Sunday, March 10, 2019

Trade Action - OCBC



This company needs no introduction.  Recently, I had initiated a position of 900 shares at a price of $11.06 apiece.  This post summarizes my thoughts about investing in this company.

Pros for investing:

Diversified earnings across industry group and geography
Besides Singapore, OCBC operates in Malaysia (OCBC Bank Malaysia) and Indonesia (Bank OCBC NISP).  OCBC also has two brokerage businesses (OCBC Securities and OCBC Sekuritas), though the result of this division is nothing to shout about.  Another affiliate OCBC Wing Hang operates in Hong Kong and Greater China.  OCBC also owns wealth management unit Bank of Singapore, which has seen healthy AUM growth in FY2018.  Lastly, OCBC owns asset manager Lion Global Investors and an 87% stake in local insurer Great Eastern Holdings.  The diversity of earning streams across industry group and geography minimizes the probability of significant loss caused by a single event.

Recent earnings miss is temporary
OCBC reported lower than expected FY2018 earnings ($1.06 against street estimate of $1.11).  This was mainly attributed to unrealized valuation losses and absence of realized gains in the securities portfolio held by Great Eastern Holdings.  It is pretty normal when investments are marked to market, volatility will swing the valuations and thus impact reported earnings.  Warren Buffett had warned about this phenomenon in his 2017 Berkshire Hathaway Chairman's Letter (source).  Judging from the YTD gain in global equity markets, assuming the trend is sustainable through 2019, the securities portfolio should experience a positive rebound in valuation this year.

Share buyback
OCBC has been consistently buying back shares from the open market.  Some investors see this as a positive move, since it reduces the float and increases earnings per share.  However, it can be a double-edged sword when management does it without regard to the intrinsic value per share.  If we use OCBC’s reported NAV of $9.56 (before unrealized valuation surplus)(source) as a yardstick, then management is not purchasing the stock because it is cheap.  It is more likely an exercise to balance out shares issued under its employee share scheme.

Cons against investing:

Lower dividend than peers
Compared to DBS and UOB, OCBC distributes a lower percentage of earnings (payout ratio of 40.6% versus DBS 59.7% and UOB 51.5%).  This is nothing new, and the bank had explained its rationale previously (source).  According to the Business Times (BT), OCBC CEO Samuel Tsien defended the conservative approach against risks on the horizon.  Mr Tsien “feels that the market is going to be a rougher market” (source).  The CEO also denied looking for potential acquisition at the moment.  For a head honcho to go against institutional imperative – of distributing similar payout as its peers and risk a share price decline – either Mr Tsien is not afraid of shareholder activism, or something is brewing for the company that requires significant capital allocation.  I believe we will know in due time.

Dividend scrip option
Contrary to most investors, I do NOT like companies to offer dividend scrip option.  Firstly, it dilutes the shareholding of existing owners who do not wish to participate (either because of odd lot allocation, which makes it harder to dispose the position in the market, or because of cashflow needs).  Secondly, a dividend reinvestment plan is typically offered because the company wants to retain more cash in their coffers.  The question is WHY?  Why is there a need to set more cash aside?  Again, this circles back to my point highlighted earlier.  There may be something – positive or negative – stirring in the undercurrent.

Oil & Gas industry exposure still a drag
OCBC increased its bad debt provision for the oil & gas industry last quarter.  News finally broke in January when crude oil products supplier Coastal Oil Singapore went belly up with US$354 million debt (source).  OCBC Hong Kong unit was owed the lion’s share at US$122.7m.  In a separate BT article, CEO Samuel Tsien highlighted oil exploration had not increased as expected when oil is trading at US$60-70/bbl range.  Vessel charter still remained below breakeven rates by the bank’s repayment requirement (source).  In short, more pain before the bank is out of the woods.

Final Thoughts

Despite my apprehension from the reasons above, I had decided to go ahead with the investment in OCBC.  Of the three banks, DBS is my first preference, but at 12x earnings (OCBC 10x UOB 10x) and 1.3x book (OCBC 1.1x UOB 1.1x), it is still a tad too expensive for me.  Between OCBC and UOB, I see more growth potential in the former.  That said, I won't be adding to my OCBC position anytime soon.  Hopefully, the reason for OCBC management's conservative stance will come to light as time passes.

Friday, March 1, 2019

Summary for February 2019

I love February.  No, it's not because of the CNY festivities.  (Why would a parent be happy when he has to give red packets instead of receive them?)  Rather, this is the month when I get my performance bonus.  My company doesn't pay 13th month annual bonus, so this is the sole incentive I can look forward to.  Thankfully, my boss is satisfied with my last year's performance, so I am rewarded with a 0.8 month compensation.  (Sadly, not even a full month, but this will have to do.)

