Stocks

On 3^rd February 2017, SIA Engineering Company announced 3Q results for 2016/17. It wasn’t exactly an impressive set of results but the data certainly reveals some interesting aspects of the company’s performance against the backdrop of a challenging operating environment for the maintenance, repair and overhaul (MRO) sector. This will be another research report on SIA Engineering Company (SIAEC).

Traditionally, SIAEC has a solid business model because it provides maintenance, repair and overhaul (MRO) of aircraft, engines and related components and offers the complete MRO suite of services. The business is recurring and with its vast network of joint ventures, the MRO stalwart managed to build an impressive investment moat in Singapore, rivalled only by local competitor, Singapore Technologies Aerospace.

However, the emergence of new generation aircraft with high reliability looks set to disrupt SIAEC’s business model because of the decline in demand due to extended maintenance intervals and lesser work-scope. In light of this, the management has started to position itself for the future through several initiatives.

Given that its joint ventures contribute a substantial amount of profits consistently to SIAEC, the management rationalized its portfolio of joint ventures periodically to extract value for shareholders. Some of these initiatives include restructuring and merger of associated entities and development of capabilities to support new generation aircraft.

On 14 February 2017, OCBC reported a net profit after tax of S$3.47 billion for the financial year ended 31 December 2016, a decline of 11% compared to last year. Not surprisingly, the decline in earnings was due to an increase in net allowances for loans, mainly in the ailing Oil and Gas (O&G) sector. The bank has $15.8 billion exposure to this sector and Non Performing Loan (NPL) has crept to $1.3 billion. Will Ezra sink OCBC share price?

Ezra is an offshore contractor and provider of integrated offshore solutions to the global O&G industry. The Group has three main business divisions, namely Subsea Services (“EMAS AMC”), Offshore Support and Production Services, and Marine Services offering a full range of seabed-to-surface engineering, construction, marine and production services globally.

The struggling Ezra recorded a net current liability position of US$887,220,000 for the financial year ended 31 August 2016. It seems that Ezra has miscalculated the business risks and this led to  various obligations owed to financial lenders and trade creditors. The troubled company recently flagged that it could possibly write down $170 million worth of investment due to problems with one of its joint ventures, EMAS Chiyoda Subsea.

Amid all these troubles, Ezra announced that it is undergoing a restructuring exercise to “preserve value for the Group”.

The rationale for this stock research arises from my recent decision to invest in a reputable REIT with a consistent track record of cash distribution per unit (DPU). Another factor of consideration is the quality of the management in strategizing growth for the company. Suntec REIT seems to fit the bill and hence, this shall be my first analysis on this venerable SGX stock.

New chapter for Suntec REIT

Listed on 9 December 2004 on Singapore Exchange mainboard, Suntec REIT is the first composite REIT in Singapore, owning income-producing real estate that is primarily used for retail and/or office purposes. 2016 had been an eventful year as the company expanded its footprint in Australia and navigated through the soft retail market reasonably well. For 2017, the change of CEO of the Manager will herald a new chapter for Suntec REIT.

On 2 December 2016, it was announced that Mr Yeo See Kiat would retire as CEO with effect from 31 December 2016. Mr Yeo has been CEO of the Manager of Suntec REIT for 10 years and has steered the company through significant milestone events through the decade. Some of his notable achievements include overseeing the $410 million asset enhancement of Suntec City, divestment of Park Mall for $411 million and Suntec REIT’s foray into Australia.

On 29 December 2016, SingPost finally unveiled a new Chief Executive Officer (CEO) through appointment of Mr Paul William Coutts who was previously from Toll Global Forwarding, one of the five divisions in the Toll Group. On the basis of the 2Q2016 financial performance, the new CEO will have his work cut out for him. This article contains my analysis of SingPost.

Suffice to say, the business model has been disrupted by digital technologies, which led to declining traditional letter mail volumes in recent years. 2Q2016 financial results revealed that SingPost is a company still “work-in-progress”. Underlying net profit for Q2 fell 27.9% which the company attributed to “transformational investments and challenges”. Total expenses increased by 23.7% due to higher expenses in the eCommerce business and costs related to the new Regional eCommerce Logistics Hub.

As the management embarks on its business transformation journey, the incoming CEO has an unenviable task of leading an institution that has faltered in recent years. While the company is still making profits, operating profits across all its business units declined by doubt digits compared to last year. Its eCommerce unit lost $6.8 million and $10.3 million in Q2 and H1.

The eCommerce unit will likely to continue burning cash as SingPost seeks to enhance the eCommerce logistics capabilities to better serve the region growing online retail markets.

