Year: 2016

Currently trading at $3.73, SIA Engineering Company (SIAEC) shares have not reached the 5-year low of $3.35. But it does not mean that the company is doing fantastic either. SIAEC shares had been sliding from a record level of $5.29 since 2013 and many investors wonder whether it would be worth investing in SIAEC shares now.

For 1Q16, SIAEC announced profits amounting to $199.8 million as compared to $41.7 million in 2015. The explosive increase was due to $141.6 million gain from the divestment of its 10% stake in Hong Kong Aero Engine Services Ltd (“HAESL”) to Rolls-Royce Overseas Holdings Limited (“RROH”) and Hong Kong Aircraft Engineering Company Limited (“HAECO”).

In addition, the Group received a special dividend of $36.4 million from HAESL following the divestment of HAESL’s 20% stake in Singapore Aero Engine Services Limited (“SAESL”) to Rolls-Royce Singapore Pte Ltd (“RRS”), bringing the overall gain from the divestment to $178.0 million.

SIAEC financial performance

Apart from the one-off divestment, there are few bright spots for SIAEC. Revenue has declined for the past two years and for 1Q16, SIAEC registered a decline of revenue to $271.6 million from $277.3 million in 2015. Some analysts predicted in the news lately that lower passenger traffic for SIA would have serious impact on SIAEC’s business.

Sometimes, life is stranger than fiction. The recent implosion of Swiber junk bond brings back memories of Lehman Brothers Minibond saga in 2008. About 10,000 retail investors in Singapore lost their investments totaling more than $500 million in products linked to Lehman Brothers. The similarity between the hellfire from Swiber Bond and Lehman Brothers Minibond is that DBS was one of the financial institutions distributing these high risk investment products.

In the world of investing, there are many factors why things can go wrong. Even government can sometimes make dubious investment decisions. The most infamous example is the fiasco concerning eight town councils run by People’s Action Party (PAP) which had $16 million invested in the various Lehman Brothers-linked products. Many analysts were shocked and disturbed that town councils had invested in such structured product using tax payer’s fund. After all, the mandate of town council is different from sovereign wealth funds like Temasek Holding.

Lehman Brothers Minibond Saga

Notwithstanding the loss suffered by PAP town councils, the collapse of Lehman Brothers triggered one of the most intriguing financial hellfire in Singapore. Investors who had bought High Notes 5 from DBS Bank were shell-shocked to learn that they could get nothing from the forced sale of the underlying collateral.

On 18 July 2016, OCBC announced the merger of its two banking subsidiaries in China – OCBC Bank (China) Limited and Wing Hang Bank (China) Limited) – to become OCBC Wing Hang Bank (China) Limited (“OCBC Wing Hang China”). After acquiring Wing Hang Bank in 2014, OCBC wasted no time in building its investment moat in China.

OCBC in China

China is a strategic core market for OCBC, given its sheer market size. OCBC Bank first established its presence in China in 1925 with the opening of its Xiamen branch and incorporated OCBC Bank (China) Limited, headquartered in Shanghai, on 1 August 2007. Thus, the merger of its Hong Kong Wing Hang Bank with the China’s unit makes sense because of the synergy in value.

Headquartered in Shanghai, the unified platform allows OCBC to be well-positioned to serve its clients better in the Greater China. OCBC Wing Hang China has 32 branches and subbranches span 14 major cities across both Northern and Southern China – Shanghai, Beijing, Shenzhen, Guangzhou, Zhuhai, Foshan, Huizhou, Xiamen, Tianjin, Chengdu, Chongqing, Qingdao, Shaoxing and Suzhou.

In the Pearl River Delta region in China, one of the country’s main hubs of economic growth, OCBC Wing Hang China has 13 branches and sub-branches, largest among the Singapore banks.

Since my previous review in May 2016, Sheng Siong shares had an explosive form. The supermarket operator’s share price surged from $0.89 to the $1.00 support level. This is an impressive run and effectively, Sheng Siong had shed the “penny stock” tag.

Once again, Sheng Siong delivered a quarterly performance that are within expectations. Revenue continued to grow, recording an increase of 5.5% at $188.8 million compared to 2015. The addition of three new stores had contributed to the net growth in revenue.

