Author: sgwealthbuilder

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.

I have previously written an article on ISOTeam, a facilities maintenance company based in Singapore. This article is to provide an update on the latest developments of ISOTeam.

On 31 May 2016, the company announced the securing of private and public sector contracts worth $26.32 million. The contracts will have a positive impact on the earnings per share and net tangible assets per share for the current financial year ending 30 June 2016.

Company’s profile

ISOTeam’s capabilities lie predominately in the property maintenance and property upgrading and restoration. The entry barrier for this industry is not high, therefore in order to differentiate itself from their competitors, ISOTeam’s niche is in providing eco-conscious solutions.

In recent years, the company has secured a lot of public works and has established good track record with town councils, statutory boards, main contractors and developers. Due to this, ISOTeam is able to repeatedly win tenders for public projects even though their offers are not the lowest in price.

Strategies for growth

Going forward, ISOTeam’s growth strategies are to develop more green solution offerings, expand through acquisitions and reach out their services to other untapped private and public sectors. These strategies make sense as Singapore government plan to green mark 80% of the building in Singapore.

In the context of Singapore’s ageing demographic trend, healthcare and medical services companies are expected to continue to grow in the coming years because of the increasing demands for specialized medical treatments and growing affluence in South-East Asia countries. Riding on this wave, Singapore’s TalkMed Group Ltd may be a trail-blazer in medical tourism.

Business Profile

TalkMed was listed in Catalist on 30 January 2014 and has since established itself as one of the market leaders in medical tourism in Singapore, with more than 60% of its patients from foreign countries for the past few years. The company has three subsidiaries, namely Singapore Cancer Centre Pte Ltd (SCC), TalkMed Vietnam Pte Ltd and Stem Med Pte Ltd. With 13 doctors in their arm, TalkMed’s niche businesses are in medical oncology services and palliative care services.

Business Potential

I like TalkMed’s business model because it is a scalable business which revolves around the provision of medical consultancy services and stem cell processing services. Through SCC, TalkMed doctors provide stem cell transplant and palliative care to the oncology patients. Its overseas investments include partnership with Thu Cuc International General Hospital to set up a medical centre providing medical oncology services in Hanoi. Arising from this collaboration effort, TalkMed Vietnam was established in March 2014.

This post has been amended on 11 July 2016 to address errors made in the last sentences of the second and eighth paragraph.

Being the national postal service provider for the past 150 years, SingPost has transformed into a mail and e-Commerce technology giant within Singapore in recent years. Throughout the years, SingPost had consistently received numerous awards for its branding, innovation and business excellence. Its largest shareholders include SingTel and AliBaba Group. With such an impressive background, the past few months must have been a nightmare for SingPost, at least for its investors.

Crisis brewing for SingPost

Following a special audit in early May 2016, the Accounting and Corporate Regulatory Authority (Acra) is investigating SingPost for potential breaches of the Companies Act. The special audit was undertaken to look into the disclosure of a board member’s interest in the firm that advised on SingPost’s recent acquisitions.

One of the most damaging findings in the 52 page summary report was the lack of “prescribed policy, process or procedure for the evaluation and approval of Merger and Acquisitions transactions”. For an institution that won two ASEAN corporate governance awards in 2015, this is indeed an embarrassing audit finding. It exposes the weak corporate governance on disclosure by its board of directors.

SIA Engineering Company announced on 30 June 2016 the divestments of its 10% stake in Hong Kong Aero Engine Services Ltd (HAESL) to Rolls-Royce Overseas Holding Ltd. At the same time HAESL will divest its 20% stake in Singapore Aero Engine Services Pte Ltd (SAESL). The divestments will result in a net gain of $178 million for the SIAEC Group, representing a windfall for SIA Engineering Company (SIAEC).

The move to divest SIAEC’s stakes in several joint ventures is long overdue as its network of joint ventures (JV), associates and subsidiaries have become so complex that it affects the company’s ability to compete for the aircraft aftermarket business. To a certain extent, some of its JV may even be competing against each other for maintenance, repair and overhaul (MRO) business. So this streamlining operation may bode well for the company going forward.

Business Challenges

Unlike its parent, SIA, the MRO business is more stable and predictable as compared to airline operations. This is because aircraft are required to be maintained at certain interval in order to be deemed as airworthy. Thus, the business model of SIAEC is recurring. However, the emergence of new composite aircraft like B787 and A350 changed the game for big MRO players like SIAEC and ST Aerospace.

CSE is a global integrator for software services specializing in the automation, telecommunications and environment sectors. CSE started life as a subsidiary of ST Group but after a successful management buy-out in 1997, CSE became a public listed company in 1999. After a series of acquisitions, CSE Global Limited evolved into an international technology firm with more than 30 offices across the globe.

Performance

For the first quarter of 2016, the group achieved $5.5 million profit after tax, a decrease of 20.9% year-on-year. This performance reflected the challenging weak economic sentiments in the industry sectors that the Group is operating in.

CSE is a key player in the offshore oil and gas sector, providing system services such as Supervisory Control and Data Acquisition (SCADA), process control and safety shutdown systems. Thus, the current down-turn in this sector has a significant impact on the Group’s business.