Despite the challenging economic condition, ISOTeam secured a series of new contracts worth $22.7 million, including a third and single largest renewable energy installation project, worth around $6.3 million.

ISOTeam is an eco-conscious Repairs and Redecoration (“R&R”) and Addition and Alteration (“A&A”) specialist in Singapore. I have previously covered this company in my blog before. Founded in 1998 and listed on Catalist of the Singapore Exchange, ISOTeam has successfully undertaken more than 300 public and private sector R&R and A&A projects for more than 3,000 buildings and counting since inception.

With  market capitalization of only $121 million, ISOTeam is considered a small player in SGX. However, the company differentiates itself from its competitors by branding itself as an eco-conscious enterprise. They integrate green methodologies in their R&R, A&A and Others projects, and actively work with strategic partners and technology companies to develop and commercialise green solutions / products.

Its foray into the renewable energy segment is also in line with the government’s SolarNova programme, which aims to have solar power contribute 350 megawatt-peak (MWp) to Singapore’s energy supply by 2020. There were 400 HDB blocks with solar panels in 2015, and the programme targets to have around 5,500 blocks by 2020, or clean energy for 55,000 four-room flats annually.

OCBC started the year with a bang by announcing that it is considering the sale of United Engineers Ltd (again). Two years ago, the local bank had tried to divest United Engineers (UEL) but the deal did not materialize.

On 7 January 2017, OCBC and its subsidiary, Great Eastern Holding (GEH), appointed Credit Suisse (Singapore) Limited as their financial adviser in connection with the strategic review encompassing the whole of the combined stakes of OCBC Bank and GEH in UEL and WBL.

Both OCBC and GEH hold about 30% of UEL. If the move is successful, it will be a windfall for OCBC as the market capitalization of United Engineers is about $1.7 billion. In view of this, investors immediately bought into the news and chased OCBC share price to nine month high of $9.38.

I believe this time round, the sale of UEL is imminent as the company had been disposing its assets for the past nine months. This included the 42.2% effective interest in Multi-Fineline Electronix, Inc. (MFLEX); 62.6% effective interest in Suzhou Speedling Co., Ltd.; 100% interest in UES Holdings Pte. Ltd.and its subsidiaries and associates; 100% interest in UE Envirotech Pte. Ltd. and its subsidiaries; 100% interest in UE Asia Pacific (Beijing) Co.,

Will Noble Group do an OSIM or Swiber Holdings? The embattled commodity trader is currently at a cross-road as many investors wonder if it can pull off a dramatic recovery.

Once a blue chip stalwart in Singapore stock exchange, the Hong Kong based company is now trading at penny stock price level. The free fall of Noble Group share price wiped off billion of dollars from its market capitalization value and it would have being included in SGX’s watchlist had the Minimum Trading Price rule not being revised recently.

Crisis for Noble Group?

One of the worst fears among investors must be Noble Group becoming the next Swiber, which collapsed and went under judicial management in 2016. The fall of Swiber was due to the prolonged slump in oil prices causing oil and gas companies to cancel infrastructure projects. Another factor that led to Swiber’s shocking downfall was the amount of debts it took on. It was reported that it owed money to 10 banks and DBS alone had about $700 million worth of loan exposure to Swiber.

Those who invested in Swiber shares or its junk bonds are unlikely to get back their hard-earned money.

Similar to Swiber, Noble Group endured a challenging 2016 due to the collapse of commodity prices and the slowdown in China’s economy.

Crisis? What crisis? SGX mainboard-listed company, Challlenger Technologies Limited, appears unfazed in the aftermath of the closure of its 53,000 sqft megastore at Funan DigitaLife Mall since December 2015. Last year has been challenging due to the weak economic sentiment but on the basis of the 3Q2016 financial results, it seems that Challenger managed to reduce the impact of its megastore closure.

Last week. I visited the Challenger Technologies store at Bedok Point mall to purchase a software and was very impressed by their staff’s customer service and efficiency. Prior to the trip, I had done some research online and thus only spend less than 5 minutes in the shop. The whole experience had been positive but in the face of stiff competition from online and brick-and-mortar players in the market, Challenger faces a daunting journey ahead.

While Challenger tried to downplay the significance of the closure of its Funan DigitaLife mall through the rapid expansion of heartland retail stores, it has since moved on and announced a new flagship store at Bugis Junction. Spanning almost 14,000 square feet in space, the basement 1 location is set to open by the second quarter of 2017. In addition to complementing the existing Challenger store at level 3 Bugis Junction, the new flagship store will add to the Group’s overall portfolio of almost 50 stores island-wide.

