SG Wealth Builder

At a time when Starhub and M1 share prices are dropping like flies, Singtel share price is in supreme form. The corrections for Starhub and M1 shares are due to the announcement of the entry of the fourth telco player, TPG Telecom, which made the winning bid of $105 million for the licence in December 2016.

When investing in stocks, always place your bets on the players with the biggest investment moats in the industry. Size matters and you don’t want to catch a falling knife investing in smaller companies which cannot withstand changes in market forces.

Singapore market

Over the past twenty years, the telecommunication industry in Singapore has witnessed an explosive growth in mobile phone penetration rate, growing from 20% to the current 150%. In view of this, the market is already very saturated and the potential for growth is also limited because of Singapore’s small market size. Investors who had placed their faith on domestic players like Starhub and M1 must have reality check as these companies’ growth hinge purely on Singapore market.

Starhub and M1 have amassed huge following among Singaporean investors because of their attractive dividend payouts over the past decade. But experience has taught me that while past performance is relevant, it cannot guarantees future performance.

Recently, I received the following email query on The Hour Glass Limited, one of the famous brands for luxury watches in Singapore. Hence, I decided to craft a post to capture some quick thoughts on this SGX-listed stock.

Hi there,

Chanced upon your blog while doing research on The Hour Glass Limited. Could I know whats your take on the management shuffle going on now? Quite a few board level executives are moving on.

Cheers

To be frank, apart from the resignation of Ms Wong Mei Ling as the Managing Director of Singapore, I am not aware of any major management shuffle going on within The Hour Glass Limited.

I have previously written an investment analysis on The Hour Glass Limited. Check out the report here.

According to the SGX filing, Ms Wong was responsible for the business development and management of The Hour Glass’ Singapore Division and her departure was due to her pursuit of other interests. Prior to that, Ms Lim Jee Yah resigned as Managing Director of Luxury Enterprises in July 2016.

Family feud

Ultimately, investors must note that The Hour Glass is a family-owned and family-run business. So the departure of Ms Wong and Ms Lim should not be major concerns as the company founders are still managing the business.

On 20 February 2017, Raffles Medical Group announced a record revenue of S$473.6 million for the year ended 2016, demonstrating its ability to maintain growth amid challenging economy. The result was impressive because it presented a 15.4% growth from 2015, driven by positive contributions from all business divisions.

Investment moats

Raffles Medical Group is one of my favorite stocks which I am not vested in but am constantly monitoring its progress for future investment purposes. Being one of the leading private healthcare service providers in Singapore, this company sets itself apart from the rest of its competitors with its strong investment moats.

Raffles Medical boosts RafflesHospital as its flagship, offering a wide range of specialist medical and diagnostic services for both inpatients and outpatients. Raffles Medical clinics form one of the largest networks of private family medicine centres in Singapore while RafflesDental is a team-based dental group in Singapore comprising of a specialist dental practice at Raffles Hospital and a network of general dental clinics. RafflesHealthinsurance provides healthcare insurance to corporate and individual clients.

However, Singapore market is too small and with local competition heating up over the past few years, it is inevitable for Raffles Medical to expand overseas to seek growth.

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.