Business outlook is challenging as many of CSE’s client are cutting costs. As a result, CSE has a reduction of 23.8% new orders from continuing operations. The number of outstanding orders from continuing operations has also reduced by 28.9%.

In light of the challenging operating environment, CSE has managed to rein in operating expenses, which were 6.4% lower at $17.8 million as compared to previous year.

If you are a high net worth individual, you would certainly not want to take chances with your wealth. Usually wealthy individuals would choose private banking because of their specialized financial needs and the desire for discretion. In Singapore, there are many banks that offer private banking services and one of them is OCBC Bank’s private banking subsidiary – Bank of Singapore (BOS).

In my previous article, I touched on OCBC’s acquisition of Barclays Asia Wealth Management and highlighted it as a strategic move that allows OCBC to enhance its investment moat in the arena of private banking. Indeed, the real money to be made is actually from the rich and wealthy clients, not the mom-and-pop depositors.

Amidst the global economic downturn, OCBC reported strong results for 1Q16 private banking income. Operating profit from Global Consumer/Private Banking grew from $218 million to $253 million, an increase of year-on-year 16% for 1Q2016. This was OCBC’s best performing segment for 1Q16 and given the growing affluence of Asians, there are a lot of opportunities for growth in this banking niche.

In 2015, BOS was one of only 5 private banks in Asia to record more than 5% growth in assets under management (AUM).

On 3 March 2016, Singapore bourse operator, SGX, included 41 listed companies into its infamous watch-list due to the implementation of the 20-cent Minimum Trading Price (MTP) rule. In all, there were 76 companies under the SGX watch-list, which was like the Hall of Shame.

To be part of this watch-list can be very embarrassing because it means that affected companies have to buck up and improve their financial performances. Otherwise, they may face the prospect of being delisted from the stock exchange.

The expansion of the watch-list to include companies failing to comply with the MTP rule had riled market players because this move essentially blurs the distinction between market quality and business fundamentals.

To be fair, even though a company’s share price is trading below 20 cents, it does not mean that the company has shaky business fundamentals. So to put those failing to meet the MTP with those companies with financial problems is deemed by many to be onerous.

To put things into perspective, the MTP rule was introduced in the aftermath of the penny stock crash in 2013. Many retail investors lost their pants after dabbling in Blumont, LionGold and Asiasons Capital. The three penny stocks surged to incredible levels within a short period of time and then dived spectacularly, prompting rumours of market manipulations by the Big Boys.

In a month in which SGX-listed Haw Par Corp announced the closing of the Underwater World Singapore, Temasek Holdings tendered all their shares and paved the way for French giant, CMA CGM to take Neptune Orient Lines (NOL) private. This marked the end of another Singapore icon and highlighted how fragile the economy is right now.

The take-over offer for NOL is $1.30 and it is unconditional. According to the listing rule, NOL can be delisted once it obtains more than 90% of the shares. The offer is deemed by many to be fair given that NOL has been bleeding for several years due to the collapse of the Baltic Dry Index (BDI). Temasek Holdings had been looking for a white knight for NOL for quite some time and CMA CGM came to the rescue.

The downturn in the shipping industry took many players by surprise. After all, the BDI stormed to 11,000 level in 2007 and subsequent crashed to near 700 level with the arrival of the Great Financial Crisis. Nevertheless, the downturn turned out to be much longer than expected and its seems that Temasek Holdings, which is the parent company of NOL, decided to throw in the towel.

In the world of aviation, one of the most dreadful radio distress signals is “Mayday!”. When the pilot-in-command made this signal, he would be facing some emergency situations that might be potentially life threatening. On 4 June 2016, it certainly was Mayday for Noble Group when the company’ share price tumbled to its lowest since 2003 after the announcements of a rights issue to raise $500 million and the shock resignation of founder, Richard Elman. This latest episode marks another embarrassing chapter for Noble Group after it was kicked out of the benchmark Straits Times Index in March 2016.

Today, Noble Group’s share price tanked further when the commodity trader announced that the proceeds for the rights issue will be used for working capital instead of paying down its massive debt. Obviously, investors are not happy with the management’s move given that only 20% of the proceeds from rights issue will be used to pay for the net debt of $3.7 billion. Furthermore, the price of the rights issue is at a huge discount of 63% to its price of $0.30 at the date of announcement. As a result, many traders punished the share price and sent it tumbling by 13%.

One of the victims of the global oil crisis, EZRA Holdings announced a set of terrible 2^nd quarter financial results on 14 April 2016. Losses after tax came in at USD282.6 million for 2^nd quarter and USD336.4 million for the first half of the financial year. This is a massive financial loss and there are not many companies in Singapore which can withstand this sort of impact. If EZRA investors are thinking of dollar-cost averaging and buying EZRA shares on the cheap, they need to be careful of catching a falling knife.

The company is actually biting the bullet for 2QFY2016 and realized the impairment losses from all front – loss-making joint ventures, losses on fixed assets and bad-debts. Given the depressing market conditions for the oil and gas industry, it is still unknown whether there is any more impairment to be made for EZRA Holdings further down the road.

Many investors thought that dollar-cost averaging is a good strategy to buy more shares at a lower price. But many of them don’t understand the difference between price and value. This technique, if applied wrongly, can cause massive wealth destruction to an investor’s portfolio, especially if the business fundamentals of the company are shaky.