47 Undervalue SG Property Stocks for Privatization including Perennial (弱肉强食)

Posted on June 13, 2020 Written by
Singapore Undervalue Property Stocks Perennial Privatization

Perennial Real Estate Holdings (SGX: 40S) becomes the next target for privatization. However, not all the acquisition news is good for retail investors. In this article, Dr Tee will share the considerations by Big Boys or major shareholders to acquire or privatize a stock with Perennial as an example, with sharing of Reverse Takeover (RTO) stocks. You will learn the 47 undervalue Singapore property stocks which are profitable with over 50% price discount in asset value.

Interestingly, Perennial started its property business in year 2014 through Reverse Takeover (RTO) of St. James Holdings (entertainment business) which IPO in 2008. RTO is a quick way of “IPO” by acquiring an existing company which could be different business nature. A more famous example would be RTO of Berkshire Hathaway (NYSE: BRK) by Warren Buffett in year 1965, transforming an original textile manufacturing company into an insurance company.

There are quite a few property related stocks also get listed indirectly through RTO, eg. Hatten (SGX: PH0) and Centurion (SGX: OU8) / (HKEx: 6090). Therefore, a stock investor has to be careful in analysis of stock prices and business fundamental, viewing the RTO company as new IPO company, especially if the business is totally different with new management. So, the past performance (share prices and businesses) would not be meaningful references after RTO.

Perennial original IPO (under St. James) price was $12.95/share which shareholder would “lose” 95% if compare with price of $0.69/share before the privatization offer of $0.95/share. However, Years 2008-2014 was reflection of St James share prices and businesses. Perennial actual stock record should be from Years 2014-2020, share prices vary from about $1 to about $0.30 during the recent Covid-19 crisis.  Perennial is not a giant stock but it is also not a junk stock. The bearish stock prices over the past 6 years are aligned with other Singapore property stocks (quite many are corrected by over 50% in share prices).

However, Perennial is relatively weaker than other Singapore property stocks. Therefore, the recent offer $0.95/share (despite lower than RTO price when Perennial first started in 2014) is considered attractive to investors after RTO. It is getting harder to delist or privatize a company in Singapore, therefore the offer must be significantly higher (38% for this case) to extend the current 82% shareholding to over 90% for mandatory takeover.

Perennial major shareholders include Wilmar (SGX: F34), together with other “big boys”, although 38% premium in offer price seems attractive but this amount (about $277M) will be paid by the new investor, Hopu Fund of China. Perennial has many good quality properties in both Singapore and China, last 1 year has significant cash from investing (sales of property), currently having $120M cash in the company which will be unlocked after privatization. More importantly, the company is undervalue, Price-to-Book (PB) ratio is 0.44 with 56% discount.  This implies that the offer to 18% minority shareholders is technically “free” to major shareholders as Net Asset Value (NAV) is $1.58/share. Assuming PB of only 0.75 (25% discount) as market price (if were to sell the properties today), then the value gained from privatization would be $390M, more than enough to cover $277M cash. 

Nevertheless, it is unlikely for Perennial to sell properties cheaply after privatization. With both high-quality commercial buildings and promising healthcare services, there is always an option for the company to get listed again (could be in other stock exchange) in future with higher valuation after another IPO or even RTO.

A few years ago, Wheelock Properties (SGX: M35) with over 50% discount in PB was acquired by parent company in Hong Kong, Wheelock Co (HKEx: 20), cash unlocked after acquisition was more than cash offered.  Therefore, some cash rich companies have also tried to delist the company but not all the Big Boys are lucky. Previously, Challenger Technologies (SGX: 573) could not pass this barrier due to objection by minority shareholders as the company is fundamentally strong with cash rich. Breadtalk (SGX: CTN) acquisition offer was attractive partly due to severe stock crisis during Covid-10.

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There are 140 property & construction stocks in Singapore (REITs are excluded, see earlier articles by Dr Tee if interested: www.ein55.com/blog), many are undervalue but also losing money, “Buy Low” may simply get lower in share price.

