate $1000 monthly through dividends.

Hence, I allocate about $50k to trade the market. Of course, it is a small amount and I understand very well that I might get “stuck” if I read the market wrongly. However, the stocks I am trading are all blue chips and have a consistent dividend payout history. In the event that my purchase fails, I will either average down my cost or hold them purely for dividends.

For trading purposes, I am looking at banking stocks (dividend yield of 4%), property stocks (2-3% dividend yield) and oil and gas related businesses (above 4% yields).

In either scenario, my portfolio will still yield $1000 on average monthly, providing my targeted regular income.

I agree that one should have a sound framework and philosophy when it comes to stocks investment. However, my philosophy (farmer and his assets theory) I have come out with serves merely as a guide. As long as my main objective ($1000 monthly income) is achieved, I allow myself to deviate within reasonable boundaries to realize higher profits. Definitely my investment plan is not perfect and even not sound to many, but I believe it is the most comfortable one for me. Do stay with me and see how I succeed or fail!!

With regards of providing nett gains in percentage terms, I will probably come up with a summary on end Dec 08 on the annualized returns of my portfolio. I guess it is my personal preference to update in absolute dollars and cents!

Thanks again to MW for providing comments that set me to ink out my thinking!

Quick updates

It was a disappointing day for stocks, as usual. I could only contra off my DBS @ $18.80 for a modest $190 gain after the announcement of 2H results. Today Capitaland took a severe beating and went down 4.7% to $4.86. I am sure it is due to massive redemptions by local and overseas fund managers. Hence, I queued 2 lots at $4.85 and got it. It is their 52 week low. As I am bearish on the property market, I only intend to trade it for modest gains on Monday. Hopefully there is a post National Day rally! If not, I will just keep it and wait out for a better selling opportunity.

For my core portfolio, I have added 5 lots of SPH bought @ $4.02 today as well.

Corporate: Starhub

Excerpts from OCBC research

StarHub Ltd posted a disappointing set of 2Q08 results. Although revenue rose 8.6% YoY to S$531.4m, it was down 0.7% QoQ. Meanwhile, net profit tumbled 20.5% YoY and 19.9% QoQ to
S$64.2m, way shy of our S$76.2m estimate and the street’s S$83.6m number. Management attributed the sharp earnings decline to three reasons

1) a 4% fall in mobile pre-paid revenue;
2) increased acquisition & retention costs; and
3) higher Pay TV content costs. Together, these resulted in a
compression of EBITDA margin from 33.5% in 2Q07 (31.4% in 1Q08) to 27.6% in 2Q08. On an interim basis, revenue rose 10.9% to S$1066.3m, meeting 48.2% of our FY08 estimate, while net profit fell 4.3% to S$144.3m, or 43.1% of our FY figure.

Intense competition in mobile segment: Mobile business sales rose 6.5% YoY (down 1.4% QoQ) to S$269.3m, or about 50.7% of total revenue.

Although StarHub recorded its highest quarter net adds (36k) for its postpaid segment in over five years, its pre-paid segment saw a 40k net drop after it failed to respond promptly to a competitor’s aggressive strategy.

And as expected, average acquisition cost jumped by another 19.4% QoQ (+27.8% QoQ in 1Q08) ahead of the implementation of true mobile number portability (MNP) in June 2008. But on the flip side, StarHub has managed to reduce its churn rate to 0.9%, the lowest level since 4Q05.

Slower growth and lower margin expected. Going forward, management has moved to slash its revenue guidance from 10% previously to 7%, citing flat pre-paid revenue growth projection. In addition, StarHub has cut its EBITDA margin guidance from 33% previously to 31%, even though it expects the aggressive handset subsidies to ease towards the end of the year. However, it kept the total dividend payout of S$0.18/share for the year; it has also made S$0.045/share for 2Q08. In light of the latest developments, we have cut our FY08 forecast for sales by 3.3% and earnings by 9.9%.

Sgbluechip says: There is a drop in free cash flow from 303m (1H 07) to 170m (1H 08). EPS is only 3.76 cents and they are paying out 4.5 cents dividends. I am not sure if they can sustain the dividend payout. The share price will continue to face selling pressure to perhaps $2.50. If you have read my rationale for taking profits on Starhub here, you will know that my worries on the increased competition has been realised. In my opinion, Starhub will be unable to keep up with a yearly dividend of 18 cents. This is due to the entry of broadband market by M1, Singtel aggressive promotion of Mio TV and recent additions of the US channels. Also, Singtel has the telecast rights of Champions league which will again prompt some cable TV subscribers to switch to Mio TV. The increase in SPH advertisement costs in Septemeber will also challenge Starhub’s profit margins in the mid term. I will revisit Starhub shares towards it’s dividend payout date for trading purposes.

Stretch your dollars series: The case of buying a washing machine

My washing machine broke down on Sunday and I was in a frantic search to buy one as I did not want my mother to use her bare hands to wash all our clothes. Immediately, I took out Saturday’s papers and scanned through for promotions.

COURTS advertisement caught my attention. A LG front loading washing machine cost only $450 and they are also giving out $50 GIANT and $50 COURTS vouchers. Together, the washing machine on offer seems a steal. However, when I went over to enquire, the staff told me the promotion was only 1 day and there is only $50 vouchers given by the brand distributor.

I felt rather cheated on a Sunday morning.