Sheng Siong Competitive Edge

Besides store expansion, Sheng Siong’s growth was supported by higher margins. Gross margin increased to 26.1% in 2Q2016 compared with 25.2% in 2Q2015 mainly because of suppliers’ rebates and reduction in input cost derived mainly from bulk handling, which was facilitated by continuous improvements from the central warehouse at Mandai.

Profits for the period was $15.2 million, an increase of 11.3% compared to 2015. Cash flow from operating activities remained healthy at $26.5 million for current quarter but cash and cash equivalents decreased by $75.0 million to $50.8 million. The big drop was due to payment of final dividend for FY2015.

On the basis of the latest financial report, the management of Sheng Siong continues to demonstrate prudent management and operating efficiency.

On 29 August 2016, OSIM ended one of the most incredible fairytales in the corporate world and was de-listed from the SGX market. OSIM’s turn-around story reflected the resilient and determination of founder, Ron Sim in coming back from adverse conditions. After all, successful turn-around cases are so rare in Singapore.

One of the most admirable traits of Ron Sim is his business acumen and never-say-die mentality. In 2009, he made the difficult decision of writing off OSIM investment in US retailer, Brookstone, after it registered a loss of almost $100 million the previous year. Many investors lost faith in the management abilities and at the lowest point, many dumped the stock, sending it crashing to $0.05 per share.

Instead of viewing the whole episode negatively, Ron deemed it an “enriching” experience because of the lesson learned on the US market. Not many business leaders can overcome the sort of setback that Ron Sim encountered. At that point of time, with the onset of the Great Financial Crisis, it certainly seemed like the massage armchair company was doomed.

But what he managed to achieve the following years was simply unbelievable. Following the Great Financial Crisis, he correctly predicted that the money to follow would be the Chinese market.

The recent announcement of the prospect of a 4th telecommunication player entering the market has caused SingTel, Starhub and M1 shares to fall.  Whilst it is too premature to make a judgement on the impact to the three telecommunication players, SingTel should be the least affected. Most investors are probably unaware of SingTel’s investment moats

Unlike the rest of the existing players, SingTel differentiates itself from the rest of the league by positioning itself as a regional player with more than 610 million in Asia Pacific and Africa. In Singapore, it holds the number 1 market share with 4.1 million mobile customers. Granted that the new entrant will eat into SingTel’s market share in Singapore, it should be noted that the major bulk of SingTel’s earnings are derived from overseas. In addition, SingTel has a very diversified revenue base. Hence, the risk is very much mitigated for this giant.

In its 100% owned Australia unit, Optus, SingTel has the number 2 market share with 9.3 million mobile customers. SingTel also holds the number 1 market share in India, Thailand and Indonesia. Both Optus and Indonesia’s Telkomsel are SingTel’s champion income drivers. For first quarter 2016, Optus’ EBITDA grew 0.7% to A$645 million while Telkomsel’s EBITDA was $325.6 million.

Singapore’s Sim Wong Hoo, was famous for building Creative Technology (CT) from scratch. In the 80s and 90s, the SoundBlaster audio cards produced by CT was selling like hotcakes and propelled Sim from a struggling entrepreneur to Singapore’s youngest billionaire.

In March 2000, CT’s shares was even trading at record high of $58. Now, the share price is languishing at $1.00. Has Creative Technologies won the battle but lost the war?

As a Singaporean engineer, obviously I hope Sim can do well and make Singapore world-famous again. His SoundBlaster audio cards had put Singapore on the global map and proved to the rest of the world that Singapore is capable of creating world-class innovative engineering products as well.

But it is pity that IT is a very fast-paced and ruthless industry. The rapid evolution in the technology development led to cheaper, more powerful and better integrated computer audio systems than CT’s SoundBlaster. This gradually marked the start of the decline for Creative Technology.

In 2006, Sim Wong Hoo made Singapore world-famous again by winning a legal dispute against Apple, which agreed to compensate Creative Technology $100 million over patent infringement. Back then, Apple’s CEO Steve Jobs claimed in a press release that “Creative is [This is a premium article.

On 12 August 2016, luxury watch retailer, The Hour Glass, delivered a set of poor financial results for 1Q2017. Year-on-year, revenue dropped a whopping 7% to $149 million and profits after tax declined 23% to $8.3 million for the first quarter of FY2017. At the back of many investors’ mind should be the question of whether is it worthwhile to invest in The Hour Glass now?