3Cnergy (SGX: 502), A-Smart (SGX: BQC), AEI^ (SGX: AWG), AIMS Property (SGX: BVP), APAC Realty (SGX: CLN), Abterra (SGX: L5I), Acromec (SGX: 43F), Amara (SGX: A34), Amcorp Global (SGX: S9B), AnnAik (SGX: A52), Astaka (SGX: 42S), BBR (SGX: KJ5), BRC Asia (SGX: BEC), BlackGoldNatural (SGX: 41H), Boldtek (SGX: 5VI), Bonvests (SGX: B28), Boustead (SGX: F9D), Boustead Projects (SGX: AVM), Bukit Sembawang (SGX: B61), Bund Center (SGX: BTE), CSC (SGX: C06), CapitaLand (SGX: C31), Casa (SGX: C04), Chemical Industries (SGX: C05), China Great Land (SGX: D50), China International (SGX: BEH), China Real Estate (SGX: 5RA), China Yuanbang (SGX: BCD), Chip Eng Seng (SGX: C29), City Development (SGX: C09), DISA (SGX: 532), Debao Property (SGX: BTF), ETC Singapore (SGX: 1C0), Edition (SGX: 5HG), EnGro Corporation (SGX: S44), Fraser and Neave F&N (SGX: F99), Far East Orchard (SGX: O10), Figtree (SGX: 5F4), First Sponsor (SGX: ADN), Fragrance (SGX: F31), Frasers Property (SGX: TQ5), GYP Properties (SGX: AWS), Gallant Venture (SGX: 5IG), Golden Energy (SGX: AUE), Goodland (SGX: 5PC), GuocoLand (SGX: F17), HL Global Enterprises (SGX: AVX), Hatten Land (SGX: PH0), Heeton (SGX: 5DP), Hiap Hoe (SGX: 5JK), Hiap Seng (SGX: 510), Ho Bee Land (SGX: H13), Hock Lian Seng (SGX: J2T), Hong Fok (SGX: H30), Hong Lai Huat (SGX: CTO), Hong Leong Asia (SGX: H22), Hongkong Land USD (SGX: H78), Hor Kew (SGX: BBP), Huationg Global (SGX: 41B), Hwa Hong (SGX: H19), IPC Corp (SGX: AZA), ISOTeam (SGX: 5WF), Imperium Crown (SGX: 5HT), Jasper Investments (SGX: FQ7), KOP (SGX: 5I1), KSH (SGX: ER0), Keong Hong (SGX: 5TT), Keppel Corp (SGX: BN4), Keppel Reit (SGX: K71U), King Wan (SGX: 554), Koh Brothers (SGX: K75), Koon (SGX: 5DL), Kori (SGX: 5VC), LHN (SGX: 41O), Ley Choon (SGX: Q0X), Lian Beng (SGX: L03), Low Keng Huat (SGX: F1E), Lum Chang (SGX: L19), MMP Resources (SGX: F3V), MYP (SGX: F86), Metro (SGX: M01), OIO (SGX: KUX), OKH Global (SGX: S3N), OKP (SGX: 5CF), OneApex (SGX: 5SY), Oxley (SGX: 5UX), PSL (SGX: BLL), Pacific Century (SGX: P15), Pacific Star Development (SGX: 1C5), Pan Hong (SGX: P36), Pavillon (SGX: 596), Perennial Holdings (SGX: 40S), Pollux Properties (SGX: 5AE), PropNex (SGX: OYY), Raffles Infrastructure (SGX: LUY), Regal International (SGX: UV1), Renaissance United (SGX: I11), Rich Capital (SGX: 5G4), Roxy-Pacific (SGX: E8Z), Ryobi Kiso (SGX: BDN), SHS (SGX: 566), SLB Development (SGX: 1J0), SP Corporation (SGX: AWE), Sasseur Reit (SGX: CRPU), Second Chance (SGX: 528), Sin Heng Mach (SGX: BKA), Sinarmas Land (SGX: A26), SingHaiyi (SGX: 5H0), SingHoldings (SGX: 5IC), Singapore-eDev (SGX: 40V), Sinjia Land (SGX: 5HH), Soilbuild Construction Group (SGX: S7P), Starland (SGX: 5UA), Straits Trading (SGX: S20), Swee Hong (SGX: QF6), Sysma (SGX: 5UO), TA (SGX: PA3), TTJ (SGX: K1Q), Tai Sin Electric (SGX: 500), Thakral (SGX: AWI), Thomson Medical Group (SGX: A50), Tiong Seng (SGX: BFI), Top Global (SGX: BHO), Tosei (SGX: S2D), Transcorp (SGX: T19), Tritech (SGX: 5G9), UIC (SGX: U06), UOA (SGX: EH5), UOL (SGX: U14), USP Group (SGX: BRS), Vibrant Group (SGX: BIP), Wee Hur (SGX: E3B), Wing Tai (SGX: W05), Yanlord Land (SGX: Z25), Yeo Hiap Seng (SGX: Y03), Ying Li International (SGX: 5DM), Yoma Strategic (SGX: Z59), Yongmao (SGX: BKX), Yongnam (SGX: AXB), Yorkshine (SGX: MR8).

There are only 47 undervalue (PB < 0.5) Singapore property stocks are profitable in the last 1 year, including Perennial.

From table below, we could see property stocks with PB = $/NAV from 0.13 to 0.5. Despite over 50% discount in share prices over NAV with profitable business, majority of stocks are not giant stocks. An undervalue stock may remain undervalue for a long term, sometimes may be even acquired by Big Boys at low optimism price in a bearish stock market (弱肉强食).

