Sunday, March 31, 2024

Portfolio Summary for March 2024

As of 31 March 2024


Security # shares Price S$ %
DBS 400 36.03 4.20
UOB 400 29.31 3.42
OCBC Bank 700 13.49 2.75
SGX 3,200 9.21 8.58
ST Engineering 6,900 4.02 8.08
Powermatic Data 8,500 3.00 7.43
Micro-Mechanics 18,400 1.37 7.34
Sheng Siong 19,100 1.53 8.51
TheHourGlass 19,600 1.60 9.13
VICOM Ltd 21,500 1.39 8.71
Credit Bureau Asia 14,300 0.915 3.81
HRnetGroup 21,900 0.725 4.63
Nanofilm 36,100 0.715 7.52
China Sunsine 41,800 0.395 4.81
TalkMed Group 34,500 0.36 3.62
Kimly 27,000 0.305 2.40
HC Surgical 35,500 0.26 2.69
Silverlake Axis 37,100 0.22 2.38
Portfolio Value = S$343,297
YTD Dividends Received = S$1,249
YTD SBL Fees Received = S$27

- Bought 20,000 shares of TalkMed Group.


Security # shares Price S$ %
UOB 200 29.31 5.39
SGX 1,300 9.21 11.00
Micro-Mechanics 5,400 1.37 6.80
Sheng Siong 8,700 1.53 12.23
TheHourGlass 5,000 1.60 7.35
VICOM Ltd 5,500 1.39 7.03
Credit Bureau Asia 5,700 0.915 4.79
HRnetGroup 7,500 0.725 5.00
Nanofilm 12,500 0.715 8.21
China Sunsine 10,800 0.395 3.92
TalkMed Group 5,800 0.36 1.92
Kimly 5,800 0.305 1.63
HC Surgical 19,500 0.26 4.66
Silverlake Axis 6,000 0.22 1.21
NetLink NBN Trust 24,000 0.855 18.86
Portfolio Value = S$108,813

- Sold 100 shares of DBS.
- Sold 3,000 shares of ST Engineering.

Singapore Savings Bonds

Security Amount (S$) Avg Yld %
GX22120S 14,000 3.47
GX23010Z 15,000 3.26
GX23110V 20,000 3.32
GX23120Z 20,000 3.40
Portfolio Value = S$69,000

Speculative Play

Security # shares Price US$
Kep Pacific Oak REIT 70,000 0.152
Portfolio Value = US$10,640


Time flies.  We have come to the end of the first calendar quarter.  The local bank stocks resumed the momentum and hit higher highs without taking a breather.  I could only sit on my hands and wait patiently for retracement, which I am pretty sure will come once the U.S. Fed cuts rates.

I took another nibble of TalkMed Group.  I am also monitoring Micro-Mechanics Holdings as investors continued to be bearish on the company's near-term prospects.

As planned, I whittled down positions in my SRS portfolio, selling DBS and ST Engineering as they hit yearly highs.  My eventual goal is to hold only one (or two) tickers in my SRS portfolio.

During March, I topped up my SRS account with the full cash amount eligible ($15.3k).  The main reason is to earn relief on my income tax.  Another reason is that my employer does a 50% matching contribution up to $5.7k.  The contribution goes separately into my company pension account, which is currently vested in an OCBC money-market fund.  The money is eligible for withdrawal only when I resign or retire.

Speaking of income tax, I recently checked my YA2024 filing on the IRAS portal.  On seeing the amount payable, my first thought was, "Sigh. There goes my performance bonus."  Well, it is actually a good thing to be able to pay income tax.  It means you are earning a comfortable amount of money for a living.  Nonetheless, I'd recommend one to be conversant with all of the tax reliefs available.  Not paying more tax than necessary is a prudent measure.

The average yield on May 2024 issuance of Singapore Savings Bond is estimated to be 3.06%.  Again, this is lower than my requirement, so I won't be parking any money there.

Earnings release season is coming up.  With sticky inflation and the central banks not in a hurry to ease interest rates, financing cost is likely to remain high for leveraged entities.  That said, the economy seems to be going strong, so companies continue to do brisk business and bring in revenue.  The stock market rally still has legs.  But one can never know.  Keeping my powder dry to pounce on opportunities as they arise.

