SPH is more than fixed deposit

Would you consider investing in a company that gives you the following?

Company's last closing share price - $4.48.

1. The company is earning 32cts per share for you.
2. It is paying out 26cts per share as dividend. This is equivalent to a gross yield of 5.8% per annum (against share price). Compare that with how much are you getting from your fixed deposit or saving accounts?
3. The company is in a business of selling necessities ie. information and entertainment distributed over various channels ie. newspapers, magazines, internet etc etc etc.
4. Generating positive cash flow of $40mio.
5. Topline grew by 13.6%.
6. Profit attributable to shareholders grew by 18.1% to $506mio.

P/S - I have some CPF monies in SPH trying to beat the current 2.5% interest rate for the ordinary account.

Merrill Lynch recommends SC Global

Yesterday Merrill Lynch initiated coverage of property firm SC Global Developments with a 'buy' rating and set a price target of $9.50. (closed at $6.45, up 45cts on Oct 4, 2007)

Merrill Lynch said the stock was undervalued and could appreciate further when SC Global launches two of its residential projects in the coming six months.

I am sorry I am unable to agree with that recommendation on the simple basis that I don't think Simon Cheong will sell himself short.

Back in June 2007, Wheelock Properties bought and Simon sold a 10% stake in SC Global Developments at @$6 for a total value of $112.1mio.

Check out my posting on that transaction.
http://investingwithedgar.blogspot.com/2007/06/young-simon-and-old-wheelock.html

It was only so recently that both buyer and seller (who are veterans in the property business) valued SC Global at $6 per share. I am sure Simon knows the value of its assets and would have present-valued certain percentage of future value.

Nothing much has changed since Jun 2007. I will be glad to lay my hand on the details of Merrill Lynch's recommendation. Please pass me a copy if you have it!!!

Till then, I am with Simon's valuation.

It doesn't pay to save

He also works in Shenton Way.

Huh? Well at least for next few years where we should be experiencing negative real interest rates.



What is negative REAL interest rate?
Real interest rate = Nominal rate less inflation rate


So a negative real interest rate is when the gross interest interest rates that you are getting from your Bank for your saving account and fixed deposit are generally lower than the inflation rate.



The inflation rate is expected to be 1% to 2%.



If you let your monies sits in your saving account, your monies would buy less less things as any interest earned is outstripped by climb in consumer prices.



For example, DBS Bank offers to pay 1.8% per annum for $50,000 - $99,999 24-month fixed deposit.



I am not discouraging the age old good habit of saving.



But I am highlighting the need for you to aggressively manage your monies ie. to seek out investment opportunities which could yield higher than inflation rate at a risk level acceptable to you.



Bottomline - It doesn't pay to save amid rising inflation, low bank rates. Ask your money to work harder.

CPF interest rate increase

Toward the beginning of the month, we were told that the first $60,000 in the various accounts will be given an additional 1%.


This is to help grow our retirement fund. I cheer to that.


A couple of weeks later, today, I heard it on radio that the inflation rate is now at 1-2% and it is expected to go up in the second half of the year.


From this piece of news, it dawned upon me the importance of the 1% increase in interest rate announced earlier.


Without this increase in CPF rate, our funds in the CPF Ordinary account would be accumulating at close to inflation rate. Bottomline - No real increase in purchasing power.


Bottomline - We need to ensure that our monies work even harder to ensure sufficient funds for retirement.

Mr Oei is selling down his Centillion shares

On Friday alone, it is estimated that he made $26mio from selling the 300,000,000 million shares that he has.

That effectively reduced his holdings from 26.47% to 19.72%...

HUH!!!! He still got 19.72%%%%%

40.6% was the highest level he held.

Mr Oei, I will pay good attention to your next purchase decision. Really hope to learn from you.

What is "share buyback"?

my sunday jog

Who is buying?

It is the public listed company buying back its own shares from the open market using company's fund. Shareholders' approval must be secured to use company's funds for this purpose.

Under the old rule, the shares would be cancelled. Current rule allows such shares to be placed in a Treasury Account ie. a holding account.

What are the possible reasons for such action?

• to enhance Return on Equity
• to tighten control over the company by the majority shareholders' using company's fund
• to discourage any takeover attempt by restricting supply of free floating shares
• to return excess capital back to shareholders
• to buyback and give the shares to employees as reward under its various incentive schemes
• to support the company's share price

When is it an appropriate time for the company to do it?

It is usually done during periods in which the respective company thinks its share price is undervalued.