To be fair to the management, The Hour Glass has one of the strongest balance sheets for a listed SGX stock. The current assets amounted to $426 million, while cash and cash equivalents stood at $80.6 million. The current assets could more than offset the current and long term liabilities easily.

The Net Current Asset Value Per Share (NCAVPS) was $0.568 per share. This means that if The Hour Glass is to be liquidated, this will be the amount of tangible value per share after paying off the short term and long term debts. Net Asset Value (NAV) per ordinary share was $0.63.

For The Hour Glass, my estimation for the intrinsic value of each share is $0.66. This is because the Group holds a substantial amount of investment properties valued at $64 million according to the latest financial statement.

Fresh from the stock split exercise in May 2016, Raffles Medical shares power ahead amid the sluggish stock market condition. On 26 July 2016, the healthcare provider announced another set of solid performance.

Financial Performance

Revenue for second quarter surged 19.8% to $119 million as compared to last year. However, increased in staff costs led to profits of $16.1 million after tax, a marginal increase of only 0.7% as compared to 2015.  The rate of increase for staff costs was higher than the growth in revenue because of more specialist consultants and staff as well as increased staff arising from acquisitions in 2015.

Raffles Medical continued to have strong cash position, with net cash increased from $53.8 million as at 31 December 2015 to S$92.8 million as at 30 June 2016. This was attributed mainly to strong operating cash flows generated by the Group from its increased business operations. Net cash from operating activities was $23.8 million in 2Q16. Cash and cash equivalents increased by $13.0 million from $110.6 million as at 31 March 2016 to S$123.6 million as at 30 June 2016.

Notwithstanding the good performance, Raffles Medical has announced interim dividend of $0.005 per share, to be paid out today.

In one of my previous articles on Singapore Exchange’s minimum trading price (MTP) rule, I questioned whether the MTP framework will actually serve its intent of preventing market manipulations. Following that article, SGX recently proposed changes that will allow stocks with larger market capitalization to avoid the fate of being included in the watch list.

The MTP rule was implemented under SGX’s ex-CEO, Magnus Bocker’s era. Bocker’s tenure in SGX is generally viewed by many as negative because of the many unpopular changes he tried to implement. MTP was one of them, the other being the scrapping of the 90-minute lunch break to allow continuous trading.

Background of MTP

To his credit, Bocker did help to diversify SGX’s revenue stream through the expansion of derivative product offerings. However, he overlooked the importance of continuing to build the capital market portfolio for SGX. In addition, under his leadership, retail investors’ activities waned substantially. Of course it is not fair to put the entire blame on him for the lackluster market participation as economic climate plays a large part as well. But then again, as CEO, he did not implement any note-worthy initiatives to attract retail investors either.

It also did not help that many retail investors lost a lot of money after dabbling in Blumont, LionGold and Asiasons Capital.

On 3 August 2016, K1 Ventures announced another capital reduction of $0.075 in cash for each ordinary share in the capital of the company. This represents another round of mini-windfall for K1 Ventures investors. The capital reduction was announced at a time when its parent company, Keppel Corp is struggling under the current oil price crisis climate.

K1 Ventures is the investment arm of Keppel Corp specializing in business acquisitions. It invests primarily in the US market and has held stakes in transportation leasing company (Helm Holding), energy (Freeport McMoran Exploration), education (Knowledge Universal Holding, KUH) and financial (Guggenheim). As a venture capitalist, its business model is to acquire companies and turn them around to sell for profits.

Helm by Chairman and CEO Steven Jay Green, K1 Ventures’ management has an incredible investment track record. Over the years, the company has divested many assets and consistently delivered huge dividends for shareholders. In fact, since 2005, K1 Ventures announced dividends and capital reductions to reward shareholders.

For the uninitiated, capital reduction basically means reducing the capital of the company and return to shareholders. However, unlike dividends, capital reduction will result in the reduction of the company’s Net Asset Value (NAV) from $207,732,000 to $175,248,000.

In my previous article, I wrote about Straco Corp‘s company profile and its acquisition of Singapore Flyer back in 2014. This blog post will analyse Straco Corp’s latest financial performance.