I had just watched ChannelNewsAsia's latest documentary, "Regardless of Grades".  (You can find it [here].)  It talks about the Primary School Leaving Examination (PSLE) and the impact it has on our children.  It is no surprise that a field experiment found parental expectations to contribute the most stress in the P5/P6 kids.  I can relate to the experience.  My older boy is taking his PSLE this year.  My wife and I are concerned about his studies, particularly his Higher Chinese.  We have been sitting down with him every night to go through his assessment practices, getting him to understand the Chinese words and meaning behind each sentence in the passage.  I hope our labour will bear fruit, at least to push up his Chinese Achievement Level score.

On a separate note, my wife and I recently observed a thinning patch in the forehead of my younger boy.  At first, we thought it was a medical infection and we brought our 10-year-old to consult the family physician.  Later, my boy confessed that he had been pulling out his hair.  The reason was attributed to psychological stress in school brought on by the heavy workload.  I was stunned and was at a temporary loss on what to do.  All this while, my wife and I have been focused on our older boy because of his PSLE, and haven't been too strict with the younger child.  Ironically, the younger kid is the one exhibiting abnormal behaviour.  We sat down with him and explained how his habit of pulling hair will only make him look uglier.  If he is stressed by the heavy workload in school, he should inform his teacher.  We can brainstorm ways to cope with it.

By the way, a Straits Times reporter wrote about the story of how I met my wife.  The article appeared recently on the Sunday Times.  I hope it will inspire many to believe that love at first sight is indeed possible.  Hee.

Signing off for now.  Take care!

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Sunday, March 3, 2024

China Sunsine Chemical Holdings FY2023 Earning Result

China Sunsine Chemical Holdings ("CSSC") reported their FY2023 earning result on Thursday [here].  Here is a quick dive into the numbers:

Numbers in million RMB unless stated otherwise.
Twelve Months Ending 31 Dec 2023 31 Dec 2022 % Change
Revenue 3,490.4 3,825.0 (8.7)
Profit before tax 453.2 733.7 (38.2)
Net Profit 372.4 642.4 (42.0)
EPS (RMB cents) 38.67 66.29 (41.7)
DPS (SGD cents) 2.5 2.5 -

CSSC is primarily involved in the manufacturing and selling rubber chemicals, of which the bulk is in China (58%) and rest of Asia (30%).  CSSC also provides heating power and waste treatment in China, but revenue is inconsequential.  2H2023 revenue declined 2% y/y, due to 13% y/y decrease in average selling price (ASP), offset by higher 12% y/y sales volume.  The decrease in ASP was mainly due to (i) decrease in the price of raw materials; and (ii) a more flexible pricing strategy in response to the intensified competition.  Sales volume increased as a result of higher demand and the flexible pricing.

FY2023 gross profit margin declined from 30.4% to 22.9%.  Management will continue to adopt more flexible pricing with its "sales production equilibrium" strategy, so as to strengthen its market leadership position.  At the same time, they will look to tighten costs control.  Management remains confident of being profitable in FY2024.

The Board has declared a 1.5 SGD cents ordinary dividend per share, as well as a 1.0 SGD cent special dividend per share, Ex Date: 9 May 2023.  This is the same as previous year.

My Thoughts
CSSC operates in a competitive industry, whereby there is no differentiation between getting rubber chemicals from one supplier versus another.  CSSC has adopted the strategy of bulk sales amid flexible pricing.  Luckily, CSSC can still maintain profit margin above 20 percent, while enjoying a market leading position.  According to the company, it continues to hold the title of the "world's largest producer of accelerators, China's foremost producer of insoluble sulphur, and a significant player in the antioxidants market."

My worry is CSSC being caught a death spiral to zero profit with its adversaries.  So far, my nightmare hasn't materialized, but I continue to be watchful of the company's performance through the fiscal year.  A 6 percent dividend yield is the icing on a wobbly cake.

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Saturday, March 2, 2024

Singapore Technologies Engineering FY2023 Earning Result

Singapore Technologies Engineering Limited ("STE") reported their FY2023 earning result on Thursday [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 10,101.02 9,035.10 11.8
Gross Profit 1,972.75 1,698.66 16.1
Net Profit 586.47 535.01 9.6
EPS (in cents) 18.82 17.18 9.6
DPS (in cents) 16.0 16.0 -

FY2023 revenue was S$10.1B (FY22: S$9.0B), up 11.8% y/y, contributed mainly by the Commercial Aerospace unit of S$3.9B (FY22: S$3.0B), up 30.5% y/y and the Urban Solutions & Satcom unit of S$1.9B (FY22: S$1.7B), up 9.7% y/y.  The Defence & Public Security unit saw a slight 0.5% y/y revenue decline to S$4.2B.