NoNameTickerPB = Price/NAVROE (%)
1Huationg Global41B0.135.3
2Hor KewBBP0.161.0
3Top GlobalBHO0.180.2
4CasaC040.184.5
5ETC Singapore1C00.225.8
6Hong Lai HuatCTO0.231.4
7Hong FokH300.245.6
8Koh BrosK750.241.9
9SP CorpAWE0.244.5
10Pavillon5960.241.1
11HongkongLandH780.250.5
12Heeton5DP0.253.0
13HL Global EntAVX0.271.1
14Tiong SengBFI0.284.0
15Lian BengL030.284.7
16China IntlBEH0.305.6
17Sinarmas LandA260.3015.1
18AnnAikA520.313.3
19TTJK1Q0.342.3
20Vibrant GroupBIP0.343.8
21Keong Hong5TT0.367.3
22Far East OrchardO100.372.1
23Chemical IndC050.388.8
24Pan HongP360.3815.4
25Ho Bee LandH130.399.4
26Hiap Hoe5JK0.392.9
27King Wan5540.401.6
28LHN41O0.408.3
29ThakralAWI0.416.7
30MetroM010.415.6
31Yanlord LandZ250.4111.9
32Wing TaiW050.421.3
33EnGroS440.424.7
34BonvestsB280.430.4
35Kori5VC0.430.2
36GuocoLandF170.436.1
37Perennial Hldgs40S0.440.1
38Low Keng HuatF1E0.441.9
39Straits TradingS200.445.6
40UICU060.448.3
41Pollux Prop5AE0.442.5
42SingHaiyi5H00.440.1
43Wee HurE3B0.448.8
44SingHoldings5IC0.4515.4
45Lum ChangL190.459.1
46Chip Eng SengC290.483.6
47Hong Leong AsiaH220.504.5

Based on Dr Tee criteria, from the 47 shortlisted Singapore property stocks above, only 8 are giant stocks. A few undervalue property giant stocks were mentioned in earlier articles (see https://www.ein55.com/tag/property-stocks/), eg. GuocoLand (SGX: F17) and Hongkong Land (SGX: H78). However, not all major shareholders are interested of delisting the undervalue property stocks because some are family owned for decades, value of shares may recover to NAV only when they are ready to sell one day.  It may be hard for Big Boys or external funds to acquire. For example, Li Ka-shing was hoping to acquire Hongkong Land in 1980s but was rejected with tighter control by parent stock from Jardine Group, Jardine Matheson Holdings JMH (SGX: J36) and Jardine Strategic Holdings JSH (SGX: J37).

Property stocks (both Singapore and regional stock markets in Malaysia and Hong Kong, etc) are cyclic in nature. Therefore, market cycle investing strategy is required with alignment to Optimism Strategies to Buy Low Sell High, as well as good understanding the local property market cycle.  Property stocks is an integration of stock and property markets, knowledge in both markets are required to enhance the chances of success in investing.

Undervalue stocks are bonus for additional safety (huge discount in price below value with high quality asset of property), especially for property stocks but mainly suitable for patient long term investors.  A smart investor may integrate undervalue stocks with dividend strategies. This is suitable for passive income investing, similar to property investment, an alternative to REITs but an investor of property stock (non-REIT) could also enjoy the capital gains (or suffer the losses) of property valuations, not just the rental income. For example, many property stocks (including Hongkong Land) are lower in valuation (affecting earnings) in Hong Kong but cash flow is not much affected.

So, reading between the lines for 3 financial reports (Income Statement, Balance Sheet, Cash Flow statement) are important to fully understand the property stocks, especially property development company has different project cycles which may last a few years, resulting in cyclic property business results and stock prices. So, Level Analysis of Level 1 (individual stock), Level 2 (Property Sector), Level 3 (local country) and Level 4 (world economy and global stock market) are required.

There are hundreds of global property giant stocks (may not need to be undervalue), an investor just needs to select 1 of Top 10 property stocks, adding to a dream team stock portfolio of 10-20 giant stocks (eg. best stock in each sector, min 3 sectors: REIT, Healthcare, F&B, Oil & Gas, Bank, Commodity, Insurance, etc). Value investors may own these 10-20 companies at undervalue price to work for us through shareholding, generating incomes (capital gains of higher share prices and dividend payment) over a lifetime (even beyond own retirement) with yearly review of giant stock status to continue the holding. So, every stock crisis is an opportunity to Buy Low with condition that it must be a giant stock.

There are 30 STI index component stocks including property stocks: CapitaLand, Hongkong Land, City Development and UOL (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), Hongkong Land (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

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7 CapitaLand Giant REITs for Dividend (CMT + CCT = CICT) (双剑合璧)

Posted on April 29, 2020 Written by
CapitaLand Giant REITs for Dividend

CapitaLand is Temasek property giant stock, having 2 giant Singapore REITs: CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT). Many Singapore investors like REITs for passive income generation through quarterly dividend payment. After the announcement of merging, both REITs suffer about 40% price correction during global stock crisis with Coronavirus fear, dividend yields are more than 6%, attractive for long term investors.

Some potential REIT investors would like to know should they invest in CMT or CCT before the merging, which one has more potential, or should they wait until the merging of 2 REITs into CapitaLand Integrated Commercial Trust (CICT), the largest Singapore REIT by June 2020.

