Hyflux Preference Shares

This post is slightly overdue as interested parties would most likely subscribed to it. Currently I see a lot of interest in it with books closed for subscription closed that very morning when it was launched in my workplace.

In fact I did carry around the Hyflux advertisements and ask some of my aunties in my office to subscribe to it. The 6% cummulative dividends and 8% step up (2018 if not recalled) is a compelling reason to subscribe.

However, do take note that the preference shares are not rated and most probably only Singaporeans are familiar with Hyflux. It is unlikely to have fund houses buying large quantities as it has no credit rating and fund managers cannot overide the mandate of having non investment grade preference shares/bonds in their portfolios.

This may result in poor liquidity.

It is extremely rare for non financial companies to issue preference shares as it is a tool used mainly by banks to shore up their capital adequacy ratios. The other non bank that issued preference shares I know of is Cheung Kong Holdings.

If the size is increased to $400M, Hyflux will have an additional war chest of $400M, a hefty sum relative to its $1.8B market cap.

Wait, why does Hyflx need so much money suddenly? Not considering Hyflux would have to repay $24M (6% of $400M) every year to preference shareholders which is more than 30% of its 2009 net profit ($75M).

Are there any dividends left for ordinary shareholders?

With interest rates being all time low, is there a reason why Hyflux has to resort to expensive financing?

Is there a problem with Middle East Investments? Middle East contributed the bulk of revenue in recent years, over taking China as it largest revenue contribution region in 2009.

According to SGX announcement in April 15th 2011, one of the directors sold all his stake in Hyflux.

Have you applied for it?

Patriotic to own a Beemer

One of my classmates bought a BMW recently. I know she earns about $10,000 a month and technically speaking, she is buying a car that cost roughly twice her annual salary. There is nothing wrong to enjoy the finer things in life though it means she is also patriotic as well.

Why patriotic?

In Singapore to own a car, you will be paying a huge load of tax to the government. Take my classmate’s BMW, she has paid the following to the government:

Open Market Value (OMV)= $58,000

Thus Additional Registration Fee (ARF) will cost 100% of OMV =$ 58,000

Excise Duty: 20% OMV= $11,600

Registration Fee: $140

Certificate of Entitlement= $45,000 (few months ago)

GST: OMV x 7% (approximate) = $ 4,000

Total tax payable to government coffers: $118,740

The total cost of her car was about $210,000 then, which means the gross profit margin for the car dealer was 43.4%.

In order to own her dream car, she has to contribute in excess of $100,000 to nation building, I have respect for that.

Good thing is that she only took a 1 year loan and has only a couple of months to fully pay up her car. As for me, it will be unlikely that I will ever own a BMW, probably the furthest I would go is a Toyota Camry.

My rationale is simple. Consider a $200,000 lump sum investment to grow on a compounded basis of 10% (1.1^10), this initial sum would grow to $518k after 10 years. The opportunity cost of $318k means that she might have to work another additional 3 years to fund her retirement. Coupled with her 2 years salary to purchase the car at the onset, she potentially could have retired 5 years earlier.

Yup, 10 % PA might not seem realistic. But if one has the investment horizon and purchase some China Equity fund, we should be looking around this level of returns. China will be overtaking America as largest economy in my lifetime, according to most analysts.

Well, to each his/her own. I prefer to retire earlier and spend my days reading, writing and travelling when I am still able. As for owning a nice car, I think I will hitch a ride when I meet up with her in school instead.

Life is tough, retire early. That’s for me.

What is the stock market to you?

My colleague thinks it is just an electronic platform to buy and sell shares.

Some believe it is a gambling table. Perhaps that’s why Genting is often the most traded stocks.

Another might think it is a place to park retirement funds in blue chips for steady return.

Yet another might think it is a place where the big crocodiles eat up the small fishes and avoid it at all costs.

I believe it is the best place to generate excess return amongst all asset classes.

My grandmother doesn’t know the existence of it.

It is subjective to define what a stock market is because different people have different experience and thus perceive it differently. Just like how the blind men describe an elephant:

The First approached the Elephant,

And happening to fall

Against his broad and sturdy side,

At once began to bawl:

“God bless me! but the Elephant

Is very like a wall!”

The Second, feeling of the tusk,

Cried, “Ho! what have we here

So very round and smooth and sharp?

To me ’tis mighty clear

This wonder of an Elephant

Is very like a spear!”

The Third approached the animal,

And happening to take

The squirming trunk within his hands,

Thus boldly up and spake:

“I see,” quoth he, “the Elephant

Is very like a snake!”

The Fourth reached out an eager hand,

And felt about the knee.

“What most this wondrous beast is like

Is mighty plain,” quoth he;

“ ‘Tis clear enough the Elephant

Is very like a tree!”

The Fifth, who chanced to touch the ear,

Said: “E’en the blindest man

Can tell what this resembles most;

Deny the fact who can

This marvel of an Elephant

Is very like a fan!”

The Sixth no sooner had begun

About the beast to grope,

Than, seizing on the swinging tail

That fell within his scope,

“I see,” quoth he, “the Elephant

Is very like a rope!”

And so these men of Indostan

Disputed loud and long,

Each in his own opinion

Exceeding stiff and strong,

Though each was partly in the right,

And all were in the wrong!

Poem by John Godfrey Saxe (1816-1887) based on Jainism and Buddhism. Udana 68-69: Parable of the Blind Men and the Elephant

We are still quite blind to the concept of stock market isn't it?

BUY CALL FROM SBC

Be greedy when others are fearful, be fearful when others are greedy. I sense fear now. What are you waiting for?

Honestly, the last time I see such a scenario was during the Lehman Crisis in 2008. The selldown back then was even more earth shattering than this.