FY2023 EBIT was S$914.7M (FY22: S$735.1M), up 24.4% y/y, contributed mainly by the Defence & Public Security unit of S$567.4M (FY22: S$405.0M), up 40.1% y/y.  Urban Solutions & Satcom unit saw a massive 65.7% EBIT decline to S$10.0M (FY22: S$29.2M), attributed to Satcom weakness, including severance costs and SatixFy divestment loss totalling S$32M, partially offset by higher EBIT from TransCore.

Management highlighted its TransCore investment became earnings accretive in FY2023, ahead of plan.  As at 31 Dec 2023, STE's order book remains robust at S$27.4B, inclusive of about S$3.1B new contract win in 4Q2023.  STE expects to deliver about S$7.9B from the order book in 2024.

The Board has proposed a final quarterly dividend of 4 cents per share (4Q2022: 4 cents), Ex Date: 30 Apr 2024.  This brings FY2023 total dividend to 16 cents per share, no change from previous year.

My Thoughts
Of all the local conglomerates I have researched, STE is one of the more capital-efficient entities.  STE's ROE is about 23.8%, comparable to post-restructured SembCorp Industries (23.8%), but far better than Keppel (8.1%, pre-restructured) and Haw Par (6.2%).  However, as with typical industrials, STE has a lot of debt on its books (S$6.1B).  Nonetheless, STE's healthy order book gives visibility to its revenue in the coming years.  Barring any extraordinary downturn in the global economy, STE should continue to remain profitable over the long term.

While its 16 cents DPS (85% payout of earnings) is nothing to shout about, I like the consistency of receiving cash quarterly without the unncessary shareholder capital change (spinoff, bonus stock issue etc).

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Friday, March 1, 2024

Portfolio Summary for February 2024

As of 29 February 2024


Security # shares Price S$ %
DBS 400 33.33 3.91
UOB 400 27.95 3.28
OCBC Bank 700 12.98 2.66
SGX 3,200 9.45 8.86
ST Engineering 6,900 3.98 8.04
Powermatic Data 8,500 2.95 7.35
Micro-Mechanics 18,400 1.68 9.06
Sheng Siong 19,100 1.55 8.67
TheHourGlass 19,600 1.55 8.90
VICOM Ltd 21,500 1.43 9.01
Credit Bureau Asia 14,300 0.915 3.83
HRnetGroup 21,900 0.725 4.65
Nanofilm 36,100 0.705 7.46
China Sunsine 41,800 0.39 4.78
TalkMed Group 14,500 0.375 1.59
Kimly 27,000 0.31 2.45
HC Surgical 35,500 0.29 3.02
Silverlake Axis 37,100 0.23 2.50
Portfolio Value = S$341,367
YTD Dividends Received = S$1,000
YTD SBL Fees Received = S$20

- Bought 500 shares of SGX.
- Bought 4,200 shares of Micro-Mechanics.
- Bought 22,100 shares of Silverlake Axis Limited.


Security # shares Price S$ %
DBS 100 33.33 2.64
UOB 200 27.95 4.43
SGX 1,300 9.45 9.74
ST Engineering 3,000 3.98 9.46
Micro-Mechanics 5,400 1.68 7.19
Sheng Siong 8,700 1.55 10.69
TheHourGlass 5,000 1.55 6.14
VICOM Ltd 5,500 1.43 6.23
Credit Bureau Asia 5,700 0.915 4.13
HRnetGroup 7,500 0.725 4.31
Nanofilm 12,500 0.705 6.98
China Sunsine 10,800 0.39 3.34
TalkMed Group 5,800 0.375 1.72
Kimly 5,800 0.31 1.43
HC Surgical 19,500 0.29 4.48
Silverlake Axis 6,000 0.23 1.09
NetLink NBN Trust 24,000 0.84 15.98
Portfolio Value = S$126,166

- Sold 900 shares of OCBC Bank.
- Bought 24,000 units of NetLink NBN Trust.

