Friday, February 23, 2024

UOB FY2023 Earning Result

United Overseas Bank ("UOB") reported their FY2023 earning result yesteday [here].  Here is a quick dive into the numbers:

Numbers in S$ million unless stated otherwise.
Full Year Ending 31 Dec 2023 31 Dec 2022 % Change
Total Income 13,932 11,575 20.3
Profit Before Tax 7,303 6,050 20.7
Net Profit 5,711 4,573 24.9
EPS (S$) 3.34 2.69 24.2
DPS (S$) 1.70 1.35 25.9

FY2023 total income hit S$13.9B due to higher net interest income, record card fees and strong performance in treasury customer flows, trading and investment activities.  NII up 16.0% y/y to S$9.68B.  NIM up 23 bps y/y, but down 7 bps q/q to 2.09%.  Fee income up 4.3% to S$2.24B, of which credit card fees grew 66% y/y and wealth management income grew 13% y/y.  Trading and investment income surged 204% y/y to S$1.69B.  NPL ratio remained stable at 1.5%.  FY2023 core ROE up 2.3% y/y to 14.2%.  A final dividend of 85 cents per share was declared, Ex Date: 25 Apr 2024.  This brings FY2023 total dividend to S$1.70 (FY22: S$1.35).

UOB completed integration of Citi's Malaysia and Indonesia units.  Integration of Citi's Thailand unit is slated to complete in Q2 2024.  Management projects low single-digit loan growth and double-digit fee growth in 2024.

My Thoughts
UOB has logged a stellar FY2023 performance, similar to DBS.  A higher final dividend was declared, which should bring cheer to many shareholders.  UOB's tie-up to Taylor Swift and Ed Sheeran concert gigs boosted its card income.  Unfortunately, the share price has run up quite a bit, given the U.S. Fed has pushed back on cutting interest rate in the near term, which is a boon for the banks.  Will continue to monitor for price retracement, which is likely to occur when the Fed starts trimming interest rate.




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Thursday, February 22, 2024

VICOM Limited FY2023 Earning Result


VICOM Limited ("VICOM") reported their FY2023 earning result yesterday [here].  Here is a quick dive into the numbers:

Numbers in S$ million unless stated otherwise.
Twelve Months Ending 31 Dec 2023 31 Dec 2022 % Change
Revenue 111.90 108.30 3.3
Profit before tax 34.07 32.55 4.7
Net Profit 28.01 26.56 5.5
EPS (in cents) 7.90 7.49 5.3
DPS (in cents) 5.5 6.4 (14.1)

FY2023 revenue was S$111.90M (FY22: S$108.30M), +3.3% y/y.  Profit before tax was S$34.07M (FY22: S$32.55M), +4.7% y/y.  Net profit was S$28.01M (FY22: S$26.56M), +5.5% y/y.  VICOM indicated demand for vehicle testing and related work is expected to be strong.  Demand for non-vehicle testing is also expected to increase with the anticipated recovery of the manufacturing sector.  However, the company cautioned that profit margins will remain under pressure due to inflation and greater competition.  In view of the capital expenditures required, which include the building of a new testing and inspection centre at Jalan Papan, the Board has adjusted the dividend payout ratio from 90% to 70% of Net Profit.

My Thoughts
Revenue performance was satisfactory.  Dividend cut was understandable, given the capex requirement.  Overall, a boring but solid business as VICOM enjoys a triopoly market in Singapore for vehicle testing and inspection (together with STA and JIC).  Margins and ROE remain in comfortable double digits.  Will continue to stock up when an opportunity arises.




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Wednesday, February 21, 2024

TalkMed Group FY2023 Earning Result


TalkMed Group Limited ("TalkMed") reported their FY2023 earning result yesterday [here].  Here is a quick dive into the numbers:

Numbers in S$ million unless stated otherwise.
Twelve Months Ending 31 Dec 2023 31 Dec 2022 % Change
Revenue 83.79 76.60 9.4
Profit before tax 37.82 36.85 2.6
Net Profit 29.35 28.99 1.2
EPS (in cents) 2.43 2.31 5.2
DPS (in cents) 2.20 3.00 (26.7)