While the rest of the SGX-listed companies huffed and puffed their way through 2016, SATS was flying high. The share price of this blue chip darling even stormed to a record high of $5.11 in September 2016, setting a gold standard among fellow STI players. Amid the sluggish SGX market performance, it seems very strange that its stock has been so bullish. Just what did the management do that set the company apart from the rest?

The key reason for SATS’ strong performance might be due to its investment moats in two niches –  Gateway Services and Food Solutions. Their Gateway Services encompass airfreight handling, passenger services, ramp handling, baggage handling, aviation security services, aircraft interior and exterior cleaning as well as cruise centre management. Food Solutions include airline catering, institutional and remote catering, aviation laundry as well as food distribution and logistics.

Being a dominant player in provision of gateway services and food supplies, SATS derived most of its revenue from the aviation sector. For 1H16/17, revenue of $752.4 million came from aviation sector, while only $110 million of revenue were derived from non-aviation and corporate.

SATS has many associates, joint ventures and subsidiaries but they contributed only $23.7 million profit in 1H16/17.

As 2016 comes to an end, it is timely to review the significant developments of some of the popular stocks listed in Singapore stock exchange (SGX). Beleaguered Noble Group certainly is in the hit list as it made the headline news for all the wrong reasons. Is the company really doomed or would there be a White Knight for Noble Group?

The free fall of Noble Group’ share price represents one of the most dramatic declines in modern-day equity market. Listed in Singapore stock exchange back in 1997 and backed by China’s sovereign wealth fund, China Investment Corp (CIC), the commodity trading company used to be one of the revered stocks in SGX. Make no mistake, at one point, it was even trading at a record high of $2.40 per share back in 2004. Now languishing at $0.16, those giddy days must seem so surreal to long-term investors of Noble Group.

In fact, Noble Group was still in the elite Straits Times Index (STI) earlier this year but got booted out of the list in March 2016. Then again, being included in the prestigious STI should be the least priority for the management at this moment because there are more pressing problems to deal with.

SIAEC share price crashed to 5 year low! Amid the global economic uncertainties and challenging aviation outlook, SIAEC’s performance continued to slide as revealed in the financial results for 1HFY2016/17. This article contains my latest SIAEC stock analysis. I am not vested in this counter but have been monitoring this maintenance, repair and overhaul (MRO) stalwart for many years.

Operating profit for 2nd quarter declined to $24.5 million as compared to $27.0 million last year. Cash flow from operations was a negative $7.4 million as compared to positive $2.4 million in the previous year. The dismal quarter results reflected the massive challenge faced by the management in navigating SIAEC through this storm.

It is certainly not business as usual for this MRO powerhouse as airlines are buying new aircraft like A350, B787, A320NEO and B737-MAX to replace their older fleets. These new aircraft require less maintenance checks and longer maintenance task intervals, especially in the first few years of entry into service. Arising from this new trend, the MRO sector in Singapore has seen a decline in business for the last 2 years. This is because about 90 per cent of the local aerospace work is tied to aircraft maintenance and repairs.

In August 2016, Singtel increased its investment moats aggressively through the acquisition of stakes in Thailand’s Intouch Holdings Public Company Limited (Intouch) and India’s Bharti Telecom Limited (Bharti Telecom) for a total consideration of S$2.47 billion from parent company, Temasek Holding.

This transaction will be funded through internal cash, short-term debt and proceeds from a share placement of 386 million new Singtel shares to Temasek totalling S$1.605 billion at a price of S$4.16 per new share.

Rationale for acquisition

Investors may think that this is just one of those asset transfers between the two Singapore entities but I view this development differently. To put things into perspective, it is difficult for Singtel to directly acquire foreign telecommunication companies because these are high growth entities and most governments are generally reluctant to let foreign entities own 100% such strategic assets. By purchasing these stakes in Intouch and Bharti through Temasek, SingTel can increase its regional market share without facing foreign regulatory resistance.

Being a regional player, Singtel derived only 29% of its net profit from Singapore in FY2016. The majority of its revenue and profit are driven by its regional joint associates because the management is smart to acquire strategic stakes in telecommunication companies with either number 1 or 2 market share in regional countries.

Listed in SGX’s Catalist board on 9 November 2015, Jumbo Group has Temasek Holding subsidiary and Osim boss among its investors. With such strong support from institutional investors, it is no wonder that its share price surged from $0.25 to the current $0.65. Jumbo Group’s shares is definitely on form but what will be its outlook for 2017?

The one thing I like about Jumbo Group is that its business is simple and easy to understand. Basically as a multi-concept dining food and beverage company, Jumbo has a total of 15 F&B outlets in Singapore and 3 F&B outlets in the PRC, under 5 restaurant brands – Jumbo Seafood, JPOT, NG AH SIO Bak Kut Teh, Chui Huay Lim Teochew Cuisine and J Café. It also manages 1 Singapore Seafood Republic outlet.