Singapore Savings Bonds

Security Amount (S$) Avg Yld %
GX22120S 14,000 3.47
GX23010Z 15,000 3.26
GX23110V 20,000 3.32
GX23120Z 20,000 3.40
Portfolio Value = S$69,000

Speculative Play

Security # shares Price US$
Kep Pacific Oak REIT 70,000 0.125
Portfolio Value = US$8,750

- Bought 70,000 units of Keppel Pacific Oak REIT.

The Lunar New Year came and went in a flash.  My family did not do many visits, as my older son fell sick on the second day.  It pains my heart to see him coughing away through the night and had to miss school for one whole week.  While staying home, I had spare time to spring clean (yes, on CNY Day 1-3) and do some reading.

The Singapore bank stocks found a second wind at the start of the month.  DBS, UOB and OCBC soared in price before retreating in mid-February.  All three banks announced record earnings and a higher final dividend.  DBS also announced a 1-for-10 bonus stock issue, Ex Date: 22 Apr 2024.  I did not manage to buy any bank share at my intended price.  Will continue to monitor for suitable opportunities.

Meanwhile, I accumulated shares in SGX, Micro-Mechanics Holdings ("MMH") and Silverlake Axis Limited ("SAL").  SGX fell out of favour with institutional investors, which caused its price to decline significantly.  MMH and SAL had reported less than stellar results, which saw their prices retrace accordingly.  Nonetheless, these companies remain profitable and I believe they will be able to grow their business over the long run.

I also executed an unscheduled trade in February.

Keppel Pacific Oak REIT ("KORE") suffered a massive 40% price plunge when the Manager announced that it will suspend distribution to unitholders till 2H2025 (see company filiing [here]).  The aim is to retain the income for recapitalization of KORE's balance sheet.  As of 31 Dec 2023, KORE has aggregate leverage of 43.2%, primarily due to lower portfolio valuation.  This is a whisker away from the 45% limit, which may make lenders unwilling to provide further financing.  The Manager has evaluated various options, including equity fund raising, divestment of properties and reduced distribution to unitholders.  All were found to be unfeasible.  Continued capex is also required to keep the properties attractive to current and prospective tenants.

I have reviewed KORE's FY2023 earning result.  Gross revenue was US$150.8M (FY22: US$148.0M), +1.9% y/y.  NPI was US$86.1M (FY22: US$84.3M), +2.2% y/y.  As of 31 Dec 2023, net assets was US$723.2M (31 Dec 2022: US$846.1M), -14.5% y/y.  NAV was US$0.69 (31 Dec 2022: US$0.81), -14.8% y/y.  KORE's current liabilities exceeded its current assets by US$67.0M, compared to US$24.3M a year before.  KORE has an uncommitted unutilised facility of US$50.0M and a committed unutilised facility of US$18.1M.  KORE should have no problem rolling over the debt with its retained income and unused facilities.

I believe the pendulum has swung too far to the downside.  KORE is still in a healthy operating mode, albeit it needs liquidity to tide over the present challenging situation facing U.S. commercial real estate.  S-Reits are not my forte, but KORE's dramatic fall in price caught my eye.

Securities Investors Association Singapore (SIAS) organized a Zoom session with KORE management.  (You can access the Powerpoint deck [here].)  The deck showed KORE has US$25M debt due 4Q2024 and US$50M due 2025.

If KORE survives through these two years and its refinancing goes through successfully, its price should recover to close the 80% gap to its NAV.  This is a rare mispricing event.  Thus, I bought 70,000 units of KORE for my account.

My analysis may well be wrong.  Just how bad is the U.S. commercial real estate situation?  The short answer is: real bad.  Bloomberg did a short video documentary about it.  You can watch it [here].  In the worst-case scenario, KORE finds itself unable to refinance its debt, and declares bankruptcy.  Should this happen, I will lose my entire investment.  However, this is only a small sum relative to my net worth.  The loss will not have any material impact to my wellbeing.  I am comfortable taking this speculative bet, in which the potential reward outweighs the risk.  (Please DYODD.)

As mentioned in my previous month's summary [here], I am revamping my SRS portfolio.  I have started selling down my existing holdings.  At the same time, I have started to accumulate NetLink NBN Trust ("NetLink").  For someone who previously avoided S-Reits, why the sudden interest now in NetLink?  Well, I find NetLink has many attractive points: a stable unitholder base; recurring earnings visibility; consistent and healthy margins; as well as a low gearing ratio of 24.3%.  With the development of new HDB residential towns like Tengah, and the government's plan to upgrade the National Broadband Network (NBN) infrastructure so as to provide faster connection speeds for families, the revenue outlook is bright for NetLink, as it is the sole entity providing the connection service and maintenance of the NBN.  It is like owning a utility company, albeit one with a 6% yield.  The vision for my SRS portfolio is to be a money stash that compounds at a moderate clip.  Investing in NetLink can help in this aspect.

