Friday, January 9, 2009

DBS Rights decision

I have sold 500 DBS rights for a good price of $3.92. It has reduced my average price of DBS to $17.47. My next entry price to purchase DBS is around $7. It is acknowledged by many that the market will go down lower till the first half results are out. In my opinion, market may only bottom towards the beginning of 2010. So I see more benefits in being patient, since I already have a good stream of dividend income and will be accumulating more cash to pick up future bargains.

Major economies are heading towards recession and Singapore will only recover when the rest of the world recovers FIRST. Hence, although I run the risk of missing the market bottom, I would prefer to invest when I believe the markets have truly bottomed. Then, I will be more inclined to buy and hold instead of selling away my newly bought stocks to earn a few percent.


Yoong Lok said...

Good move

Everlearning said...

Hi Sgbc,
When rights are given to shareholders, will there be some who would not take up such offers?

I have received such rights from Popular, is it all right to ignore such offers?

Thanks in advance for your comment.

Sgbluechip said...

Hi EL, it is ok to ignore the rights. But you can sell it in the open market to earn some money. You can trade it under Popular R. If the amount is less than $20 (min brokerage) then it is not worth the effort.

Your holdings will be diluted if you do not subscribe to it.

ghchua said...

Hi Sgbluechip,

Since one of your investment strategy is to invest for dividend income, I am surprised that you have sold off your 500 DBS rights.

Although you have managed to reduce your average cost price of DBS shares by selling its rights, you have in fact diluted your stake in DBS. Which means, if DBS pays out the same absolute amount of dividend, you will get less dividend, since you hold a smaller stake in the company due to the rights shares dilution.

Instead of aiming to purchase DBS shares at $7, you could hold onto your 500 DBS rights and apply for another 500 excess rights shares (i.e. more shares on top of your rights entitlements) at $5.42.

If you are lucky, you might get another 500 DBS shares at $5.42 while applying for your 500 rights shares at $5.42 as well.

Sgbluechip said...

Hi ghchua, you have raised a valid point on subscribing to the rights issue.

The basis of my decision came from my perspective of the market.

In my opinion, market should still have some way to fall from now till 3Q 09. Hence, purchasing rights now might not be a prudent investment strategy.

Looking at the rights issued by some large companies recently, share prices have came down even lower than the discounted rights price.

Although I do not forsee DBS to fall below $5.50, I am incline to believe that DBS might be trading below $8 or $7, given the nature of events that will be unfolding.

Subscribing to the rights would mean that I am purchasing DBS @ about $9, which is still expensive in current market. (I sold the rights @ 3.92)

I would be better off to even purchase DBS now at last close of $8.42.

At current market, I would view DBS attractive if it falls to around $7 or STI trades at a 1300 level.

Kay said...

I think you have secured a great price for the sale of the rights. I am still rather surprised that the they are trading at such a high price.

ghchua said...

Hi Sgbluechip,

Yes. Subscribing for your 500 DBS rights will mean paying around $9. But you can apply for excess DBS rights shares(i.e. another 500 DBS shares) at $5.42 to round up to the nearest 1000 shares.

Granted, excess rights shares might not be allocated but since priority will be given in rounding up to the nearest lot, your chance of getting another 500 DBS shares at $5.42 is very high.

That is better than purchasing DBS at the last close price of $8.42 right?

Sgbluechip said...

Hi ghchua, you got a point there as well. Well, I am not 100% sure that I have made the best decision. Just that I have weighted my options and sold the rights, based on my outlook of the market.

The additional cash from the rights is also quite timely as I am hoarding cash to pay for my impending studies and possibly new market/property opportunities. Hence between keeping $2,000 and paying an additional $2,000, I chose the former.

Although the dilution will mean lower dividends, the $2,000 will be more than enough to cover the diluted dividends for the next 10 quarters.

I have a colleague who holds your view and will be subscribing to the excess rights as well.

It will be interesting to see what her outcome is eventually.

Marvin said...

I would have taken up the excess rights issue and sell off your SPH holdings to fund the purchase of DBS shares.

While other STI component stocks have risen 30-40% from their October low, SPH continues to set new lows.

ghchua said...

Hi Sgbluechip,

If you hold the view that DBS might not fall so much after the rights issue, you can always sell your excess rights shares after the rights issue is over. You can then generate some cash from the DBS excesss rights shares for your other opportunities.

Remember that you are applying for the excess rights shares at $5.42. I don't see DBS dropping below $5.42 in the short term at least.

Sgbluechip said...

Hi Marvin, fundamentally there is nothing wrong with SPH biz except that advertisement rates have gone down. I do not forsee sky@eleven as a time bomb to SPH profits, explained in my earlier posts.

It is true that stocks have rebounded back, however they are still more than 50% lower from last year's high.

That said, perhaps selling SPH and buying other high returns blue chips may be another way to ride the bear market.

I am open to that as well. Though it is really painful to cut loss for the potentially bigger gain.

My loss on SPH is about 33%, excluding dividends, still decent in current bear market. Though I am bracing myself for higher loss.

Marvin said...

Hi sgbc,

I would say that there is nothing fundamentally wrong with either DBS or SPH. SPH the bad news doesn't seem to have been priced in as analysts have been viewing SPH through rose-colour glasses and giving $4+ pice forecasts (that is, until today/yesterday when they downgraded SPH).

JW said...

I'm also unsure about SPH. I have 6 lots at 3.65... Had the dividends of 0.19 per share for 4 lots...

But I guess I could treat it as a long term fixed D?

Sgbluechip said...

As long as I do not need the money, I probably will not sell SPH unless there is a fundamental shift in its underlying business.

Although it has lower net profits, its recurring profits is still up. It will not reduce its dividend payout because of investment losses as it is MTM.

For instance, my cashflow per month is $4000. After accounting for MTM losses in my investment portfolio, I am losing $8000 per month.

However, I still have $4000 to pay myself, parents, bills and other expenses. I do not need to fork out $4000 to pay my investment loss.

SPH is facing something similar.