As a consumer, I have also patronized many of Jumbo restaurants before and [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

Not a member yet? You may sign up to become a member of SG Wealth Builder. 

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.

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.

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.

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.

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.

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.

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.

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.

On 19 October 2016, SGX reported 1QFY2017 results. Notwithstanding the net profit amounted to $83 million, the overall performance was poor. This is not surprising given that the bourse operator is a proxy to Singapore economy, which has been sluggish for the whole of this year.

Key financial indicators

Revenue: $191 million, down 13% from a year earlier

Operating profit: $97 million, down 17%

Net profit: $83 million, down 16%

Earnings per share: 7.8 cents, down 16%

Interim dividend per share: 5 cents, unchanged

Revenue had been dragged by declines seen in the Equities and Fixed Income and Derivatives segments, both recording a drop of 9% and 22% respectively compared to 2016. The slowing global economic growth and the political uncertainties arising from Brexit resulted in lower trading volumes.

Strength of SGX

However, investors should not judge SGX’s strength on the basis of one quarter’s financial performance alone. The group’s balance sheet is actually very strong – no borrowings and cash-rich. In fact, its current asset amounted to $1.53 billion and total liabilities stood at only $951 million.

Expenses decreased 8% to $93.7 million ($102.3 million), as all expense items declined year-on-year. Total staff costs decreased $2.4 million or 6% to $39.6 million ($42.0 million). 

As Singapore business sentiments soured, retrenchments seem to be the buzzword nowadays.  This is certainly the case for Keppel Corporation, the world’s largest oil rig builder. The difference is that after letting go 8000 of its workforce for the first nine months of this year, Keppel Corporation will retrench even more staff.

The sheer magnitude of this “right-sizing” exercise illustrates the current state of the offshore and marine industry. The reduction in the workload resulted in the shrinking workforce needs and required Keppel Corp to be lean. In the 3QFY16 financial report, the CEO highlighted that the culling of workforce will continue due to the weak demand for oil rigs.

Wind of changes

The root cause of Keppel Corp’s decline is the collapse of the oil price since 2014. The CEO suggested that it could be a “long winter” for the oil rig giant but I see it differently. I don’t work in the oil and gas industry but the emergence of USA’s shale oil may be the ultimate game-changer for the industry.

The discovery of new drilling method in USA to produce oil from shale rocks created a huge capacity boom and this led to the current oversupply issue. Brent crude oil has even dropped below the support level of USD30 per barrel in 2016, making extraction of oil economically unviable.

On 17 October 2016, media conglomerate SPH finally dropped the bombshell. In a media release which highlighted the result of its business review, SPH announced that it will be “right-sizing” to reduce operating costs.

To put things into perspective, this is not the first time that the media company is downsizing. It had previously retrenched more than 100 staff in 2003. It is also no secret that SPH’s revenue has been decreasing at an alarming rate for the past 5 years.

Revenue for FY2012: $1.27 billion

Revenue for FY2013: $1.24 billion

Revenue for FY2014: $1.21 billion

Revenue for FY2015: $1.18 billion

Revenue for FY2016: $1.12 billion

Return on Equity (ROE) declined at an even worse rate, from a respectable 19.3% in FY2012 to a ridiculous 7.129% for FY2016. What exactly went wrong for SPH?

Make no mistake, the company is still making money. In fact, profit after tax for FY2016 was $306 million, a decrease of 17.4% compared to FY2015. The company is also giving out dividends as usual for FY2016.

But SPH investors must realize that it is not exactly business as usual for this media giant. The continuing decline in its business is not a cyclical problem, but really a structural issue that requires massive transformation in its business model.

Today, Yahoo Singapore publishes an article that SPH is expected to retrench about 10 percent of its staff. If the move is official, the retrenchment figure will be higher than the 111 staff it retrenched in 2003.

The sheer number of SPH staff expected to be laid off is frightening. This is because back in 2003, the business condition was difficult due to Iraq war and SARS outbreak. In today’s context, the market condition is not well either but we don’t have any global wars or major pandemic flu taking place.

Thus, even though the Ministry of Trade and Industry (MTI) announced two days ago that Singapore is not experiencing recession at the moment, my concern is that the state of our economy is even more dreadful than what many people might have thought.

Bad economy and headwinds aside, SPH’s poor performance can be attributed to its management’s failure to transform the media giant into a digital power-house. The bulk of its average daily circulation is still in printed copies and its online subscriptions form a small percentage of its daily circulation. This is a worrying trend as Singaporeans lifestyle has changed and apparently, SPH is unable to keep up with the change.

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.