FY2023 revenue was S$83.79M (FY22: S$76.60M), +9.4% y/y, attributed to an increase in patient numbers for the oncology business.  TalkMed 60%-owned subsidiary CellVec, however, saw a decrease of S$0.48M for its cellular and gene therapy related products and services.  Employee benefits expense form the bulk of the cost, FY2023 was S$33.78M (FY22: S$29.44M), +14.8% y/y, attributed to increase in staff bonus and staff salaries from increased headcount in the Group's operations in Singapore.  TalkMed recorded an impairment loss of S$0.33M for the loan made to its joint venture, Sino-Singapore Hospital Management (Chongqing), which fully wrote down the loan amount.  TalkMed also recorded impairment losses of S$0.99M on CellVec's plant and equipment, and S$0.65M in marking down the carrying amount of its investment securities held for sale to zero.

As at 31 Dec 2023, TalkMed holds cash & cash equivalents of S$89.9M.  Management highlighted competition in the region brought about by a strong Singapore dollar relative to currencies in the region and investments to build up healthcare infrastructure and expertise in the region.  The company aims to pursue growth in foreign patients.  A final dividend of 1.3 cents per share was declared, going Ex Date on 30 Apr 2024.

My Thoughts
I was a tad disappointed when the Board declared a final dividend of only 1.3 cents compared to 1.5 cents a year before.  TalkMed has a healthy cash position of S$89.90M, with total liabilities of around S$4M.  I question why the company needs to retain so much cash, and have written to TalkMed's Investor Relations for an answer.  Hope to hear back.  Nonetheless, TalkMed and the other healthcare stock in my portfolio, HC Surgical Specialists, enjoy very high ROE figures of above 30%.  At TalkMed's current price of $0.365, the dividend yield is around 6.0% - comparable to most S-Reits.  I will continue to accumulate shares in this company.




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Saturday, February 17, 2024

Are you prepared for the downside?

Over the Lunar New Year long weekend, I had time to do some reading.  I had borrowed a stack of books from the public library on my favourite subject (no prize for guessing what it is).

After completing the first two books, I noticed a common theme among the writers.  There was an emphasis on effective risk management and protecting our portfolios against the downside.

The downside here refers to the huge loss in our portfolios during a bear market.  An effective risk management strategy proposed by the authors entails selling down one's positions at the onset of the bear market.  This ensures that we retain sufficient cash to tide over the period and take advantage of the subsequent recovery.

Truth be told, I have never thought about squaring my positions just because we are entering bear territory.  The only times I have sold stocks are when:

(1) doing portfolio rebalancing;
(2) the company's fundamentals have deteriorated permanently; and
(3) the valuation of a stock is overstretched in a bull market.

The rationale for selling (as argued by the authors) is capital preservation.  Acting decisively at the cusp of a crash is crucial.  Markets can fall swiftly.  If there is no preset plan to liquidate equity positions into cash, investors can see their net worth vapourize as the market drops 10, 20 or even 50 percent!

Moreover, the recovery period is uncertain.  It may take years - decades even - for our portfolios to regain the original value.  Perhaps never.

The authors cited the Great Depression in 1929, Oil Shock in 1973-1974, Black Monday in 1987 and the Global Financial Crisis (GFC) in 2009 as examples of how bear markets had decimated the wealth of a great many investors.

Log chart of the Dow Jones Industrial Average (source: Macrotrends).

In our recent past, one can find examples too.  During the Asian Financial Crisis in 1997, the Straits Times Index (STI) lost 62 percent from its peak of 2127.99 points to a low of 805.04 points.  After the dot-com bubble burst in 2000 and the SARS epidemic in 2003, the STI sank 55 percent from its peak of 2608.48 points to a low of 1170.85 points.  During the GFC, the STI plummeted 62 percent from its peak of 3831.19 points to a low of 1456.95 points.  There were plenty of smaller market declines in-between.

Having a systematic plan to reduce position size as the market starts to plunge can help overcome investor paralysis due to shock and stem the losses.

On the surface, it sounds like a sensible plan.  But I still have doubt.

After some reflection, I figured out why.

Firstly, the authors perceive themselves as stock investors, and not company shareholders.   They seek to profit in the market by buying and selling stocks - any stock - as long as there is an adequate risk-reward ratio.  Replace 'stocks' by any item with supply-demand dynamics and it makes no difference to these folks.

"The stock is NOT the company", as one writer effuses.