Read the article further to find out the critical answers for CMT and CCT, not learning only 2 REITs but all 7 stocks related to parent stock CapitaLand, including 4 REITs and trusts in the same group: Ascendas REIT, Ascott Residence Trust, Ascendas India Trust and CapitaLand Retail China Trust.

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CapitaLand is the largest property developer in Asia (after merging with Ascendas and Singbridge), becoming a key Temasek property investment portfolio.  CapitaLand has total of 6 REITs / Business Trust in Singapore:

1) CapitaLand (SGX: C31) – Singapore Property Giant Stock

2) CapitaLand Mall Trust, CMT (SGX: C38U) – Retail REIT Giant Dividend Stock

3) CapitaLand Commercial Trust, CCT (SGX: C61U) – Office REIT Giant Dividend Stock

4) Ascendas REIT (SGX: A17U) – Industrial REIT Giant Dividend Stock

5) Ascott Residence Trust (SGX: HMN) – Hospitality REIT Dividend Stock

6) Ascendas India Trust (SGX: CY6U) – Business Trust Dividend Stock

7) CapitaLand Retail China Trust (SGX: AU8U) – Retail REIT Dividend Stock

In summary, all 7 CapitaLand group of stocks have reasonable strong business fundamental, all 6 REITs / trusts may be considered for dividend investing but only 3 of them are giant REITs stocks (based on Dr Tee giant criteria): CMT, CCT and Ascendas REIT. Sibling stocks of Ascott Residence Trust, Ascendas India Trust and CapitaLand Retail China Trust are relatively weaker, more suitable for pure dividend investing but subject to cyclic stock market risk (eg. capital loss during global stock crisis with limited long term growth). Parent stock, Capitaland, is a blue chip stock, behaving as if a fund with all the subsidiary stocks, more suitable for low capital investor who needs diversification.

There are 30 STI index component stocks including CapitaLand Mall Trust and CapitaLand Commercial Trust (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), HongkongLand (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

By law, 90% of REIT incomes has to be redistributed back to shareholders in the form of dividend, therefore it is a popular passive income generator. If a REIT pay 4 times yearly, an investor with 3 REITs could receive 12 payments yearly, helping to offset monthly expenses. When return from monthly dividend is more than monthly expenses, an investor would become financial free. However, certain REITs may not pay consistent dividend due to unstable business and a few could even go bankrupt if not properly managed. Business Trust (eg. Ascendas India Trust) seems similar to REIT but it is not required by law to pay dividend, therefore creating an uncertainty in the future which dividend payment is not guaranteed.

In this article, we will focus on 2 giant REITs, CMT and CCT which will be merged soon. Sharing is for educational purpose, please make your own decision. Before merging announcement, CMT performs relatively better than CCT from overall investing consideration.  So, CCT investors would benefit more than CMT investor.

CapitaLand Giant REITs for Dividend CCT CMT

The merging deal is for CMT to acquire CCT by exchange every share of CCT with 0.72 share of CMT + cash $0.259/share.  Since the announcement from 22 Jan 2020 until today, CMT and CCT share prices are closely correlated as mirror image with this formula:

CCT = 0.72 CMT + 0.259

It means after the merging announcement, there is not much difference now as CMT and CCT prices movement of stocks follow the equation above closely. Even if an investor is interested in CMT, the decision of whether to invest now or after official merging in June 2020, should be based on stock market outlook, not expecting any drastic change in share price after the official merging.  In fact, over the past 2 months of global stock crisis, both CMT and CCT dropped by about 40% in share prices, even after recovering in the last few weeks, CMT is still at low optimism < 25%. In general, before merging, CMT is more defensive while CCT is more cyclic, therefore future CICT REIT may behave in between both REITs, more cyclic than CMT, more defensive than CCT.

Coronavirus pandemic has affected both CMT and CCT as some tenants may not pay rents on time but this could be recovered later when Coronavirus has ended or fading away over the next few months.  Occupancy rates of both REITs are high (about 99%), any withdrawal by tenant (eg. a few weaker F&B or consumer companies may not be able to sustain) may be quickly replaced by new tenant but rental increase would be limited. If Coronavirus is not a long term issue (under the worst case, vaccine could be developed in about 1 year), major correction in share prices for either CMT or CCT could be an opportunity to accumulate with dividend yield around 6%. Assuming the worst case of losing 20% tenants (dropping from 99% to 80% occupancy) if Coronavirus may stay for 1 more year with 20% people in the world staying at home during lockdown, average dividend yield is correct to around 5%, still better than keeping cash in bank with only 1% dividend. When crisis is over, an investor could enjoy the capital gains with potential share price appreciation due to market greed.

Before merging, CMT and CCT already has joint portfolio, eg. Raffles City (40% CMT, 60% CCT). After merging, the new CICT REIT would dominate both retail shopping malls and offices in Singapore, having more capital to expand in overseas.  However, inorganic growth through more acquisition (eg. overseas properties) may or may not add value to CICT as it depends on expertise of REIT manager, able to find high quality properties at discounted prices (eg. during economic crisis), adding more potential to DPU (dividend per unit). Over expansion sometimes may result in higher risk (higher gearing ratio, which would become higher after merging as CMT has to pay some cash to CCT investors) but acceptable for CICT with dual level sponsors of CapitaLand and Temasek.

