Month: November 2016

In a sign of how far the oil and gas sector has declined, systems integrator CSE Global’ share price crashed to six years low after the company announced a set of poor financial results for the quarter ended 30 September 2016. Profit after tax decreased by a whopping 52.7% year-on-year while revenue dropped 21.6% year-on-year.

I have previously covered on CSE global before in my blog. CSE Global operates in two business segments: process controls (74.0%) and communications and security (26.0%). The company used to be the electronics arm of Singapore Technologies (ST) but after a successful management buy-out in 1997, the company was listed in the Singapore Exchange in 1999. Following a string of acquisitions made over the last two decades, CSE Global has evolved into a technology giant with 30 offices across the world and generated more than 95% of its revenues outside Singapore market.

Currently, CSE derived more than half of its revenue from Americas and about one-third of its revenue from Asia-Pacific. In terms of business sector, CSE derived 76% of its revenue from the oil and gas sector. Therefore, even though CSE has diversified business segments spanning across oil and gas, infrastructure and mining, the ailing oil and gas sector continues to have a devastating effect on the company’s operating results.

In a bid to weather the storm, CSE reduced its global headcount from 1306 in 3Q15 to 1057 in 3Q16. There may be further culling of staff going forward as the management is committed to cost cutting measures in light of massive reduction of new orders from $351 million to $229 million.

Whilst the management has demonstrated discipline in expenses, there were no clear strategies for growing revenue. CSE’s revenue base is too concentrated in the oil and gas sector and given that …

One of Singapore venerable companies, Boustead Singapore, announced a set of horrifying 2Q17 results. Net profit for 2Q17 was 32% lower year-on-year, while 1H17 net profit was 30% lower year-on-year. The infrastructure-related engineering and geo-spatial services company was still making respectable level of profits but its recent performance decline reflects the depressing state of the oil and gas sector.

Strong balance sheet

Notwithstanding the challenging environment, Boustead Singapore managed to clock in an impressive operating net cash flow amounting $48.6 million, due to cash inflows from working capital. As a result, cash and cash equivalents increased $25.1 million to $296.7 million.

Current assets stood at $500 million while current liabilities was $231 million. The total borrowings are only $90.9 million. With such strong balance sheet, Boustead Singapore is poised to ride out the storm in the oil and gas sector. The Net Current Asset Value Per Share (NCAVPS) is about $0.32, while Net Asset Value (NAV) is $0.583.

Not surprisingly, the root cause of Boustead Singapore’s poor performance was the ailing oil and gas sector. Year-on-year, its energy-related engineering recorded a 73% decline in profit before tax, while its geo-spatial technology arm recorded a 17% decrease in profit before tax. Therefore, the increase of 27% by its real estate solutions had been offset by the other two division performances.

In light of the challenging operating conditions, the management is prudent enough to curb in expenses. Total overhead expenses for 2Q FY2017 declined 3% year-on-year to $22.4 million as Boustead Singapore applied cost management measures. The company has also declared a reduced interim cash dividend of $0.005 per share, one of the lowest in the company’s history.

Management tenet

Broadly speaking, the strategy of conserving cash resources should be supported. While investors may not take this positively, such an action by …

The recent Sheng Siong kidnap trial did not create a negative publicity for the supermarket operator. Instead, shares of the groceries retailer surprisingly stormed to a record high of $1.10 in October 2016. Listed in SGX mainboard only in 2011, Sheng Siong has risen from a penny stock to an established player with strong dividend track record. But in today’s challenging operating environment, is Sheng Siong’s dividend policy sustainable?

Sheng Siong had committed to pay out dividend of up to 90% of their net profits after tax. Note that this is a commitment made by management and the company is not legally obliged to fulfill this promise. Nonetheless, since 2011, company has consistently met this target and investors were rewarded for their continued support in this home-grown enterprise.

But should management review this dividend policy and reinvest some of the excess cash to grow the company? The total amount of dividends paid out had been between 2 to 4 cents and to be frank, the amount is nothing to shout about. Nonetheless, when Sheng Siong shares were trading at $0.30 to $0.40 in the early days of listing, the dividends looked attractive relative to the share price. But now that the share price has run up substantially, the amount may be less appealing for dividend investors.