Trade Actions

I didn't do any trade, because I was out of 'ammunition' for most of the month.  In March, I will fund my SRS account with my bonus.  That should provide me with some gunpowder to go hunting.  I am watching a few counters.  Hopefully, there will be an opportunity to pull the trigger.

Hyflux 6% Perpetual Capital Security
I have repaid my wife for her vested portion of the Hyflux 6% perpetual.  (She needn't have taken the risk with me.)  So now I effectively own $10,000 of a nearly worthless security.  Haha.  One painful episode in my investing journey.  Luckily, I didn't allocate a lot of money in this position.  It's time to move on.

Dividends

AIMS AMP Capital Industrial REIT
I received a letter from AACIREIT regarding their latest scrip option plan.  Pay date is 29 Mar 2019.  I like the flexibility where you can choose the proportion of your ownership to receive the cash dividend versus new units.  At the moment, I'm trying to get my position rounded to a nice whole lot number.  Alas, my number of units on hand is insufficient to do so.  So I opted to receive the full dividend in scrip.  Maybe next time.

Savings 

This month's yield on the Singapore Savings Bond (SSB) is rather low at 2.18% p.a.  I prefer to stay on the sideline for now.

Looking Ahead

Earnings season has come to an end.  Macro events are likely to take centre stage and influence the market.  Hopefully, any volatility will result in a favourable entry point to load up on stocks.

Sunday, February 17, 2019

One Regretful Investment

I read in Business Times (link) today that Hyflux perpetual security holders will only get a 3 per cent cash recovery under the current rescue plan.  (I do not take the 7.6 per cent implied equity value into account.  Unless Hyflux manages to dispose its loss-making Tusaspring project, I doubt there will be any value in the share post-restructuring.)

I was hoping for a 10 per cent cash recovery, but oh well, I have to accept the minuscule amount left after the entire saga.  (That is, if the rescue plan goes through the approval on April 5.)

This is one of my regretful investment mistakes.  The extremely high debt burden of the company had flashed out as a red flag to me during the initial public offering, but I had chosen to ignore it.  The only consolation is that I did not put in a lot of money in the perpetual security.

I am thinking of compensating my wife for her hard-earned $5,000 when she had invested together with me.  She had trusted me on my judgement and I had failed her.

It was a confluence of factors that resulted in the downfall of what was once a local stock market darling.  But it is solely my fault for a lack of better judgement.

Saturday, February 2, 2019

Summary for December 2018 + January 2019

Apologies (to myself especially) for the lack of update.  I have been tardy in writing.

December 2018 had been an eventful month for me.  Near the end of last year, my father passed away and I had been busy handling the funeral and the ritual duties as the eldest son.

Money-wise, a significant portion of my savings was drained to pay the premium for my younger son's endowment policy.  My wife and I had chosen Tokio Marine (TM) KidStart, where we opted to pay the annual premium for first five years (about $19,000 per year) and let the sum roll till my boy enters university.  (If you are keen, more information can be found on TM website.)

As planned, I added $7,000 to my CPF Special Account under the CPF Retirement Sum Topping-up (RSTU) Scheme.  I also contributed to my SRS account.  Both were done for the purpose of income tax relief.

The year ended with the stock market in turbulence.  Volatility is a two-edged sword - it generates heartaches and buying opportunities at the same time.  Happy for those folks who have taken the chance to load up on some good stocks.  I did not participate at all, being wary of the decline in my savings.

January 2019 came and went by.  It is amazing how fast the stock market rebounded.  A slew of positive earnings reports buoyed investor confidence and prices headed up again.

Wifey had asked me whether it was time to sell CapitaMall Trust.  She had bought the stock at $1.90 a few years back.  I told her the trend suggests it can go higher.  Nonetheless, she was happy to take profit at $2.30.  A week later, the stock climbed to $2.40.

My IFA (independent financial adviser) alerted me to China Taiping Insurance 3-Year 2.38% endowment plan.  But the yield didn't sound too appetizing, given Singapore Savings Bond (SSB) was offering 2.22% p.a. at that time.  Moreover, I was out of 'ammunition' to plow into the plan.

Speaking on SSB, it was welcoming news that we are now allowed to invest to a maximum cap of $200,000 (instead of $100,000) starting February 2019.  We are allowed to invest our SRS monies too.  I view SSBs as a safe and secure fixed income element of my investments.  The return may be low compared to stock dividend yields, but at least there is no drama.  (I am still grieving over my Hyflux perpetual bond.)