There could be more merging and acquisition activities during the global stock crisis. A giant stock does not need to be the “biggest” company, more importantly, strong in fundamental with growing business, therefore even a small company could be a giant stock.

A smart investor may consider only the strongest subsidiary giant stock of CapitaLand group, which is protected by the sponsor CapitaLand, which is further protected by another bigger sponsor, Temasek.  This implies for the giant stock to fail (eg. go bankrupt), it has to hurt CapitaLand or even Temasek first.  However, safer stocks may not be the best choice for investment as growth are limited.

There are 52 REITs and Business Trusts stocks including CapitaLand Mall Trust and CapitaLand Commercial Trust (investor has to focus only on giant stocks for investing):
AIMS APAC Reit (SGX: O5RU), ARA Hospitality Trust USD (SGX: XZL), ARA LOGOS Logistics Trust (SGX: K2LU), Ascendas Reit (SGX: A17U), Ascendas India Trust (SGX: CY6U), Ascott Trust (SGX: HMN), Asian Pay Tv Trust (SGX: S7OU), BHG Retail Reit (SGX: BMGU), CapitaLand Commercial Trust (SGX: C61U), CapitaLand Mall Trust (SGX: C38U), CapitaLand Retail China Tr (SGX: AU8U), CDL Hospitality Trust (SGX: J85), Cromwell Reit EUR (SGX: CNNU), Cromwell Reit SGD (SGX: CSFU), Dasin Retail Trust (SGX: CEDU), Eagle Hospitality Trust USD (SGX: LIW), EC World Reit (SGX: BWCU), Elite Commercial Reit (SGX: MXNU), ESR-REIT (SGX: J91U), Far East Hospitality Trust (SGX: Q5T), First Reit (SGX: AW9U), Frasers Centrepoint Trust (SGX: J69U), Frasers Hospitality Trust (SGX: ACV), Frasers Logistics & Commercial Trust (SGX: BUOU), FSL Trust (SGX: D8DU), HPH Trust SGD (SGX: P7VU), HPH Trust USD (SGX: NS8U), IREIT Global (SGX: UD1U), Keppel Infrastructure Trust (SGX: A7RU), Keppel Pacific Oak US REIT (SGX: CMOU), Keppel DC Reit (SGX: AJBU), Keppel Reit (SGX: K71U), Lendlease Reit (SGX: JYEU), Lippo Malls Trust (SGX: D5IU), Manulife Reit (SGX: BTOU), Mapletree Commmercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), Mapletree North Asia Commercial Trust (SGX: RW0U), NetLink NBN Trust (SGX: CJLU), OUE Commercial Reit (SGX: TS0U), ParkwayLife Reit (SGX: C2PU), Prime US Reit (SGX: OXMU), RHT HealthTrust (SGX: RF1U), Sabana Reit (SGX: M1GU), Sasseur Reit (SGX: CRPU), Soilbuild Business Space Reit (SGX: SV3U), SPH Reit (SGX: SK6U), Starhill Global Reit (SGX: P40U), Suntec Reit (SGX: T82U), United Hampshire US Reit (SGX: ODBU).

Learn from Dr Tee 4hr Free investment course on global dividend giant stocks to collect passive income during low optimism in stock crisis, then enjoying capital gains with growing share prices when crisis is over.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

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Temasek Acquires Crisis Stock Keppel Corp (趁虚而入)

Posted on April 3, 2020 Written by
Temasek acquires Keppel Corp BN4 stock

Temasek has offered partial acquisition to Keppel Corp (SGX: BN4) shareholders at the price of $7.35/share up to 51% ownership over 1 year period (with some conditions applied). Since this is not a full acquisition, some investors may be confused of what is fair price for Keppel Corp. Let’s study this acquisition offer in details.

Temasek owns 20.45% of Keppel Corp, intending to purchase shares owned by remaining shareholders (100 – 20.45% = 79.55%) to top up to 51% (still need 51% – 20.45% = 30.55%). So, it is partial acquisition of 30.55/79.55 = 38.4%. It means for every 1000 shares, 384 unit will be acquired.

The offer price of Temasek at $7.35 is about 20% premium over the average price before acquisition, aligned with several other acquisitions in Singapore. However, it only has 38.4% power, not the same as 100% power as other full acquisition (eg. Breadtalk current acquisition offer of $0.77, price would surge near to this price overnight after the announcement). Assuming the Keppel Corp share price is $5/share (on certain day), the theoretical share price after 38.4% partial acquisition = $5 + (7.35 – $5) x 0.384 = $5.90/share. Reader may replace this equation of $5 share price with any latest share price of Keppel Corp before acquisition.