The quality of a management can be assessed on how well they utilize excess cash or profits. Some companies embark on shares buy-out or distribute excess cash to investors as dividends. And then there are companies which choose to reinvest the cash to grow the company’s market share. At this business stage, Sheng Siong definitely needs to continue to grow and in my opinion, the management should review the merits of the 90% dividend payout commitment. Instead of distributing so much profits to …

With a slew of SGX listed companies being privatized recently, one wonders whether Straco Corp will be the next to be de-listed. The latest company to be delisted from the Singapore Exchange is Super Group, which is acquired by Dutch coffee firm JDE for a whopping $1.45 billion.

Will Straco Corp be de-listed?

Recently, Straco Corp purchased a total of 269,800 shares by way of on-market purchase for a total consideration of $206,000 in 3Q2016. These shares purchased were made out of the company’s capital and held as treasury shares. As of now, the company is holding 10 million treasury shares.

The key internal stakeholders, namely Straco Holding Pte Ltd, China Poly Group Corp and Straco (HK) Limited, hold about 75% of the company shares. Under such situation, the management may make an offer to minority shareholders in a bid to de-list the company. Thus, I am cautious about investing in Straco Corp. What if the offer is way below the price level at which I buy the shares? If this is to happen, I would have sustained losses in my investment.

Of course, all these are just speculative thoughts. But assuming Straco Corp made an offer of $0.80 per share to shareholders, the management only needs to splash out an estimated $103 million to exceed the 90 percent threshold to de-list the company, Based on the latest quarter report, Straco Corp currently holds about $160 million amount of hard cash. Thus, privatizing the company would not be a major issue.

The motivating factors for Straco Corp would be the savings from listing costs and resources saved on corporate governance compliance efforts. Being a private company also means that dividends would not need to be distributed to external shareholders.

Straco Corp 3Q16 results

Notwithstanding the current weak market sentiments, the …

Hi SG Wealth Builder,

My comments on your post: OCBC Bank’s 3Q16 results beat market estimates. I’m not sure why it shows “failed to leave comment” on your article post. Hence, I drop you the comment via this mail.

My comments: I’m curious on your statement stating that your target entry for OCBC stocks will be at $6.00. Current trade price for OCBC share is $8.43. Based on the liquidity of SGX market, the price could hardly fluctuate in between price gap of around $2.00++. Not to say it’s impossible, as anything is still possible to happen in the stock market.

My concern here is if we were to wait for that target price of $6.00, and assuming the market goes smooth for the year. Then we will be missing out the 1 year opportunity for the stocks if the price never achieve the target price of $6.00 within the year, isn’t it? Since based on analysis the stocks growth is strong and having potential of profit as well. This is just my personal opinion and it’s always my pleasure to share and learn more from your analysis. Hope you have a great day!

Best Regards,

William

I received the above email from one of my readers. Really grateful to him for reaching out to me. Recently I have some technical issues with my blog plugins. Hence, if you are unable to leave any comments in my blog or is unable to subscribe to my blog posts, please feel free to email me at sgwealthbuilder@gmail.com.

With regard to William’s query on whether its realistic to expect OCBC share price to drop to the $6.00 level, I must say that there is no right or wrong answer. The only thing that matters is [This is a premium article. The rest …

When Simon Israel took over as SingPost’s Chairman in May this year, investors must be wondering whether SingPost will turn the tide. The group recently announced a set of disappointing 2Q16 results that saw net profit plunging 27.9% due to “transformational investments”.

Mr Israel, who is also the Chairman of SingTel, has been tasked to review the corporate governance and appoint a new CEO for SingPost. SingTel is the major shareholder of SingPost and currently holds 22.85% stake in the national postal service provider.

There was a leadership crisis in SingPost earlier this year and SingTel intervened after the exit of almost all of the top management. Even Chairman-designate Professor Low Teck Seng declined the offer to chair SingPost’s board, claiming that the “role is too demanding”.

