Archives for posts with tag: SGX

This post will come at a time where it’s of no further use to anyone because the deadline for selling the Rights Issue has come and gone but investors have until next Thursday, 28 May to decide whether they want to exercise the Rights and Mandatory Convertible Bonds (MCB).

In brief, the whole point of Singapore Airlines (SIA) Ltd. issuing a 3-for-2 Rights Issue, which gives existing shareholders the right to buy additional shares at a discount, as well as the MCB (295 Rights MCB for every 100 shares) is to raise a boatload of money in light of the COVID-19 situation which has all but brought aviation and its attendant industries to a stop.

The issues are designed to help SIA raise money but without the additional pressure on their liquidity since both issues (as well as the option for another issue of MCBs) aren’t obliged to pay out any cash out.

It’s a smart corporate move since the whole thing is backstopped by Temasek Holdings who is the largest single shareholder in SIA.

Question is: Is it a good deal for minority shareholders?

I was asked by a relative so I did some back-of-the-envelope assessment on the deal and this is what I think. I’ll look at the Rights Issue first followed by the MCBs.

The Rights Issue

Since this is a 3-for-2 Rights Issue, what this means is that if existing shareholders do not take up the offer, their positions will effectively be substantially diluted (40% of the pre-rights level)

So I took the Pre-Rights Issue share price and dropped it by 60%. From the price charts, you can see that on 22 April, SIA was closed at 6.06 while the next day it closed at 4.32 for a drop of slightly less than 30%.

I’m not sure why the market wasn’t fully pricing in the news of the Rights Issue but given the full dilution and assuming the pricing multiples stayed the same, then the price should have fallen to 2.42. Obviously, SIA’s share price hasn’t fallen to that level which means that the market is pricing in some optimism into SIA’s future post capital raising.

On 20 May, the Rights were selling for $0.45 and given that the Rights allows the Rights holder to buy SIA shares at $3.00 per share, then, assuming no transaction costs or arbitrage, a share of SIA should be worth $3.45. On 20 May, the shares were worth 3.57 (and they have increased to about $3.60 in the last few days)

This gives someone who bought the Rights a roughly 4% return if he/she exercises the Rights and if prices stay the same until 8 June when the newly issued shares start trading.

My personal take is that a projected return of about 4% is not worth the trouble given that SIA share price could also drop further.

The Mandatory Convertible Bonds (MCBs)

Now, this issue is somewhat of a different animal.

SIA has a right to call the MCB during it’s 10-year life and depending on when they call it, the return will vary from 4-6% p.a. The kicker is that if they don’t call it and let it mature, the MCB gets converted into shares at a price of $4.84 (at the current equity structure).

I think SIA pretty much has all the upside in this deal. If things look good and they have cash, they can call it early and pay a lower interest rate while if they need to conserve cash, they can always let it mature and dilute equity holders further. Also don’t forget that they’ve got themselves the option of raising more capital in another one of these MCB deals.

Although many investors may think highly of a 4-6% p.a. yield, I would hardly think of this as solid returns. Putting your money in a CPF SA or Retirement Account yields you pretty much the same (of course CPF could always lower interest rates but given that they haven’t despite the low interest rate environment of the past decade, you wonder if there are political constraints to this) but without the business risk involved.

In short

Putting more money in SIA at these terms seem like National Service . The dilution is real and the share price of SIA is not going back to levels like $8-10 with this current level of dilution. Using the EPS*, diluted by only the Rights Issue, of $0.231 and a multiple of 15x gives us a price of $3.47 which basically leads me to believe that the market has all but priced in any upside to SIA.

Also, this EPS is for the most recent year where SIA had 9 solid months and 3 shitty ones. Of the 3 shitty ones, only 1.5 (?) months of it was a complete shutdown on air travel.

The next quarter (Apr, May, Jun) will be positively worse in terms of earnings and even if air travel comes back, I doubt planes will be allowed to carry the sort of loads that they once used to unless there is a proven vaccine.

So, a day after I wrote a report about SPH’s business, the company releases its results for FY2017.

As expected, results are better than last year, all thanks to the divestment of the online classified business which netted them a gain of about $150 million. No one really cared much about that though because, as highlighted by SPH in their press release, their operating revenue was down about $108 million, or 13%, from a year ago.

The difficult thing for SPH now is the fallout from their retrenchment exercise. It’s bad press (pun totally intended!), especially for the new CEO that hasn’t come in with that great a reputation.

While SPH hasn’t slashed the dividend by much, their payout ratio looks terrible. Of course, that little ^ mark matters. Their payout ratio is calculated based on recurring earnings. What does that mean? Only earnings from media and property (and now possibly the education and healthcare) part of the business are counted? If so, that leaves quite a bit of earnings from the investment side and this payout ratio can be considered pretty conservative. After all, with an investment fund of $1.1 billion*, you can get more than pocket change (relative to SPH’s core businesses) in interest and returns. Anyhow, I don’t have enough information to make a conclusion.



Are SPH’s dividends sustainable?

In short, I don’t think SPH’s results are anything out of the ordinary. Mr. Market apparently thinks the same way which is why there has been hardly any reaction to the release of the results. That’s it from me. This will probably be the last post in a long while on SPH unless something interesting develops.