April issuance of Singapore Savings Bond (SSB) is estimated to have an average yield of 3.04%.  The coupon rate is trending up again, but this is still below my requirement, hence I will not subscribe for the SSB.

At the workplace, I have just completed my annual performance evaluation with my team leader and manager.  My coworkers had told me their 2024 increment ranged between 1 and 3+ percent.  Hence, I wasn't expecting any better.  So I was pleasantly surprised when I was given a 5 percent increment in total compensation.  My actual bonus was also 15 percent higher than the target amount.  I'm glad that my contribution was given due recognition by my boss, and I'm grateful for the above average adjustment.  But it also means they have higher expectations for me this year.  I hope not to disappoint them.

My kids have just completed their Term One weighted assessments.  We can finally take a breather from the intensive revision (imagine: the parents are more worried than the kids!)  My older boy is taking his PSLE this year, hence we are concerned about his progress.  That said, as I grow older, I have realized the importance of taking care of our own mental health.  Being under constant stress can be harmful.  I try not to pack my kids' schedule, though I want my kids to take personal responsibility for their own success in life.  On various occasions, I have emphasized to my kids that I am not asking for perfect scores in their exams.  All I want them to do is to learn from their mistakes, pick themselves up when they fall, keep moving forward and "be better than yesterday".  Tenacity coupled with a growth mindset and incremental improvement can go a long way.

Until next time.  Cheers!

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Thursday, February 29, 2024

OCBC Group FY2023 Earning Result

OCBC Group ("OCBC") reported their FY2023 earning result yesterday [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 13,507 11,286 19.7
Profit Before Tax 8,401 6,670 26.0
Net Profit 7,165 5,639 27.1
EPS (S$) 1.55 1.22 27.0
DPS (S$) 0.82 0.68 20.6

OCBC's FY2023 NII was S$9.65B (FY22: S$7.69B), up 25.5% y/y, attributed to asset growth and a higher NIM of 2.28% (FY22: 1.91%).  Non-interest income was S$3.86B (FY22: S$3.60B), up 7.3% y/y, attributed to higher trading income of S$1.00B (FY22: S$929M) and higher investment gains.  Insurance income from Great Eastern Holdings was comparable at S$808M (FY22: S$803M).  Wealth management income improved to S$4332B (FY22: S$3.42B).  FY2023 net profit hit record S$7.02B (FY22: S$5.53B), up 27.1% y/y,

FY2023 operating expenses was S$5.22B (FY22: S$4.83B), up 8.0% y/y due to higher staff cost, IT-related costs and other operational expenses.  Non-performing assets stood at S$2.90B as at 31 Dec 2023, down 16.8% y/y.  NPL ratio is 1.0% as at 31 Dec 2023 (31 Dec 2022: 1.2%).  FY2023 allowances increased to S$733M (FY22: S$584M).  FY2023 ROE improved to 13.7% (FY22: 11.1%).

OCBC CEO Helen Wong highlighted the strategic acquisitions of AmMetLife Insurance and AmMetLife Takaful in Malaysia and PT Bank Commonwealth in Indonesia to accelerate OCBC's growth in ASEAN, pending regulatory approvals.  FY2024 loan growth is expected to be low single digit (similar to UOB).

The Board declared a final dividend of 42 cents per share, going Ex Date: 8 May 2024.

My Thoughts
Welcome to the wacky world of equity investing.  OCBC achieved record revenue and net profit, but the stock got sold down because of missed analysts' 4Q2023 EPS expectations (actual: S$0.357, street: S$0.386).  Even a higher final dividend failed to whet the appetite of investors.  Nonetheless, OCBC still managed to clock in a respectful performance.  OCBC forecasts FY2024 NIM to be in the range of 2.00% to 2.25%, just slightly lower compared to FY2023.   Will continue to monitor the stock price and accumulate on opportunity.