Judging by the recent financial results, Mr Israel certainly needs to accelerate the search for the new CEO so as to set strategic directions and lead the management team. Currently, Mr Mervyn Lim is the Covering Group Chief Executive Officer. Since the exodus of the previous management team, SingPost share price has declined steadily from $1.69 to a low of $1.37. The share price only starts to show sign of stability recently and currently hovers at $1.50.

To be fair to Mr Israel, it is not easy to implement reforms in an old institution like SingPost. Although SingTel is the major shareholder of SingPost, it does not necessarily means that both companies share the same culture. Thus, one of the sweeping changes that Mr Israel introduced was the capping of board tenure at nine years, similar to parent company SingTel. More changes may be on the card but it is important to note that Mr Israel cannot achieve much alone.

Thus, a new CEO is sorely needed. This is especially so given …

Underpinned by strong performance from its wealth management and profit from life insurance, OCBC Bank delivered an excellent 3Q16 results that beat market estimates. The oldest bank in Singapore reported a net profit after tax of S$943 million for the third quarter of 2016. This was 5% above S$902 million a year ago and 6% above S$885 million the previous quarter.

A deeper review of OCBC’s financial results revealed more interesting insights. Net interest income of S$1.23 billion was 6% lower as compared to S$1.32 billion the year before, driven by lower loan volumes and net interest margin. As at 30 September 2016, customer loans were S$209 billion or 2% lower than the year before, led by a decline in trade-related lending to Greater China, which offset an increase in housing loans and other consumer loans.

Net interest income is the difference between the revenues derived from interest-bearing assets (customer loans) and the cost of servicing (interest-burdened) liabilities. Thus if the US Fed interest rates increased and induced the local banks to heighten the bank saving rates, OCBC may be negatively impacted because of the lower margin from net interest income. Also, the current slowing market results in lower loan volumes, leading to lower net interest income for OCBC.

For 3Q16, OCBC was rescued by its wealth management unit, which contributed 28% of the income for the quarter. Its life assurance business unit, Great Eastern also helped to boost performance. Profit from Great Eastern was S$164 million, higher than S$62 million in 3Q15.

In terms of asset quality, OCBC continues to be stressed by the market roil caused by the ailing oil and gas sector. Non-performing assets (“NPAs”) as at 30 September 2016 were S$2.59 billion as compared to S$2.49 billion a quarter ago and S$1.93 billion the previous year. …

All good things must come to an end. After 15 years of heading K1 Ventures, one of the largest listed venture capitalists, Steven Green unexpectedly announced his departure a couple of weeks ago. I am writing this article to pay tribute to one of the most talented investment wizards in Singapore.

K1 Ventures used to be a shipping company in the 1970s and adopted its current name in 2000 after a series of business consolidations. The company was looking at transforming its scope of activities to include a portfolio of technology and non-technology companies. At that point, Steven Green was the US Ambassador to Singapore and had an outstanding reputation for being a business leader. Subsequently, Steven Green was appointed to be CEO on 7 September 2001, just four days before the 9/11 terrorist attacks.

K1 Ventures Business Strategy

The fact that K1 Ventures’ board of directors looked to US Ambassador indicated that the company intended to seek opportunities in the United States. The terrorist attacks in 2001 certainly threw up a lot of bargain buy opportunities for K1 Ventures. Throughout the years, Steven led his team to make a series of notable acquisitions in USA – Helm Holding Corporation, McMoran Exploration, Knowledge Universe Holdings and Guggenheim Capital. K1 Ventures turnaround these companies and exited to unlock massive value for shareholders.

When I started my investment journey, K1 Ventures was one of my first stock investments. The company’s investment philosophy resonated with mine – buying businesses that are simple to understand, such as rail leasing, oil and gas exploration, education and automotive. However, as an institutional investor, K1 Ventures has the advantage of being involved in business decisions and transforming these companies to derive value for stakeholders.

To illustrate the investment record of Steven, it was stated in the …