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Thursday, December 24, 2009

Cost of Living in Singapore

I was reading an article this morning on CNA with the headline “Not all blame is on Sistic”, and I came across a line in the article which I was interesting.

“All said, ticket charges are still lower in Singapore than New York or the United Kingdom, according to Mr Liew, who has been in the business for more than 25 years.”

One thing I have realized is that, on many levels, we have been comparing Singapore with many developed cities. I did some research, to see how we fare against other countries.

The following data is taken from the UBS Prices and Earnings Survey 2009, and the Mercer Survey 2009

1) Price Levels
Price levels refer to the Cost of Living in the city. New York is the default with 100 points.
Excluding rent, Singapore comes in 2nd for cities in Asia, with a score of 82. Tokyo is the most expensive city to live in with a score of 102. If rent is factored in, Singapore comes in 3rd, with Hongkong 2nd behind Tokyo.

2) Wage Earnings
Wage Earnings refer to the average take home income of employees, after taxes.
Here, there is a stark difference in the wages of Asian cities. Likewise, New York is the default with 100 points
Tokyo has the highest wage levels in, with a score of 83. The next cities in Asia are Hong Kong, Seoul, Taipei, and Singapore. Singapore comes in with a score of 31.

3) Big Mac and Ipod Index
The Big Mac index refers to the number of minutes an average employee needs to work to purchase a Big Mac, and the Ipod Index refers to the number of hours an average employee needs to work to purchase an 8gb Ipod Nano.
The importance of this index is to quantify the purchasing power of the employees.
If we look at this, Singapore scores pretty badly on the Big Mac Index, needing more minutes as compared to all other Asian countries, with the exception of Kuala Lumpur. On the Ipod Index, Singapore moves up a slot, with Shanghai employees needing to work the longest hours. However, one point needs to be kept in mind, is that the cost of branded electronics in Shanghai is extremely high.

4) Rental Housing
The cost of rental for a 3 room apartment that is unfurnished is approximately 2,940 USD. This refers to apartments that are near the city center, not suburban housing. This is approximately the same as an apartment in Chicago. New York and Hong Kong have the highest average rent of 5,220 USD and 4,070 USD per month.

5) City Infrastructure and Quality of Living
Singapore comes in 1st for City Infrastructure, ahead of Munich, Copenhagen, Tsubaka and Yokohama. In the Quality of Living Index, Singapore comes in at 26th, and is ranked top among Asian countries.

I believe that comparisons to New York and London are usually baseless, as the Purchasing Power of Singaporeans is much lower as compared to those cities. With that being said, Singapore has a high quality of life and the city infrastructure is great. I mean after all have you seen the amount of smog covering the skyline of Hong Kong at certain times of the year?

This information is just a general outlook on how we stand as a city. It is not an attempt to put down Singapore or to ask for an increase in pay from my CEO.

My Bank of America Purchase – Investment Mistake?

I purchased Bank of America on the 8th of December, without doing any fundamental analysis, after they had announced they were repaying their TARP funds.

Mistake No. 1 – Not doing any analysis
Logically speaking, I felt that the repayment of the TARP funds was a key indicator of the prospects of BofA. Ken Lewis was stepping down (Positive Point 1), they were searching for a new CEO and as BAC was in the TARP, they could not offer astronomical salaries to the replacement CEO. With the repayment of TARP, they had this cap lifted off, and could carry on the search for the new CEO (Positive Point 2).

Mistake No. 2 – Overthinking Merrill Lynch
BofA’s merger with Merrill Lynch was a major disaster, and resulted in BofA seeking the aforementioned TARP funds. As the economy recovers, so will the risk appetite, and this means more capital for Merrill Lynch. I had put too much emphasis (again without any fundamental analysis) on the profitability of Merrill Lynch, without much regard for BofA’s other income generating sectors.

Mistake No. 3 – Calculating upside based on past performance.
Looking at BofA’s share price, I looked at the possible upside, which was at least 33%. Looking at this number clouded my judgment, and my warnings indicators became clouded. If that’s the case I should be purchasing China New Town, with at least a 100% upside. (I stated China New Town as I just finished an analysis of it)
I am still holding on to BofA, and will not sell it off just yet. The purchase has been made, and the paper losses are less than 5%. I don’t intend to sell it off anytime soon, and will wait for any new developments. Low interest rates are going to be around till at least May next year, and it will be good for the financial sector.

A reminder to all investors: Make sure you know what you are investing in, and do your analysis beforehand. Logically thinking does not necessarily work, and even if you develop a surefire investment method, chances are the market will smash it up into pieces.
On a sidenote which has nothing to do with investment, I am mystified by how Russell did not win the latest season of Survivor. I know that many people feel that Survivor is such a boring show, but if you have time, read it all on samoa.survivor.com.

*Disclaimer I am vested

Monday, December 21, 2009

The Curious Case of Teledata Ltd

About Teledata Ltd
Teledata is a leading communications services company, unique for the depth of our capabilities and the dedication of our people. Our people are experts in the dynamic field of communications technology and excel at delivering customised communications services and solutions to our customers.

Founded in May 1976, we have grown to be a regional company with offices in 8 countries and customers in 14 countries throughout the Asia Pacific region. Teledata works with customers from all industries and provide systems and services that are relevant to companies from the largest enterprises and telecommunication carriers down to smaller enterprises. Some of those customers have been with us for almost three decades since Teledata first started operation.