Over the past 1 month of global stock crisis, Singapore stocks fall by about 30% in average but Keppel Corp only falls about 20%, aligning with 38.4% potential acquisition by Temasek which is about 1/3, therefore the stock corrections is also reduced by about 1/3 from 30% to 20%.

It means the global stock crisis still has about 60% impact on Keppel Corp prices. Therefore, an investor has to make decision mainly based on global stock crisis and current stock market condition with Keppel Corp value, not to assume price would recover to $7.35/share price eventually.

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Keppel Corp is a diversified corporation with 4 businesses: offshore &marine, property, infrastructure and investment. The 2 main pillars are Property (Keppel Land, contributing to about 50% company profits) and Oil & Gas (Keppel O&M, main source of losses over the past few years). Over the past 5 years after the oil price fell from $100 to $27/barrel, Keppel Corp suffers directly as main clients reduce the capital expenditure (eg. oil rigs), therefore Oil & Gas becomes a losing segment. 

Since 2015 crude oil crisis, Keppel Corp has temporary lost the giant stock title, currently a marginal giant (likely will become giant stock again after oil & gas sector recovery). Luckily Keppel Corp still has 50% earnings from Property (eg. Keppel Land and Keppel Reit), even Oil & Gas is a loss for several years (recovering to small profits in last 1 year), the entire company as a whole could still make a profit. Compared with competitor or sibling, Sembcorp Marine (SGX: S51, also owned by Temasek through Sembcorp Industries) which has full risk exposure to oil & gas crisis, losing money for several years, resulting in share prices falling from $5 to $0.70 (last 17 years low).

Some may think it is “cheaper” to invest in Sembcorp Marine stock (85% correction) compared to Keppel Corp stock ($13 falling to $5/share during oil & gas crisis, about 60% correction). This comparison is only valid if both companies are giant stocks (which are not) because “crisis is not opportunity” if business fundamental is weak, eg for the case of Sembcorp Marine. For Keppel Corp, it is still a 50% giant stock due to strong property business. Therefore, investor of Keppel Corp is actually investing in value of Keppel Corp property (main value) while taking advantage of falling share price (due to Oil & Gas crisis). It was a good move in year 2015 (beginning of oil & gas crisis) for Keppel Corp to offer full acquisition of Keppel Land which 100% profits of property business goes to Keppel Corp, offset the losses in Oil & Gas segment in Keppel O&M.

Assuming Temasek could successfully own 51% of Keppel Corp by end of 2020, it is a full control of company. This may allow possibilities of strategic merging of Temasek subsidiaries companies (eg. Keppel O&M and Sembcorp Marine) or restructuring of Temasek companies, eg. Keppel Corp and Sembcorp Industries (Temasek nearly has 50% control), etc, to maximize the asset values.

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During crude oil crisis with Keppel Corp at low optimism prices, Temasek leverages on crisis to have majority control of Keppel Corp at reasonable low price of $7.35/share. This also provides an option for Keppel Corp investors to sell for 20% profit. However, the global stock crisis has disturbed the plans as prices of Keppel Corp are falling even lower than before acquisition news. 

Analysis on Keppel Corp is beyond stock and Temasek, also requires understanding of property market and crude oil commodity market. So, it is a stock with complicated interactions of market signals, reflecting in final share prices. 

Temasek acquires Keppel Corp BN4

Here is a special Ein55 style, 50% Discount Method for investing in Keppel Corp during crisis (with or without Temasek acquisition) with multiple entries to fight against unknown market crisis ahead. Assuming $10 is a common high level prices (occurred during when economy and crude oil market are bullish), an investor may apply 50% discount in prices each time before each multiple low due several unforeseen market crisis.

$10 = High Level Price (potential future selling price level)

$5 = Crude Oil & Stock Crisis (3 times in 2009, 2016, 2020) after 50% discount x $10

$2.50 = Global Financial Crisis (17 years low) after another 50% discount x $5

$1.25 = Great Depression (20 years low) after another 50% discount x $2.50

This is a non-linear version of multiple entries for very conservative investor who hopes to buy low but afraid of prices could get lower. Assuming all the crisis come (hopefully not), this is average price after 3 entries (like Keppel Corp with property pillar could still survive):

($5 + $2.50 + $1.25) / 3 = $2.92

This is lower than using linear average down method at low optimism (assuming 3 entries with $1 lower each time):

($5 + $4 + $3) / 3 = $4

Each method (linear or non-linear 50% discount) has its benefits. Linear method is more likely to achieve in practical market, for those who wish to reduce downside risk through averaging (eg. 3 times x 33% capital). Non-linear method is for very conservative investor, demanding 50% discount each time before willing to take out precious cash from the pocket for investment. During the long holding period (could be 1-3 years, depending on severity of crisis), Keppel Corp investor may be given an average of 4-5% dividend yield (past 10+ years record), assuming the dividend is also cut by 50% due to crisis, one could still get about 2% dividend yield which is higher than fixed deposit in banks with 1% interest rate. After the crisis is over, assuming the average entry price is only $5 (only 1 crisis experienced), an investor may not need to sell at $10 average high prices for 100%, could even sell near to Temasek fair acquisition price of $7.35 which is over 40% higher than $5 price.