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Wednesday, February 28, 2024

Sheng Siong Group FY2023 Earning Result

Sheng Siong Group ("SSG") 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 1,367.72 1,339.46 2.1
Profit Before Tax 163.12 163.08 0.0
Net Profit 134.00 133.64 0.3
EPS (in cents) 8.89 8.87 0.2
DPS (in cents) 6.25 6.22 0.5

Revenue increased to S$1.37B (FY22: S$1.34), up 2.1% y/y, of which 2.5% is due to four new stores opened in 2022.  Sales of comparable stores remained the same.  SSG now operates five stores in China, of which revenue declined 0.1% y/y.  Gross profit margin improved to 30.0% (FY22: 29.4%) due to change in sales mix, offset by rising staff costs (up S$6.6M) and utility expenses (up S$13.8M).  Net profit margin remained steady at 10.1% (FY22: 10.0%).

Management believes escalating costs may compel consumers to adopt cost-cutting measures, such as choosing home-cooked meals, patronising value-driven supermarkets, and opting for more affordable house brand products.  Consumers who previously frequented upscale markets may now pivot towards budget-friendly supermarkets in an effort to manage their expenses.

SSG is expected to open two new stores in Singapore (at 91 Jalan Satu and Blk 471B Yishun Street 42) and one new store in Kunming, China during 2Q 2024.  Nonetheless, management warns that competition remains fierce in the supermarket industry.  Aggressive promotions coupled with higher input costs such as labour and energy expenses put pressure on margins.

SSG declared a final dividend of 3.2 cents per share, up from 3.07 cents per share a year ago.

My Thoughts:
SSG has always been one of my favourite stocks.  The business model is simple to understand; it has a stable (i.e. non-growing) shareholder base; the company heaps in lots of cash and has no debt; the management is disciplined in executing its strategy; and the profit margins have remained healthy through the years.  Best of all, the Board is willing to share the fruit of their success via an increase in dividend.  What's not to like about this company?  (Disclaimer: I shop at Sheng Siong every week.)  I wouldn't mind if the market still shuns this stock, keeping its price afloat around the $1.60 range.  It gives me opportunity to load up more of the shares.  Lots more.

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Tuesday, February 27, 2024

Nanofilm Technologies FY2023 Earning Result

Nanofilm Technologies International Ltd ("Nanofilm") reported their FY2023 earning result this morning [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 177.02 237.41 (25.4)
Profit Before Tax 3.14 46.12 (93.2)
Net Profit 2.70 43.29 (93.8)
EPS (in cents) 0.48 6.65 (92.9)
DPS (in cents) 0.66 2.20 (70.0)

Nanofilm derives its revenue from its four business units: (a) Advanced Materials ("AM"), which involves their proprietary vacuum coating technology; (b) Nanofabrication ("NF"), which manufactures nanoproducts in optical imaging lens and sensory components; Industrial Equipment ("IE"), which develops customized coating equipment for customers; and (d) Sydrogen ("SD"), which provides fuel cell components and solutions.

Revenue broadly declined 25.4% y/y, attributed by lower sales achieved by the AM, IE and NF businesses.  This was partially offset by higher revenue from the SD business, primarily due to production ramp-up from new projects.  FY2023 EBITDA margin was 23.1% for AM (FY22: 36.4%), 33.0% for IE (FY22: 24.7%), 16.7% for NF (FY22: 32.9%).  SD operated at a loss of S$2.0M (FY22: -$1.6M).  Gross profit declined 41.1% y/y, primarily due to increase in material costs and increase in depreciation & amortizaton expenses.  Management does not expect significant capex in FY2024, but will focus on maximising returns from current asset base.  Management is confident of higher revenue and profit in FY2024, contingent upon absence of major unexpected events.

My Thoughts
Nanofilm derives the bulk of its revenue from its China operations (72.9%).  Singapore is second (20.2%).  The remaining comes from Japan and Vietnam.  2023 was a challenging year for manufacturers in China.  Despite the higher costs, EBITA margin had managed to maintain in double digits.  A lower final dividend payout was expected.  Hope 2024 will be better.  I had built up a sizeable position in Nanofilm as the market sold down the stock in 2023.  Will refrain from adding and monitor the company's performance going forward.