*See their latest (FY2017) presentation slides, page 13.


STI close: 2846.37
PE10: 11.8x

So the big news affecting the markets was the Brexit (UK’s exit from the EU) and that really hit markets on Friday when the results of the referendum were released. I was overseas but had Wifi and saw  markets in Asia get hit with some huge downs like Japan down 7 or so percent. The pound also took a huge hit and European markets all felt the effects of the vote. No surprise that when US markets opened that night, they were hit as well.

What was surprising was the speed of the recovery. The STI wasn’t really down much and from Tuesday (28th June) began a modest recovery. I was really anticipating further hits to the market (or maybe they have yet to come) and added very small positions.

The main point is, if I was away till yesterday or today and didn’t have access to the market, the whole impact of the Brexit wouldn’t have been felt at all! Overall, my portfolios have been doing nicely despite the horrendous start to the year and much credit goes to my investment plan.

Half the year’s over. How’s your portfolio doing?

When I last wrote about bear market history in Singapore, it was July 2011. The financial market pain lasted for another 2-3 months from then.

If you look at this table (reproduced from the post in the link) again, it gives one a sense of what to expect.

Click for bigger image

Click for bigger image

Now the above table doesn’t account for 08/09, 2011 or what we’re currently going through now. Let’s update those numbers a little.

2008/2009- Global financial crisis/ 3857.25 (high in ’07) to 1513.12 (low in Mar ’09), -60% (% change) / 511 days

2011- Euro debt crisis (??)/ 3261.65 (high in Jan ’11) to 2640.30 (low in Oct ’11), -19% (% change) / 273 days

Obviously, 2011 was technically not a bear market but it sure felt like it. In fact, one might even say that everyone was expecting 2011 to be the bear that we’re experiencing now and that could have the trigger for the bull run prior to the fall we’re experiencing now.

More importantly, where do we stand now?

2015/2016 – Oil, China, Commodities rout / 3539.95 (high in Apr ’15). Given today’s close of 2559.75, we have had a total of a  -27.7% drop over a total of 280 days.If we’re lucky, we’ll just have another 10% more of declines to go; If not, we’re looking at another 30%.

This bear has obviously felt more painful than the last one, especially so because things didn’t look very expensive from a PE10 point of view so I’ve been very early in suggesting that it’s not a bad time to get invested.

Oh, and how long more will the pain last? History suggests anywhere from 0-360 days. Either way, hang on for the ride!


*The percentage declines are what we need from today’s close in order to reach -35% and -50% from the high of 3539.95.

We’re coming to the end of the year and markets haven’t been nice to most investors this year. Anyhow, there’s still one more month till the end of the year and the PE10 says that markets are cheap.

Market Close: 2883.64
PE10: 12.05x

Notables include the fact that PE10 earnings have stopped trending upwards which means that actual earnings are coming in low and pulling the average down. Also notable is the fact that this is the longest streak (in months) that PE10s have remained low* since the GFC (in late ’08/early ’09). This latest streak has the PE10 at the lowest decile for 4 months (including this latest update) while the GFC streak was at 7 months.

Will this streak surpass the previous one? Only time will tell.

*On my spreadsheet, I have the monthly PE10s sorted into deciles.

Markets have been taking a beating these couple of days so I thought I’d do a post on where it stands right now and what should you do.

As of today’s (21 Aug 2013) close, the STI has given up all its gains and then some (from 3201.74 on 2 Jan to 3108.99 today). From its peak of 3454.37 on 22 May 2013, the STI is now down 10%. Now, that’s halfway to bear market territory and significant but not anywhere near the horrors of 08/09. See TRB’s take on what that means.

Josh Brown's take on what the dips mean (souce: The Reformed Broker)

Josh Brown’s take on what the dips mean (souce: The Reformed Broker)

Valuation-wise, where do we stand?

Well, on a PE10 basis, the STI stands at 14.08, not bargain territory but certainly not a level that should make us worry about being terribly overvalued. For the record, the last 3 times we were at 14x PE10, the market returned 20.6%, 21.1% and 54.9% over the next one year. That was if you had bought the STI in June ’12, Jan ’12 and Apr ’09 respectively and held it for a period of one year (which in my book is too short a holding period!). This isn’t to say that you would definitely get the same returns (the stock market and economy is a far too complex creature to make definite predictions) but I would say that the odds are in your favour as far as valuations are concerned.

Personally, I haven’t been buying anything since mid-June. Even then, it was a nibble predicated on a dip. I will definitely be putting some cash to work given that my cash levels are up to 30-40% in some of my portfolios due to the building of my cash hoard from savings as well as dividend inflows.

As always, I’m going to be selective and bargain hunt in the sectors that have been trashed. So what should you do? Well, it depends. If you’re a young investor with a regular stream of income, this would be as good as any other time to pick up some good businesses and/or start to build your portfolio.

If you’re a highly leveraged ‘investor’ (read: Trader/day trader) who is long, then woe be to you.

PS: I’m aware of Jeremy Siegel’s criticism of the PE10 (CAPE) but that’s another thing for another time.