The last time STI went below 3000 points was roughly in August last year. This means that for STI has given up its 8 months gains due to the earthquake.

That said, 2800 points seems to be a safer entry point for long term investors. At that level, most banking stocks are giving at least 4% dividend yield on your investment.

Honestly, I have not much luck timing market cycles. Hence I try to always buy and rarely sell to build up my passive portfolio income.

If you are reading my blog and not invested, congrats. Buy now and hold as long as you can. Please buy me coffee when you have made money, on my right panel, thanks!

Investing in Singapore listed ETFs

ETFs is the acronym for exchange traded funds, which are basket of stocks traded over the exchange. Having invested nearly 0.5M in stocks I must agree that ETFs are not exciting products for people looking at supernormal returns. However, holding ETFs means sleeping better at night since I will probably not be losing my entire capital even during market crash.

Take the STI ETF for example. If I lose my entire capital invested, this would literally translate to DBS, UOB, OCBC, SIA, Singtel trading at zero dollars. For that to happen, I think putting money anywhere will mean total loss anyway.

Besides, STI ETF pays regular dividends as well. Historically, the dividends are about 4-6 cents per unit, which translates to miserable yield of 2%. Well, don’t expect Singpost or SPH dividends payout if you are buying STI ETFs. People mainly buy it for capital appreciation.

The sales charge is equal to brokerage charges (0.2%), management fee of about 1% and that’s it. No need to rebalance portfolio as fund manager does that for you, daily.

I have been through the Lehman crisis and it’s terrible to see my stock holdings bleed day after day. Fortunately, I was holding on to pure blue chips and that gave me conviction to hold. Dividends came in timely as I repurchase other even badly battered mid cap stocks that gave me more than 100% returns on hindsight.

Today as I looked back, I might not have fare much better if I invested in STI ETF. However, I definitely would have slept better during the crash in 2008. This is what portfolio theory explains: Invest according to risk tolerance and you will get an optimal portfolio that gives you the highest return based on your risk profile.

I want to blog more about ETFs as this is the next direction I am getting into. No more single large stock purchase, mainly diversified portfolio in different regions.

In Singapore, we can access to the worlds markets just by buying ETFs and paying the minimum brokerage of 0.2%. However for a start, I would like to constrain myself to buy plain vanilla ETFs instead of exotic new generation ETFs.

From SGX website:

Plain vanilla ETFs (as I termed it) are cash based ETFs that adopt either full replication methodology or representing sampling methodology

Full replication methodology
The ETF holds the same stocks in the same proportion as the weights of the constituent stocks in the benchmark index.

Representative sample methodology
The ETF holds a selected number of constituents stocks of the underlying index according to their degree of historical correlation with such index. In other words, the ETF holds a sample of constituent securities that statistically represents the index.

In other words, my invested captial is backed by shares of companies as underlying assets.

List of cash based ETFs

Cash-based ETFs
	SGX Stock Code
ABF Singapore Bond Index ETF	A35
CIMB FTSE ASEAN40 ETF	M62
Daiwa FTSE Shariah Japan 100 ETF	F1F
DBS Singapore STI ETF	G3B
iShares Dow Jones US Technology Sector Index ETF	I21
iShares MSCI Singapore Index ETF	I19
iShares S&P 500 Index ETF	I17
SPDR Dow Jones Industrial Average ETF	D07
SPDR® Gold Shares	O87
SPDRs® S&P 500® ETF	S27
streetTRACKS® Straits Times Index ETF	ES3

As I am only interested in investing in cash based ETFs, options to me are still quite limited. I have invested in STI ETF and will probably look into gold etf (O87, S27), American markets (I17, I21), ASEAN markets (M62).

Asean 40 ETFs invests mainly in Singapore stocks (40%) and the rest in Malaysia (31%), Indonesia (17%) and Thailand (11%). Quite an interesting combination.

As for exotic ETFs which I termed that myself because I don’t quite like the fact that I am not holding on to actual securities but rather options/notes of the underlying assets. If you want more info on this, check this link out: http://www.sgx.com/wps/portal/marketplace/mp-en/products/securities_products/etfs

Though counterparty risk may be low, but I still traditionally believe that investment should be simple and direct. I don’t mean to put new generation ETFs down, but it is just a personal preference to keep my investments simple. Even though that means I am losing out on buying Brazil, Russia, China index funds. Well, I may invest in an emerging market unit trust instead to ride the new commodities and BRIC wave.

Hong Kong Small Size Properties

I have always like Hong Kong and have stayed there several times during my course of work and leisure. I remembered staying in one of the islands know as Pak Lai Wan for a couple of weeks and I was extremely impressed by the smallish apartment.

The apartment featured here is about 750 sq ft and costs SGD$660k. It is extremely decent, with 2 bedrooms and a seaview of the QingMa bridge.

Cars are not allowed in the island and residents can either take a shutter bus or ferry to reach their homes. It is 20 minutes ferry ride to Central (10 mins interval on average) or 10 minutes shuttle service to and fro Tsuen Wan. This is really pollution free place!

I am really amazed by just how they can pack good quality furnishings into a compact apartment without you feeling suffocated. Full condo facilities and a heated pool. Perfect!

If you are staying at this kind of apartment anywhere in Singapore, it will definitely cost you at least 2x the quantum, not forgetting you will not get the views below...
Getting up early in the morning with such views, no matter how small your living space is, you feel that you are having the whole world! This is first hand experience, honest!

Conclusion: Singapore property is too expensive, even by HK standards!

MRT stations of the future

Currently properties with MRT stations command a high premium. With the upcoming Eastern, Bukit Timah, North Coast, Downtown lines, more and more houses will be near MRT. In fact, any house will be near MRT stations!
Link to map

Perhaps by then houses away from MRT stations will command a higher premium instead!