It is reported in BT yesterday that the total value of share buybacks rose from $53.47mio in July to $174.6mio in Aug to date.

UOB Bank alone accounted for $143.32mio ie. an amazing 63% of total value of share buybacks over the these 2 months. Haw Par Corp, another company related to Wee family, bought back $40mio worth of shares.

So is the Wee family signalling to us to buy too???

Holding period for shares

I just been informed by Ms Teh Hooi Ling in her article in yesterday's BT that there is a formula used to measure average holding period.

What is the formula?

It is calculated based on the annualised value of stocks traded in a month divided by the entire market cap of the stock exchange and multiplied by 365 days.

Last month ie. July 2007, the number of days a stock is held by investors in Singapore last month hit 353 days. It is the second lowest level in the last 17 years since the dotcom bubble in June 1999.

For the record, it was 309 days in June 1999.

So is it good or bad to have "a low holding period"?

Back in 1994 and 2000, average holding periods during thes 2 years dropped to the lowest level during their respective peak of the stock market.

And two months back, holding periods for stocks in Asia was at its briefest, shorter than even in 1994 and 2000.

Thus on hindsight, the correction should have been seen to be coming.

Lesson learnt - Set up the formula in your Excel spreadsheet and monitor it for the next stock market crash!!!

360 day-year or 365 day-year - What is the big deal?

I have just been informed by my DBS Credit Card Statement that:-

"the basis of interest calculation will be revised FROM existing 360 day-year TO 365/366 day-year (in a leap year)"

I couldn't believe my eyes!!!!

That for once in my life, I am looking at an unilateral amendment to a service agreement that is in favour of customers.

So what is the big deal?

Allow me to illustrate with an example. Let us say I have a personal loan of $10,000 at 14% p.a. What is my interest expense for the month of August (a 31-day month) based on:-

a) 365 day-year and;

b) 360 day-year?

Answer

For a 365 day-year, my Aug's interest expense,

$10,000 x 14% x 31/365 = $118.90

For a 360 day-year, my Aug's interest expense,

$10,000 x 14% x 31/360 = $120.56

Based on DBS Bank's revision of its basis year, it has implicitly given me a discount of $1.65 per $10,000 loan per month (estimated).

If you multiply this by the billions of personal loans, credit card loans, car loans, property loans, travel loans, renovation loans etc etc etc, this would be (as I am not sure whether this is applicable to all DBS loans) a significant move by a leading bank in Singapore in the right direction ie. a fair deal to both the bank and its customers.

Cheers to DBS Bank!

P/S - Refer to http://anythingwithedgar.blogspot.com/2007/05/how-to-increase-your-companys.html for my earlier expression of displeasure.

Have you got a call from your broker?

It is definitely BAD news if I had received a MARGIN call from my broker in the last 2 weeks.

What is a margin call?

Situation arises when I have borrowed money from stockbroking firm to partially pay for my share purchases AND the share price of that counter fell significantly.

Example

I have purchased 100 lots (ie. 100,000 shares) of Company X at $1 per share. At 80% financing, I paid $20,000 from my own pocket and the remaining $80,000 borrowed from the firm.

When the share price dropped to 70 cents, the firm would recalculate the loan amount ie. 80% of 70 cents x 100,000 shares = $56,000.

The firm would call me to top up the difference of $24,000 (ie. $80,000 less $56,000)!

If I got the money, I would pay the $24,000.
If I got no money, I would be forced to sell my shares at a loss of $30,000!!!

Moral of the story - You must consider the downside for any upside that you are expecting.

Do you have a CDP account?

No? What is that?

CDP is the Central Depository account where your scripless (share certificateless) shares are held.

Many people have opened their CDP account in recent months (eg. in July 2007, 6,200 accounts were opened). Many are only entering the stock market from Jan 2007.

There are about 250,000 accounts that are active (active is defined by at least one buy or sell in the last 3 months). If we assume that Singapore has 3.4 million adults over the age of 20 years old, this would mean that only 7.4% of adult population have an exposure in the stock market.

So if you don't have a CDP account, you belong to the majority. But is this good for you?

Basically I don't think staying away from investing in shares is good for your retirement. Why? As equity investment consistently outperform bonds in the past, it is advisable to allocate some of your monies in the stock market.

Reference - "Not many benefit from bull run", Teh Hooi Ling, BT, Aug 4, 2007.

Things people do not care

The following are things people do not care about when the market is red hot!!! The following are quotes from today's papers after the blood bath yesterday.