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Charlie Munger (partner of Warren Buffett) said the big money is not in the buying and selling, but in the waiting. Global stock crisis may happen only every 5 to 10 years. Similar to a lion ambushed, waiting patiently for target, when opportunity comes near, only then strike for higher chance of winning. It is the same for current global stock crisis, for investors “ambushed” for many years, it could be the right time to plan for a strategy to take action in stocks.

Frankly speaking, there are over 100 global giant property stocks and 44 global oil & gas giant stocks (based on Dr Tee criteria), which are much stronger than Keppel Corp. Some of these giant stocks are also falling in prices 20% – 50% recently, “Crisis is Opportunity” investing in these growing business (value) with significant discount in prices.

There are at least 26 Temasek / GLC stocks in Singapore including Keppel Corp, controlling shareholder with 15% or more ownership directly or indirectly (investor needs to focus only on giant Temasek stocks):
Singtel (SGX: Z74), DBS Bank (SGX: D05), ST Engineering (SGX: S63), Singapore Airlines (SGX: C6L), SIA Engineering (SGX: S59), Singapore Exchange (SGX: S68), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Sembcorp Marine (SGX: S51), Olam (SGX: O32), CapitaLand (SGX: C31), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Ascendas Reit (SGX: A17U), Ascott Hospitality Trust (SGX: HMN), Ascendas Hospitality Trust (SGX: Q1P), CapitaLand Retail China Trust (SGX: AU8U), Ascendas-iTrust (SGX: CY6U), Keppel Corp (SGX: BN4), Keppel Reit (SGX: K71U), Keppel DC Reit (SGX: AJBU), Keppel Infrastructure Trust (SGX: A7RU), Mapletree Logistics Trust (SGX: M44U), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree NAC Trust (SGX: RW0U).

Temasek stocks portfolio also affect about 15% of STI index stocks, which has strong impact on Singapore stock market. Here are 30 STI component stocks:
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), HongkongLand (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

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Filed Under: Market Outlook, Property Market, Stock Market, Technical Analysis, Value Investing Tagged: , , , , , , , , , , ,

How to Profit 70% from Acquisition of ARA Asset Management Stock by Li Ka-Shing?

Posted on November 17, 2016 Written by

ein55-newsletter-no-046-image-ara-banner

 

ARA Asset Management (SGX: D1R) is one of the Top-20 giant stocks in Singapore, based on Optimism Strategies with consideration of FA (Fundamental Analysis), TA (Technical Analysis) and PA (Personal Analysis).  Let’s learn how to grab the next opportunities following similar approach, taking action ahead of the potential big bunds.

ARA is a REIT manager with consistent earning, major shareholders are John Lim (CEO), Cheung Kong (Li Ka-Shing) and Straits Trading.  Due to the weak property market outlook, the stock price has been declining in the past 3 years from high optimism (over 75%) to low optimism (below 25%), creating a rare opportunity for potential investors who could identify the hidden treasure and wait patiently for the acquisition or recovery in share price.

ARA share price was falling below $1.10, considered low optimism, suitable for investor to buy low again.  There is no surprise when the major shareholders have decided to offer to acquire ARA recently as they know the true value of their own business.  As a result, ARA share price is approaching offer price of $1.78/share, gain of 70% over the last 1 year.

 

ein55-newsletter-no-046-image-ara-optimism

We should learn to find the other Top 20 Giant stocks in Singapore with high value, buying at discounted price at low optimism, ahead of other potential big buyers who are also looking for these cash cows.  Investment clock is very critical to profit consistently from stock market.

Most people may think Singapore stock market is stagnant but actually it is a good time for big funds to acquire good business at low price. If we can understand the mindset of big funds who are value investors, taking actions before them, then there is no surprise of the big gains in short time with the acquisition.  Earlier successes by Ein55 Graduates were SMRT, Sim Lian, CM Pacific and Super Group, all are value or growth stocks acquired so far.

 

Filed Under: Market Optimism, Stocks A-Z Tagged: ,

Gain 50% in 1 month on Cash Cow – Super Group with Optimism Strategies

Posted on November 4, 2016 Written by

ein55-newsletter-no-044-image-cash-cow-super-group

 

Most people may think Singapore stock market is stagnant but actually it is a good time for big funds to acquire good business at low price.  Previously Ein55 Graduates have gained from acquisitions of SMRT (by Temasek) and Sim Lian (by Chairman, Mr Kuik).  The target this time is on Super Group which Ein55 Graduates have prepared, following Dr Tee Optimism Strategy.

Super Group (SGX: S10) is one of the Top-10 food & beverage stocks in Singapore, based on Optimism Strategies with consideration of FA (Fundamental Analysis), TA (Technical Analysis) and PA (Personal Analysis).  Let’s learn how to grab the next opportunities following similar approach, taking action ahead of the potential big bunds.