On the other hand, I see myself as a participant in the growth of the company, with the aim of reaping future rewards as the business prospers.  The stock market is merely an entry point.  The share price is the participation fee.

Coincidentally, Amazon.com founder Jeff Bezos also agrees that the stock is NOT the company.  In his experience, the stock market does a poor job of reflecting actual business performance.



Secondly, the writers seek to maximize capital gain and minimize capital loss.  To them, no stock is worth holding forever.  In fact, there should be no sentiment involved.  (Rightly so, because the endowment effect can cause one to be blind towards selling the stock when it is warranted.)

Conversely, I take an active interest in understanding how the executives are steering the company.  I think about whether the current business strategy makes sense.  There is satisfaction in seeing profits earned every fiscal year.  A recurring dividend payout is the fruit for placing the right bet.  As long as the company continues to generate free cash flow, there is no reason for me to renounce my ownership, come bear market or whatsoever.

Legendary investor Warren Buffett assures us that by choosing the right companies, the portfolio will take care of itself.


That said, the authors did bring up a good point - capital is key for every investor.  You cannot invest if you don't have the money.

As the cliché goes, it takes a 100 percent return to recoup a 50 percent loss.
.
During a recession, which often occurs in tandem with a bear market, investors face a double whammy.  They may lose their income (due to retrenchment, business failure etc) at a time when the stock market is in the dumps.  Liquidating the portfolio at this point is possibly the worst thing to do.

So how can one avert such a calamity?

My personal 'effective risk management' is to strengthen my financial wellbeing in totality.

Firstly, I have emergency funds set aside.  I lead a low maintenance lifestyle, so my rainy day savings can last me several months.  Secondly, my equity portfolio is only a subset of my wealth.  I have my Singapore Savings Bonds which I can liquidate for cash as and when required, albeit with a one-month lag.  Thirdly, I am on track to fully repay my mortgage loan this year.  After which, I will be debt free with a secure roof over my head.  (It is hard to be made bankrupt when you don't owe any creditor.)  Lastly, I have my CPF monies and insurance policies to cover healthcare costs and to purchase an annuity.  I also have a company pension plan that is currently vested in a money market fund, which I can liquidate if needed.

Selling my shares will only be my last resort when I have exhausted the above.

Thus, I believe I am pretty well prepared for the downside.

One last point: If I sell my stocks and don't have an equivalent effective 'risk on' strategy to get back into the market, I will surely miss the subsequent upswing.  While not guaranteed, time has shown - again and again - that the equity market does eventually recover and continue its upward trajectory.

By investing only in fundamentally strong, healthy companies, I am optimistic that my equity portfolio will emerge from any financial crisis unscathed.  Selling optional.

Are you prepared for the downside?




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Friday, February 16, 2024

Silverlake Axis 1H2024 Earning Result

Silverlake Axis Limited ("SAL") reported their 1H2024 earning result yesterday [here].  Here is a quick dive into the numbers:

Numbers in RM million unless stated otherwise.
Six Months Ending 31 Dec 2023 31 Dec 2022 % Change
Revenue 397.37 392.28 1.3
Gross Profit 220.15 229.39 (4.0)
Net Profit 89.32 99.71 (10.4)
EPS (in sen) 3.53 3.96 (10.9)

Gross profit margin slid to 55.4% (1H23: 58.5%), net profit margin dropped to 22.5% (25.4%).  Recurring revenue, which makes up 75% of total revenue (from maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing) grew 7% to RM298.8M.  Non-recurring revenue, which makes up the rest (from software licensing, software project services (professional services) and sale of system software and hardware products), came in 14% lower at RM114.2M.  The proportion of revenue from higher margin business segment such as software licensing, was lower in 1H2024 as compared to the same period last year.  Total expenses was 11% higher y/y at RM119.5M.  SAL attributed the increase to annual salary increment post COVID-19, new headcounts and retirement gratuity paid to key management personnel.  SAL indicated approximately RM240M worth of deals was closed in 1H2024.  Pipeline remains robust with total potential deals of about RM1.4B, of which in the immediate term, approximately RM150M are in imminent stages of closure.  No dividend was declared for 1H2024.

My Thoughts
In its commentary, SAL said that core replacement and upgrading projects have become less of a priority for their financial institutional customer base.  I am glad the margins remain healthy despite the challenging environment.  SAL is trading close to its average 5-year P/E, which makes it neither expensive nor cheap.  I took a bite earlier this month, and will refrain from adding more at this point.  Will monitor the company's progress as it navigates through the second half of the year.