"People are not investing BUT trading."
[(red face) Edgar was trading on IPOs. He didn't read the prospectus.]

"It went from unbelievably bullish to unbelievably bearish in just hours."
[Edgar was searching for news to explain the suddent turn in sentiment. I thought a bomb went off somewhere in the world.]

"Traders were unnerved by a sharp sell-down..."
[Edgar has been mentally prepared for this type of occurrence. He was actually looking to buy.]

"Many heavily traded stocks are those belonging to financially strapped companies with poor earnings records."
[Edgar is fully aware of this and has been advising caveat emptor. See past posting.]

"Reverse takeovers can take as long as a year."
[Edgar understands the difficulty of doing business. A simple deal may take weeks or months to negotiate. Imagine a reverse takeover between 2 entitites under 2 different legal, accounting, financial and sovereign jurisdictions. The deal may even break down.]

"Can a company with poor earnings record be valued at close to a billion dollars?"
[Edgar cannot believe it is happening. But apparently there are many who give such valuation to those companies.]

Mr Oei again with Equation and Centillion

Who are the investors?

• Mr Oei Hong Leong
• Mr Eddie Chng, Equation (ex-HeShe)

What is the target company?
- Centillion Environment & Recycling (ex-Citiraya)



Background

• In 2005, Mr Oei and Equation bailed out Centillion by investing $8.05mio each for 37.5% share each of company.


• Centillion also gave both investors the right to buy more shares. Each may buy another 950mio shares for $8.05mio.

On the Tuesday, 17 July 2007,
Both gave notice to exercise that right. Expected settlement on Friday.
Each would then control 42.86% of Centillion.



Looking forward to Friday, 20 July 2007
Assuming Centillion share price hold steady at 20cts, both Mr Oei and Equation are sitting on a paper gain of $364mio each!!!!! (computation as per BT's article)

$8.05mio for $364mio over 2 years!


My sincere respect to you, Mr Oei and Mr Eddie Chng.

Another Mr Oei's sale and profit

Just over a week after he sold off his shares in Super Coffeemix for an estimated profit of $40mio, he sold off the entire 29.98% stake in China Healthcare.

Estimated profit - about $13mio.

Didn't know China Healthcare was Econ Healthcare until yesterday. Since most of the Chinese counters are in fashion, I wonder whether I can change my company name to China XXXX Pte Ltd.

May we speculate why he sold China Healthcare or why he is in the mood of selling or are these two transactions totally unrelated but coincident?

China Healthcare and Super Coffeemix are ripe for profit taking given the recent run in share prices. Just like hundred of other counters on SGX?

IPO Strategy

Hi friends,

In the middle of a night of a day last week, I chanced upon the opportunity to apply for IPO for China Sunsine using the massively convenient internet banking. The IPO price was 39cts and I decided then to apply for 20 lots.

The next day after the closing date, I was informed that I have been successfully alloted 3 lots.

On trading day, I sold at 57.5cts. A nimble profit of 18.5cts per share or $500 over a few days.

Given the small success, I started to give IPO a little more attention. I applied to a few but was unsuccessful in all of them. The opportunities missed are as follows.

• RH Energy - IPO at 32cts and closed the trading day at 87cts.
• China Angel - IPO at 35cts. Traded as high as 80cts.

Moral of story - It confirms again - There is no sure thing. Caveat Emptor always.

P/S - Financial One - IPO'd at $1.15 and closed the day at $1.15.

HG Metal Chairman sells 1.1mio shares

The point - Whenever an insider make a buy/sell activity or a series of buy/sell activities, we should pay attention.

We need to evaluate that action/s in perspective ie.

• How insider is this person? Key/majority/very executive shareholder?
  
• no. of shares bought/sold against his existing holding
  
• any reason given for the buy/sell - Sometime, the person may sell to pay for the bungalow he is buying etc etc.
  
• pattern based on past activities of this person

Let us take a look at what is reported in Straits Times today on the sale of 1.1mio made by HG Metal Chairman.

• Who is he? The Chairman of the company.
  
• 1.1mio shares sold --> reduced his total shareholding position from 6.06% to 5.65%.
  
• no reason given
  
• pattern of activity - I did not check.

My view - He sold when the share price broke new high yesterday. I think he could be cashing in on some of the gains.

PE ratio

What is PE ratio?
The formula = market price of share / Earnings per share (EPS)

It is how much you are willing to pay for the earnings being generated by the company. This is a tool to value the company under consideration.