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Monday, February 26, 2024

Credit Bureau Asia FY2023 Earning Result

Credit Bureau Asia ("CBA") reported their FY2023 earning result this morning [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 54.17 48.62 11.4
Profit Before Tax 26.68 22.85 16.8
Net Profit 22.02 19.29 14.2
EPS (in cents) 4.27 3.65 17.0
DPS (in cents) 3.70 3.40 8.8

CBA operates credit bureaus in Singapore, Cambodia and Myanmar.  Revenue earned here is categorized under financial institution data ("FI Data").  CBA reported broad-based increase in revenue to the Singapore FI Data business, as well as revenue in tandem with growth of the Camobodia economy.  Revenue from the sale of reports increased to S$23.0M (FY22: S$20.0M), up 14.9% y/y, mainly attributed to the increase in bulk review reports and new credit application reports sold to bureau members.  Revenue from consumer direct and employment check increased 38.5% as a result of increase in price and quantity of reports sold to consumers and employers.

CBA also has joint venture partnerships with Dun & Bradstreet which provides customers with a range of business information and risk management services.  Revenue earned here is categorized under non-financial institutional data ("Non-FI Data").  CBA reported their Non-FI Data business continues to expand in Singapore and Malaysia.  Revenue from CBA's global credit risk management solutions increased to S$17.5M (FY22: S$15.5M), up 13.3% y/y, mainly driven by demand from increased compliance and risk management requirements from both local and global customers.  Revenue from sale of reports under CBA's Singapore Commercial Credit Bureau and other bureaus increased to S$8.3M (FY22: S$7.4M), up 10.9% y/y, mainly as a result of increase in quantity of report sold and number of customers.

The company is looking to increase market penetration by introducing new products and services to customers.

My Thoughts
CBA's revenue between FI Data business and Non-FI Data business is roughly evenly split (S$25.78M vs. S$23.03M).  I believe the launch of digital banks in Singapore is one primary contributor to the FI Data business.  FI Data profit margin is higher (59.7%) versus Non-FI Data (50.2%).  Happy to see the company making headway.  A bump-up in the final dividend to two cents is a pleasant gift.  Will continue to monitor for opportunities to stock up.

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Sunday, February 25, 2024

HRnetGroup FY2023 Earning Result

HRnetGroup ("HRnet") reported their FY2023 earning result on Thursday [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 578.47 611.78 5.4
Gross Profit 138.97 174.15 (20.2)
Net Profit 66.06 72.46 (8.8)
EPS (in cents) 6.44 6.75 (4.6)
DPS (in cents) 4.00 4.00 -

HRnet has two key business segments: Flexible Staffing (FS) and Professional Recruitment (PR).  Management said the uncertain economic climate saw continued shifts towards FS and the revenue proportion rose to 88.0% (FY22: 83.4%), while the gross profit proportion rose to 50.3% (FY22: 42.1%).  On the other hand, the revenue and gross profit proportion for PR dropped to 11.3% (FY22: 15.9%) and 47.0% (FY22: 55.5%) respectively.  Management attributed this to hiring freezes and cautious sentiments prevailing across the Asian cities HRnet operates in.  Singapore is HRnet's largest market, contributing 66.7% (FY22: 64.9%) of the revenue.  Overall gross profit reduction was mainly in Singapore and Greater China.

Flexible Staffing (source: FY2023 result presentation)

Professional Recruitment (source: FY2023 result presentation)

My Thoughts
HRnet business is closely entwined with the health of the economy.  It is no surprise that their Greater China entity suffered, given China's lacklustre economic performance.  FY2023 net profit would have been worse, if not for a S$8.1M increase y/y in "Other Income", which comprises reversal of trade-related accruals, government grants, interest income, fair value gain and dividend income.  Management is watchful of overhead cost and continues to do so.  Will take it easy and monitor the company's performance through 2024.

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Saturday, February 24, 2024

A shareholder survives off the balance sheet

Over the week past the Lunar New Year, I was deeply immersed in the field of professional money management.

Not literally of course, but through literature.

I had perused several books written by seasoned fund managers, who possess more than a century's worth of successful investment experience in the stock market combined.

One of these books is titled, "Common Stocks & Common Sense - The Strategies, Analyses, Decisions and Emotions of a Particularly Successful Value Investor".

The author is Edgar Wachenheim III, founder, CEO and chairman of Greenhaven Associates, a value-based equity hedge fund with US$9.38 billion AUM.  From 1988 to 2017, Wachenheim had generated an average annual return of roughly 19 percent before fees for Greenhaven clients [source: CNBC].