Talking about the devil, Hyflux organized a second town hall meeting for its noteholders and shareholders on January 18 evening.  (Of all days, why do it on a Friday evening?)  I didn't attend, but from what I read, there wasn't much useful information disseminated.  I think it might be time to write off my perp bond holding.  Lesson learnt - trust your analysis and don't get tempted by junk bond grade yields.

January 2019 also saw another big outflow due to my older son's NTUC Income RevoSecure savings policy.  Like the TM Kidstart policy, we opted to pay the annual premium for first five years (about $14,000 per year) and let the sum roll till tertiary fees come knocking.

After seeing the cash outflows over the past two months, I have been asking myself one question - How BADLY do I want to build my stock portfolio?

I know the answer inside, but I have never proactively worked on it.

It is time to focus on the plan again.

Friday, November 30, 2018

Summary for November 2018

It has been a roller coaster ride for the Singapore stock market this month.  Investors seem to be swinging from optimism to depression depending on what is the favourite news of the day.  I didn't do a single stock trade, even though I was monitoring the market everyday.

1.  I subscribed for this month's Singapore Saving Bond GX18120X.  I was surprised to get my full allocation of $20,000.  At an average yield of 2.57% per annum, I thought there would be more people subscribing for this issue. 

2.  A few days ago, our financial advisor had informed us about Singlife's new 3-year endowment tranche (link).  The yield is a compounding 3% per annum.  Sadly, Singlife only allowed a maximum investment of $6,000 per person.  My wife and me decided to grab the opportunity, even though our budget was a bit stretched.

3.  One of our insurance agent friends informed us about an upcoming Great Eastern endowment policy, with a guaranteed payout rate of 2.2% per annum.  However, my kiddo's endowment policy premium is due next month, I have to set aside cash to pay for it.  Hence, we decided to give this opportunity a miss.

One more month to go before the year ends.  Some major cash outflows coming up in December (and it is not because of Christmas.)

Till next time!

Thursday, November 1, 2018

Singapore Savings Bond GX18120X

I have successfully redeemed my April 2018 Singapore Savings Bond (SSB).  The average yield over ten years was 2.31%.  I have decided to use the money and subscribe for this month's SSB (code: GX18120X).  The average yield is higher at 2.57%.

If you are wondering how to forecast the average yield for next month's SSB, you can refer to the MAS website (here).  Simply download the daily 10-year bond yield for the latest month.  Next month's SSB yield will be the average of these values.

Sunday, October 28, 2018

Taking a Hard Look At Myself

This is a blog to track my progress towards building a comfortable retirement nest egg.  Here is a look at my stocks and savings portfolio so far (as of 28 Oct 2018):


Cash Portfolio

Equity  (Stock  /  # Shares)
AIMS AMP Capital Industrial REIT  /  2,150

Fixed Income  (Security  /  Amount)
S'pore Savings Bond GX18070N  /  $12,500
S'pore Savings Bond GX18080F  /  $15,500
S'pore Savings Bond GX18090T  /  $20,000
S'pore Savings Bond GX18100V  /  $16,000
Hyflux 6% Perpetual Security  /  $5,000 (defaulted)
Maybank fixed deposit  /  $54,000
Etiqa eEASY Save  /  $45,000

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SRS Portfolio

Equity  (Stock  /  # Shares)
Capitaland Commerical Trust  /  3,000
Frasers Centrepoint Trust  /  3,000
Frasers Commercial Trust  /  2,369
SembCorp  /  2,000
Singtel  /  2,000
Keppel Corp  /  1000

Fixed Income  (Security  /  Amount)

Great Eastern GREAT220  /  $50,000

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Remarks
:

I made a mistake investing in the Hyflux perpetual security.  I was quite concerned with the company's high debt amount during the IPO, but my greed got the better of me.  Now the security is in default.  *sigh*

I am in the midst of redeeming S'pore Savings Bond GX18040W, which I did not include in the above table.  The amount invested was $20,000.  If my calculation is correct, the average yield for next month's SSB should be high (approx. 2.57%).  I intend to subscribe for that SSB.

I did not include my rainy day savings in OCBC 360 account ($70,000).  I also did not include those bank accounts that I use for my day to day transactions.

I did not include the monies in my alternative investments, such as my Funding Societies account.  But the amounts are small and not worth mention.

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In summary, I give myself a C grade when it comes to building my retirement nest egg so far.  Haha.  I hope with blogging, I can stay focused and build it up.