On 10 August 2016, Straco Corp reported a 5.2% decline in Group revenue to $27.86 million for the second quarter ended 30 June 2016 compared to 2Q2015. The decline in revenue was due to lower number of visitors for its two aquariums in China. Interestingly, Singapore Flyer reported higher revenue for 2Q2016 on improved ticket yield. Cumulatively, the Group revenue for 1H2016 decreased marginally by 0.5%. Even though there was increased revenue at Singapore Flyer, this was offset by declines at the China aquariums.

Based on the latest earning report, the slow down in China definitely has an impact on Straco Corp’s earning. Below is the 5 year trend of the company’s revenue.

Dividends per share have been increasing for the last four years. However, there are signs that the growth in dividends has reached a plateau. During the quarter, the company paid out dividends of $21.48 million for the financial year ended 31 December 2015. As at 30 June 2016, the Group’s cash and cash equivalent balance amounted to $124.69 million.

On 5 August 2016, ISOTeam announced that it has clinched 13 new private and public sector contracts worth $20.11 million. The listed company is a specialist in the eco-conscious Repairs and Redecoration (“R&R”), Addition and Alteration (“A&A”) and complementary niche services.

ISOTeam contracts

This is a winning streak for ISOTeam as the company has a reputation for securing contracts because of its excellent track record in project delivery and early adopter of green technologies for its projects. As Singapore drives environmental sustainability in the building and construction industry, companies like ISOTeam will continue to thrive and grow.

ISOTeam has also started to build new capabilities in the renewable energy sector. In early 2016, it has installed Grid-Tied Solar Photovoltaic Systems on roofs of 33 blocks at Tampines estate worth approximately $1.8 million. Recently, it has won a $0.20 million contract to install Emergency Fuel Cell Operating Power Systems as back-up power generators for lifts of a number of HDB blocks at Punggol. Wealth builders should note this green initiative because it is likely that this may be implemented in more public housing in Singapore, indicating a potential huge untapped market to penetrate.

Of course, Singapore market is too small and is saturated with many players.

In one of my previous articles, I wrote about the fate of Underwater World Singapore. In response to my article, a reader mentioned about Straco Corp and this prompted me to research on the company.

Listed on SGX mainboard since 2004, Straco Corp was found by local entrepreneur, Wu Hsioh Kwang who is the Vice-President (Singapore Chinese Chamber of Commerce), Vice-Chairman of Tourism & Leisure, Chinese Business Group (Singapore Business Federation) and Vice Chairman of the 4th Standing Committee of Chinese Association of Enterprises with Foreign Investment (China).

Not much else is known about Mr Wu except that he spent 30 years doing tourism-related business in China. In fact, he has two very successful aquariums in China, one is the Shanghai Ocean Aquarium, while the other is Underwater World Xiamen. What prompted Mr Wu to see the potential and subsequently invested in Singapore Flyer is a mystery.

When Straco Corp splashed out $140 million for the Singapore Flyer back in 2014, the iconic attraction was in a bad shape. The company that ran the flyer was facing financial problems and Straco stepped in to buy over the asset. By then, the number of visitors had declined due to stiff competition from other attractions and tenants were having poor businesses.

OCBC share price dropped from a high of $9.00 to $8.35 upon the release of poor 2Q16 results. Second quarter earnings fell a whopping 15% year-on-year due to lower insurance income from subsidiary Great Eastern Holding (GEH).

For OCBC, the insurance segment, driven by GEH, represents one of the most profitable income sources. Operating profits from insurance segment was $120 million, the third highest among OCBC’s business segments. The earning contributions from GEH fell 66% due to the absence of a $105 million gain from the sale of an asset in 2Q15. However, GEH’s underlying insurance business actually performed well in this quarter, with new sales increased by 23%, led by growth across distribution channels in Singapore and Malaysia. Due to the unrealized mark-to-market losses in GEH’s equity and bond investments, profit from GEH’s life insurance recorded a dismal 19% drop.

Apart from insurance segment, OCBC also witnessed poor performance in its “bread and butter” segment – corporate loans. Like all commercial banks, OCBC derived its major income from loans made to corporates and public sector. For second quarter, net interest income declined 2% to $1.26 billion from $1.28 billion a year ago. Customer loan balances decreased 2% due to lower trade loans and reduced offshore borrowings from Chinese customers.