This is no small feat, considering the graveyard of finance is littered with tens of thousands of failed hedge funds.  When an accomplished investor is willing to share his life experience in a book, one has to naturally pay attention to the lessons.

Indeed, it was an eye-opener as Wachenheim described his thought process on several of his investments, and preached the wisdom gained.

Here is one memorable quote from the book:

A shareholder makes money off the income statement, but survives off the balance sheet.

What Wachnheim means is that for an investor to know whether a company is rewarding, look at its income statement; but to know whether a company is risky, look at its balance sheet.

I wholeheartedly agree.

Investment outcomes are probabilistic in nature.  The extent of a gain/loss exists across a spectrum.  As investors, our foremost concern should be to minimize the left-tail risk of permanent loss in our capital.

Recall Warren Buffett's two rules: Number 1. Don't lose money; Number 2. Don't forget the first rule.

One of the best ways not to lose money is to NEVER invest in companies that have trouble operating as a going concern.  These are businesses leveraged to the hilt, but have no sustainable way forward to repay the debt, as well as companies stuck in a sunset industry and generating waning cash flows.  They are the "dying embers" of the corporate world - one last flicker before the flame goes out.

Examples are plenty.  Think automobile manufacturer General Motors, before it went belly up in 2009.  Think local water treatment firm Hyflux, before it filed for bankruptcy in 2018.  Or the 56 companies currently suspended from trading on the Singapore Exchange.

Shareholders of such firms face dim prospects of recovering their money.

While it may be tough to identify companies whose management are engaged in hidden, unscrupulous activities, the telltale signs of a fundamentally unsound enterprise are often visible in the balance sheet.

Granted, going through a balance sheet can be daunting for the layman investor.  If reading stacks of tiny digits makes your head spin and want to give up, allow me to point you to the three numbers on the balance sheet that I pay the most attention when researching on a company.

The first number is Total Liabilities, which indicates the overall financial obligations of the company as at a specific date.

These include borrowings (from banks and the debt market), undelivered goods and services, as well as all things payable (capitalised expenses, mortgages, money owed to suppliers etc).

Total liabilities can be subdivided into current and non-current (or 'long-term') liabilities.  Current liabilities are payable within one year.  Non-current liabilities are due after one year.  Regardless, they represent monetary burdens that must be resolved at a future point in time.

Here is an example from the most recent filing of a local listed company (let me call it Company X):

As seen above, Company X has a total liabilities of US$29.65 million as at 31 Dec 2023.  Keep this figure in mind as we explore the next number.

The second number is Cash and Cash Equivalents.  Cash is self-evident.  The 'cash equivalents' here refers to highly liquid instruments that can be easily converted to money.  These include money market securities, banker's acceptances and even short-term government bonds.

This figure sits in the Assets section and is usually the first item on the balance sheet.  The position of this number at the very top speaks volumes of its importance.

As seen above, Company X has cash and cash equivalents of US$52.05 million as at 31 Dec 2023.

If we compare the first and second numbers, we can see that Company X is more than capable of repaying its total liabilities using its cash coffer.  (As for why Company X is keeping so much cash and not returning a portion of it to its shareholders, this is a different discussion altogether.)

The third number to take note is Total Equity.  This item is found below Total Liabilities and comprises shareholders capital, treasury shares, reserves and retained earnings/losses from previous fiscal years.

Think of total equity as the money left after selling all assets to repay all liabilities of the company.  You wouldn't want this number to be negative.  If it is, the company is in serious trouble.  I would suggest to give it a miss.

As seen above, Company X has a total equity of US$56.38 million as at 31 Dec 2023.  It doesn't look bad at all, but notice Company X has accumulated losses that is nearly as big as its total liabilities.  One wonders what the heck the management has been doing to the business all these years.

Based on these three numbers, we can compare the company versus its peers and against history.  Throw in net income from the income statement and we can work out a slew of ratios such as the return on capital etc. These metrics should give you an approximate idea on whether this company is relatively healthy and capital efficient, or not.

A full study of the balance sheet is beyond the scope of a mere blog post.  If you are keen, a decent accountancy textbook should help.

There are other interesting aspects of the balance sheet that warrant further elaboration.  (Footnotes, anyone?)  However, I hope this basic introduction has made the balance sheet a little less intimidating for you.

Here's to your survival (and prosperity) as a fellow risk-conscious shareholder.

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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, 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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