Super Group is a strong cash cow in the defensive food & beverage sector. Following Optimism Strategies (see chart below), there are 3 opportunities in the past 7 years for an investor/trader to gain repeatedly from this giant stock:

 

Opportunity #1 (Long): From Years 2009 to 2013

It was a bullish period for Super Group as earning is tripled during this period. An investor could buy <25% Optimism ($0.30 or below) and sell >75% Optimism ($1.20 or above), minimum gain is 4 times!

 

Opportunity #2 (Short): From Years 2013 to 2016

In the last 3 years, due to regional economy slowdown and strong competition in consumer market, profit has declined, share price has dropped from over $2 to $0.80, about 1/3 of the peak price.  A trader could gain tremendously from the falling down of prices through shorting strategy, from high optimism ($1.70) to low optimism ($0.85).

 

Opportunity #3 (Long):  From Year 2016 till now

Falling in earning of Super Group has stabilised this year, share price below $0.90 is considered low optimism, suitable for investor to buy low again.  There is no surprise when the Dutch fund has decided to offer to acquire super Group recently as they know the true value of his own business.  As a result, Super Group share price went up 50% in the last 1 month from $0.80 – $0.90/share, approaching offer price of $1.30/share, gain of 50% in a short time.

ein55-newsletter-no-044-image-super-group-optimism

We should learn to find the Top 10 food & beverage stocks in Singapore with high value, buying at discounted price at low optimism, ahead of other potential big buyers who are also looking for these cash cows.  Investment clock is very critical to profit consistently from stock market.

 

Filed Under: Stock Market, Stocks A-Z Tagged: , ,

Top 10 Property Stocks – Next Target for Acquisition

Posted on August 10, 2016 Written by

Ein55 Newsletter No 036 - image - Property Stocks

Singapore property market becomes bearish over the past 3 years after 7 rounds of cooling measures by government.  As a result, Singapore property stocks become more valuable with stagnant stock price and high property asset value.  There are many property counters in Singapore with share price below the net asset value (NAV), i.e. Price to Book ratio, PB < 1. These stronger property stocks become the potential target for merging and acquisition.  Potential buyers and investors learn to buy good assets at discounted price, therefore considering good Singapore property stocks during bearish property market now.

Sim Lian (SGX: S05) is one of the Top-10 property stocks in Singapore, based on Optimism Strategy with consideration of FA (Fundamental Analysis), TA (Technical Analysis) and PA (Personal Analysis).  There is no surprise when the Chairman and major shareholder, Mr Kuik, has decided to offer to acquire Sim Lian recently as he knows the true value of his own business.  Although the buyout offer of $1.08/share is the historical high price, if we analyse deeper, since the IPO in year 2000, both the share price and NAV have grown up more than 10 times with dividend yield of about 8% (based on last price before acquisition), this is only a fair price as the value has grown up as well over the years.  In fact, Sim Lian has been at low optimism (<25%) over the past 1 year before the acquisition news, the second best investing opportunity since the subprime crisis in years 2008 – 2009, when it was also at low optimism.  The offer price of buyout ($1.08/share) is near to NAV of the stock, the return compared to Day1 of stock price ($0.08/share) is over 1000% return in the last 16 years.

Ein55 Newsletter No 036 - image - Sim Lian

We should learn to find the top 10 property stocks in Singapore with high value, buying at discounted price at low optimism, ahead of other potential big buyers who are also looking for these valuable discounted assets.  Property stocks could be in crisis when the interest rates are higher and the property cooling measures last for another few more years.  Therefore, we should only consider giant property stocks with strong fundamentals, not just any stock with price discount, buy low and sell high or wait patiently for future acquisition.

 

Filed Under: Property Market, Stocks A-Z Tagged: , , ,

Temasek Acquisition of Eu Yan Sang at Low Optimism

Posted on May 18, 2016 Written by

Ein55 Newsletter No 028 - image - Eu Yan Sang

We have learned from Dr Tee to buy giant stocks at low optimism for investing. However, nowadays fund managers have become competitors for retail investors for such investing opportunities.  Recently a consortium including Temasek, has offered to acquire Eu Yan Sang.  Let’s analyse further based on optimism strategies.

The earning ability of Eu Yan Sang has declined over the past few years due to slowdown in local and regional economy but still it is profitable. Net Asset Value (NAV) of Eu Yan Sang has increased consistently over the past 10 years since IPO (see chart below).  Temasek and partners made the offer when Eu Yan Sang share price is still at low optimism (<25%). Even at current share price of $0.63 (slightly higher than offer price of $0.60), the Optimism is only 26%.

Ein55 Newsletter No 028 - image - Temasek Acquisition

This implies that Temasek and partners have acquired a valuable business at a relatively low price with consideration of its value.  Although the current stock price is 3 times compared to IPO price 16 years ago, it is still relatively cheap for a growing business. We could not compare with only the historical low price based on technical analysis, the fundamental of the business has to be considered as well.

 

Filed Under: Fundamental Analysis, Stocks A-Z Tagged: , , , ,