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Wednesday, February 7, 2024

DBS FY2023 Earning Result

DBS Group ("DBS") reported their FY2023 earning result this morning [here].  Here is a quick dive into the numbers:

Numbers in S$ million unless stated otherwise.
Full Year Ending 31 Dec 2023 31 Dec 2022 % Change
Total Income 20,180 16,502 22.3
Profit Before Tax 11,739 9,382 25.1
Net Profit 10,286 8,193 25.5
EPS (S$) 3.87 3.15 22.8
Net Book Value (S$) 23.14 21.17 9.30

FY23 net interest margin (NIM) is 2.15% (FY22: 1.75%).  Return on equity is 18.0% (FY22: 15.0%).  Non-performing loan (NPL) ratio is constant at 1.1% (FY22: 1.1%).  Compared to the first half, 2H2023 net profit fell 4%.  Total income increased 2% due to the consolidation of Citi Taiwan.  Excluding Citi Taiwan, total income was maintained at the previous half's record, as a higher NIM offset the impact of seasonally lower non-interest income in 4Q2023.

DBS maintained guidance for 2024 net interest income to be around 2023 levels, supported by consolidation of Citi Taiwan and trade-off between NIM and loan growth.  2024 NIM is expected to be slightly below 2023 exit NIM of 2.13%.  2024 fee income growth is expected to be double-digit, supported by Citi Taiwan's wealth management inflows as well as card income.

DBS declared a final dividend of 54 cents per share (2022: 42 cents), Ex Date is 5 Apr 2024, Pay Date is 19 Apr 2024.  The bank also announced a bonus issue on the basis of one bonus share for every existing 10 DBS ordinary shares held.   The bonus shares will only qualify for 1H2024 interim dividend onwards.  Nonetheless, the bank is confident of maintaining a dividend at $2.16 per share over the enlarged share base.

My Thoughts
Contrary to analysts' expectations, DBS did NOT announce a special dividend this year.  On the other hand, the bank announced a 1-for-10 stock dividend.  This comes as a pleasant surprise.  DBS is confident of 24% growth in FY2024 DPS, signifying a dividend yield of 7.5% based on last close price of $31.65.


I will await more details of the bonus issue.  At current valuation, DBS is suitably attractive.  But due to the high share price, I will have to budget my capital carefully for any new purchase.




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Friday, February 2, 2024

SGX 1H2024 Earning Result

Singapore Exchange Limited ("SGX") reported their 1H2024 earning result yesterday [here].  Here is a quick dive into the numbers:

Numbers in S$ million unless stated otherwise.
Six Months Ending 31 Dec 2023 31 Dec 2022 % Change
Revenue 592.2 571.4 3.6
Gross Profit 296.1 284.1 4.3
Net Profit 281.4 284.6 (1.1)
EPS (in cents) 26.3 26.6 (1.1)

FX is a growing contributor to SGX's bottom line.  FX futures volume grew 23.8% y/y while OTC FX ADV (average daily volume) increased 46.4% y/y.  Commodity futures volume also grew 48.3% y/y.  Weak spot remains in cash equities and equity derivatives, which account for 26.9% and 27.1% of the total revenue respectively.  Cash equities revenue declined 5.6% y/y while equity derivatives revenue declined 6.9% y/y.  Total capex (capital expenditures) remained steady at $18.5M (vs. $17.8M in 1H2023).  A quarterly DPS of 8.5 cents was declared, which will be paid out on 20 Feb 2024.

My Thoughts
It is a fact that the Singapore market isn't as active as Hong Kong, and IPOs are getting rare.  The decline in equity revenue was expected.  Thankfully, SGX has developed other revenue streams - FX and FICC trading, market data and connectivity etc.  With an operating margin around 50%, SGX should be able to grow stronger.  Management did not increase capex significantly, which hints that the current technology stack should suffice to minimize technical disruption, which plagued the company during the last decade.  SGX is not getting a lot of love from professional investors, with institutional holdings declining from a year ago.  Nonetheless, SGX's valuation is undemanding relative to history and peers (SGX P/E: 19.7, HKSE: 24.3, JPX: 30.2).  I will deploy more capital to build a bigger stake.




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