Many Singaporeans may recognize “Tiger Balm” as the world leading brand for topical analgesics. Some may even know that the Haw Par Corp, a company listed in SGX, is the owner of this renowned healthcare brand.

However, not many people know that Underwater World Singapore (UWS) was owned by Haw Par Corp.

1) Haw Par and Underwater World Singapore

When Haw Par sealed the fate of Underwater World Singapore (UWS) on 26 June 2016, many Singaporeans were taken by surprise. Being a forgotten icon of Singapore tourist attraction, many of us have overlooked the fact that UWS has being around for 25 years already. Within this period of time, the landscape has changed and not surprising, there are stiff competition from new and existing attractions.

UWS holds special memories for me because this is one of the local attractions that my wife and I visited when we were dating. That was more than 7 years ago. The week before UWS closed shop, my family visited UWS for the very last time.

We were surprised that the place remained largely the same and there were not many notable upgrades for the facilities. In fact, the new S.E.A Aquarium of Resort World Sentosa would appear to be more refreshing to tourists than the UWS.

In a month when DBS and SMRT hog the limelight, OCBC Bank quietly increased its multi-billion dollars stake in Great Eastern Holding. On 1st July 2016, OCBC made a filing in SGX to declare that it bought 611,800 shares of Great Eastern at $20.59 per share, effectively increasing its share in the insurer to 87.73% from 87.60%. OCBC’s multi-billion dollar stake in Great Eastern is actually one of its “hidden treasures”.

Great Eastern is the oldest life insurance group in Singapore and Malaysia, with over $60 billion in assets and 4.7 million policyholders. Being a subsidiary of OCBC, the life insurance group’s partnership is formidable. This is because Great Eastern’s life insurance products can be distributed through OCBC’s banking network. This type of partnership creates synergy and allows both companies to gain better customer’s insights and investment needs.

Being the pioneer in bancassurance in 1992, OCBC is the only Singapore bank to have substantial stake in a life insurance company. UOB’s bancassurance partner is Prudential, while DBS’ bancassurance partner is Manulife. The fact that Great Eastern is a subsidiary of OCBC gives the bank the competitive edge because the business interests will have to be aligned. In fact, several OCBC’s management actually sit in Great Eastern ‘s board of directors.

For first quarterly results of 2016, Raffles Medical Group (RMG) had a stable growth. Profits for the period increased 1% to $15.2 million year-on-year. Revenue actually grew by 23.0% from $95.0 million in Q1 2015 to $116.9 million in Q1 2016. The increase in revenue was driven by higher business volume arising increased patient load.

During this period, the management of RMG did not manage to rein in lease expenses and staff costs. This has resulted in higher revenue being offset by higher expenses. However, the Group’s net cash position increased from $53.8 million as at 31 December 2015 to $78.4 million as at 31 March 2016. This was due to strong operating cash flows generated from increased business operations.

Apart from having a strong cash-flow, RMG has a strong balance sheet as well. Current assets grew from $170 million as at 31 December 2015 to $216 million as at 31 March 2016. Correspondingly, the total liabilities also increased from $192 million to $226 million. The increased liabilities was due to increased payable arising from acquisition of subsidiaries during the financial year 2015.

The long-term debt is manageable, currently at only $20.8 million. Given RMG’s cash pile of $110 million, the non-current loans and borrowings are not a concern for the company.

One of the reasons why Singaporean investors love to invest in OCBC shares is because the bank has billion dollars worth of hidden value. Last month, local bank OCBC placed a pair of freehold shophouses on sale for around $20 million. These two conservation shophouses are located at Bukit Pasoh, which is near the Outram MRT Station.

Apparently, OCBC has held the properties for more than 81 years and had refurbished them in 2012. Combined together, the shophouses have a total land area of 2926 sq ft for commercial use. If successful, the sale could help to unlock value for OCBC.

It should be noted that the two units are not part of the 38 properties that OCBC had put up for sale in April last year. The asset sales were estimated to be worth $150 to 200 million and some of the properties has since been sold. Both the two units at Bukit Pasoh and the 38 units are not mortgagee sales.

Value investors like to invest in companies with hidden value and OCBC is probably one of such companies. In the latest financial results, OCBC revealed $6.64 billion worth of unrealized valuation surplus for its investment properties and equity stakes in subsidiaries.