Interpretations - example - SIA's PE as of 10 July - 11.3x

• It would mean that an investor is willing to pay $11.30 for every $1 earned by SIA.
• It would also mean that the same investor is happy with a return of 8.85% return on investment (ie. invest $11.30 to get a return of $1)
• It would also mean that you are willing to wait 11.3 years to "get back" your money. (assuming SIA pays out the full $1 it earns as dividend)

The PE ratios for all listed companies are provided in our main newspapers on the following:-

• price - as per last trading day's share price
• EPS - as per the lastest actual audited earnings available

Example - If a company's last financial year end was 31 Mar 2007, the PE ratio reflected in today's papers would yesterday's last traded share price divided by EPS as per 31 Mar 2007.

What are the current PEs of some of bluest stocks on Singapore Exchange?
To give you an idea of market valuation,

• UOB Bank - 14x
• Keppel Corp - 26x
• F&N - 26x
• SPH - 16.7x

So what is/are the PE of the companies that you have invested in?

In search of next stocks to buy

On Jul 7, 2007's Weekend edition of Business Times, Ms Teh Hooi Ling gave us the following clues to find our next winners.

"Go for stocks with high return on equity but low price-to-book ratio"

What are those ratios?

• Return on equity (ROE) - We have several versions of the formula to ROE. Basically "return" could profit before tax or profit after tax and "equity" would be the summation of paid up capital plus all the reserves. Ms Teh is telling us to look for companies with high ROE.

Take for example - If most businesses in Singapore are able to generate a return of 10% on its resources, that 10% becomes the normal rate of return. Then look for companies making above the normal rate.

• Price to book (PTB) ratio - What price? Share price of that company. What "Book"? It refers to the net assets value as reflected in the accounts. PTB ratio will give an indication of how much we are paying in excess of the book value per share of the target company. Thus Ms Teh rightfully told us to look for companies with LOW PTBs.

Take for example - If the book value is $1 and the share price is trading at $2.40, PTB is 2.4x.

So where to find those ratios?
Sadly, such information is not easily found and nicely presented somewhere for us to see. Ms Teh had downloaded the ROEs and PTBs of all the companies listed on the Singapore Exchange from 1990 until 2007 from Thomson Financial Datastream. She had done a lot of secondary analysis to do the article.

As retail investor, we can do calculations on the few target companies. But market or industry figures would be the value added of institutional investors.

But if you actually do your homework, you will be well rewarded as per historical data. Ms Teh found out that the top 10 per cent of companies with the highest ROE/PTB would have turned your $100 into $34,048 in 17 years ie. average growth of 41% per annum.

Buying Hope?

I hope you are not buying shares of a company based on HOPE that a particular deal will go through.

A good company's fortune should not be dependent on just one deal!!

But if you had bought into these companies as mentioned below, your pocket would have been lighter with your hope dashed (at least for now).

• Carats Ltd (formerly known as Daka Designs) is continuing the search for reverse takeover (RTO) opportunities, after a memorandum of intent for a potential RTO fell through.

• The share price of YNH Property, a Malaysian property company has tumbled by 13% after the company failed to go through with a planned development with CapitaLand. Both companies had been hoping to develop a block of grade A commercial offices on a three-acre plot of freehold land along Jalan Sultan Ismail in the centre of Kuala Lumpur.

To buy on hope, I might as well go buy 4D. Cheaper and simpler.

The Lexicon Group

This public listed company has experienced a few rounds of changes of its majority shareholders, name of company, a lot of acquisitions and disposals and I still don't know what it is trying to achieve.

The name has changed from Panpac Media to Sun Business Network (SBN) (2005) to The Lexicon Grp (2007).

The company has reported a whopping loss of $102mio for year ended 31 March 2007. SBN's grand plan involving Greater China, NASDAQ and London's AIM failed miserably.

I definitely do not have shares in the company.

But I am just curious for the sake of minority shareholders, will there be light at the end of the tunnel under the new ownership?

Mr Oei exits Super Coffeemix

Mr Oei bought into Super at 34cts and 45cts per share about 2 years ago.

Yesterday he sold his total holdings at $1 per share Yeo Hiap Seng to reap an estimated profit of $46mio!!!

Amazing!

Did Edgar mirror Mr Oei's moves?

Edgar didn't. He was tracking the share price for months. The share price just exploded upwards from 40 plus cents level. He didn't follow. He regrets his inaction.

Should the market celebrate his departure by bidding the counter higher?

Sadly, I don't think so. We should take his cue.