I decided to look for another brand and saw a Samsung washing machine. It is sleek looking with digital thermostat functions. It cost $550 together with a $50 GIANT voucher. However, if I were to purchase the 5 years extended warranty, it will cost an additional $150. Together with a delivery charge of $20 (for members), it will cost me $720 for a China made, Korean brand washing machine. The sales staff was also quite impatient to close the deal which actually let me rethink the “offer”.

I decided to walk over to NTUC at Ang Mo Kia HUB to search for bargains.

The exact modal was selling for $470 at NTUC (vouchers included)! However, there wasn’t anybody there to help me. No sales staff to enquire about the functions, warranty and delivery dates.

I was not impressed by their sloppy service and thus drove to Katong Mall. Over there, the same machine was selling for $600. Initially, I regretted that I did not purchase the item at NTUC.

Then, I walked over to parkway Harvey Norman. It was the smartest choice. The same modal cost only $460 (after a $100 rebate) together with the $50 shopping vouchers. The sales agent explained to me patiently the differences between front and top loading washing machines and operations of the machine. In the end, I purchased it and added a 5 year warranty, costing me $85.

Including a $30 delivery charge, I paid merely $575 for a brand new washing machine with 5 years warranty. It was delivered on Monday afternoon.

Kudos Harvey Norman! Excellent service!

On hindsight, I actually had the impulse to buy the machine when I was in COURTS. However, I feel rather silly to pay almost 30% warranty premium. I do find it rather “aunty” to do such nitty gritty comparisons, but it really pays to source for the cheapest deal around. Not only did I manage to save $145 this time round, my future purchases will revolve around “comparing comparables” before I buy bigger ticket items. I think it is a good practice to know how much others are selling.

We notice that all businesses have different pricing strategies, profits margins, cost pressures, warehouse sizes and also sales quotas from manufacturer. This will ultimately translate to different pricings on all items. Sometimes the difference can be quite big. Also, I always try t buy items I need that are on sale. Again, this is applicable to the stock market. We definitely need to invest but we will only buy businesses when they are on sale.

Borrow from standard chartered?

Just received a call from standard chartered to take up a 25k loan @ 3.49% interest per year, repayable via installments for 2 years. This sounds like a great deal, considering buying high yield stocks will definitely allow one to earn at least 6% per annum.

As I enquired more, the telesales operator told me that there is a 1.8% insurance charge, which is compulsory. Meaning I will only get $9820 for a $10,000 loan. Together with the 3.49% interest, I will need to pay almost 6% annualized interest.

I felt cheated by the call. Wasted a good 10 minutes listening to the sales talk.

I wanted to make a counter offer. Why not I lend you 10,000 for 2 years and you pay me 5.5% interest in monthly installments?

Standard chartered needs to try harder to make me take loans from them. It is an irony that they only want to lend money to people who do not need it.

Banks

The price movements of Singapore banks are quite peculiar these few days. Take UOB for example, it has risen up to $20.14 today just because it has posted a 2% increase in profits. OCBC went up rather strongly yesterday and was undeterred by the poor results posted by Great Eastern, where it had an 80% stake. It went up to $8.55 today.

DBS however was “punished” for being late in dishing out its 2Q report. The behaviour of its stock price was very volatile, suggesting speculative activity towards its reporting day.

By right, when UOB have a good set of results, the prices of the other 2 banks will rally together. In fact, for the past 2 years before the eruption of sub prime crisis, the price range between UOB and DBS is $1 and usually DBS command the higher price due to its higher profits, NAV and dividend policy.

Of course, the exposure to CDOs reversed the trend and UOB share price begun to command a higher premium to DBS till today.

I am still quite puzzled on the rally of UOB share price. First, there was a cut in dividend payout. Last year, the interim dividend payout was 35 cents per share, versus 20 cents per share this year. Is there any reason to push its share price beyond the $20 mark, leaving DBS struggling behind at $18.50?

The thrilling PE ratio of UOB is about 14.5, compared to DBS 12.5. Again, I see DBS is trading at an attractive price relative to its peers.

Are there any surprises or skeletons in the closet waiting to hunt investors? I hope not! I believe DBS will come out with a decent set of results tomorrow.

In any case, I bought 1 lot of DBS @ $18.48 yesterday. I do hope to get a decent contra gain tomorrow or Friday! If not, it will become another dividend yielding stock in my portfolio.

Wish me luck!

Stock transactions and portfolio summary July 08

BUY (CASH)

Singpost: 10,000 shares @ $1.02

SPH: 6000 shares @ $4.18

SPH: 6000 shares @ $4.005

SELL (CASH)

SPH: Contra 6000 shares @ $4.08

Realised trading gains of $280

BUY (CPF)

None

SELL (CPF)

HL Finance: 3000 shares @ $3.48

Realised gains of $138

Dividends

Singpost: $500 (FY 07 final dividend of 2.5 cents/share)

Summary

In July 08, I received $500 dividends from Singpost and made $280 trading SPH when market went up 3% the following day. Together, I have a net cashflow of $780 in July 08.

I sold (contra) SPH for short term gains because SPH rebounded very sharply together with the broader market which in my opinion was unsustainable. I was actually correct as SPH went down to $3.96 the following day. I stayed by the sidelines and was hoping to pick up more when it falls to $3.90.

HL finance is due to report its 2H report in August. I believe it will come out with a decent set of results. This counter has a low trading volume and is quite a safe counter to hold. It currently trades narrowly between $3.41-$3.58. I will pick up more using cash or CPF to earn some extra bucks.