Teledata is listed on the main board of the Stock Exchange of Singapore and we have achieved ISO 9001:2000 certification.

Teledata’s Run-Up
Teledata’s stock price started moving on the 23rd Oct, opening at 0.015 and closing at 0.02. Currently as of 17th Dec, the stock price closed at 0.075, meaning a 275% gain from any investment made at 0.02.

How is the Daily Operations affected by the Stock Price?
Essentially, the ability for a business to operate as a going concern is not affected by the stock price. Rise and falls of the stock price does not directly bring cash into the company.

So what is the stock price for? It’s an indicator of how much one would pay for a share of the company. As the company benefits, so does its investors due to dividend payouts for example.

Even for companies that do not give out dividends, investors may still invest in the company as it may be undervalued, or the company’s growth prospects are higher as compared to other companies/industries.

Furthermore, as companies try to raise capital, instead of taking on more debt, they may issue rights to raise new capital. Rights are usually priced at a discount to the current market price, and a company that performs well is able to raise more capital through the issue of rights. During the issue of rights, the number of subscribers would naturally be all the shareholders to prevent their holdings from diluting.

For a simplistic view,

Amount of capital to be raised = price of newly issued shares x number of shares issued

A higher price of newly issued shares, which is determined at a discount of the current stock price increases the amount of capital that can be raised. Although an increase in the number of shares issued can bring about the same capital if the price of the newly issued shares are low, the current shareholders may not subscribe to the shares and instead sell off their holdings due to excess dilution. Excess dilution also results in share prices hitting rock bottom.

The Rise in Teledata’s Stock Price
The rise in Teledata’s stock price has little to do with fundamentals. Looking at their financial statements, Teledata has been in the red since 2002 (with the exception of 2006). In their latest half yearly unaudited financial statement, Teledata posted a larger loss as compared to 1H2008. All signs point to a company to avoid.

So what are the possible reasons for Teledata’s rise? There have been murmurings about a reverse takeover of Teledata, thus a major company that is buying into Teledata, pushing up the stock price. All these are rumours, and unless you are an insider, it is difficult to know the exact details surrounding the rise in the stock price.

In the SGX query on the 15th of Dec, Teledata’s response is that it is not aware of any information that was not previously announced. However, in this run up, Mertius Resources Ltd has been purchasing shares off the open market.

Fundamental Analysis and Reverse Takeovers
Companies with a low share price and relatively low float are prime targets for takeovers. In value investing and growth investing, we do not give absolute attention to the companies that are prime targets for these takeovers. Instead we find undervalued companies and/or project their growth possibilities.

I am not vested in Teledata, and its current shareholders may call me an idiot, but I don’t want to be the last man standing if the reverse takeover is just a rumour or if it falls through. The shareholders may have the last laugh, as we can all remember the case about Wilmar’s reverse takeover.

Good luck to the shareholders of Teledata Ltd. I hope that Teledata proves me wrong as it would be a learning experience for me. And please don’t be the last man standing.

Sunday, December 13, 2009

Outlook on Singapore Residential Property Market

Singapore’s property staged an amazing recovery, with the 9M09 recording a 115% increase over 9M08. However, in October, the total number of sales was 811, a drop from 1143 the month before, and the first time since January that home sales have dropped below 1000. As compared to Oct 08, it was a 284% increase in number of home sales. The low figures in Oct 08 are most likely due to the onset of the financial crisis. According to the CEO of PropNex, Mohammad Ismail, the last two months of 2009 will see a total of less than 2000 home sales, adding that the demand built up from the financial crisis has been spent.

The high increase in home sales 3Q09 was driven by the Interest Absorption Scheme and Interest Only Housing Loan, and with the removal of those schemes, it will definitely slow down the speculation on the property market. Furthermore, with the reinstatement of the Government Land Sales Program, it will only dampen speculation.

For 2010, the tune that is being played is the opening of the IRs, and with the highest proportion of home sales will come from high end apartment sales. I believe that home sales will stay around the 1000 level mark for the 1Q09, before tapering off to drop below 1000 after the impact of the opening of the IRs has blown over.

With that, I believe the 2 companies to look at, Ho Bee and Keppel Land. Many analysts have labeled Keppel Land as a Buy. Another company to look at is UOL, with its strong performance in 2008 and 9M09.

I remain neutral on the property market, as the future of the Singapore property market would be uncertain after the impact of the IR is over. A review will be done again a month or two after the IR opens.

Thursday, December 10, 2009

First Resources

Why Palm Oil?

Palm Oil is a renewable resource, and is important component in many industries, such as food and biofuel. Furthermore, the yield from a palm plantation is much higher than that of other organic oils, such as sunflower, rapeseed and soybean, and demand of Palm Oil has increased worldwide as compared to other natural oils.
With alternative energy the focus in recent years, and most likely years ahead, the oleochemical industry is set to provide a renewable (although not pollution free) resource, and wean the world off dependence of petrochemicals.

About First Resources

First Resources Limited is one of the leading oil palm plantation companies in Indonesia. We are an upstream operator with primary business activities in the cultivation and harvesting of oil palms, and the processing of fresh fruit bunches into crude palm oil for local and export sales. Established in 1992, we are one of the fastest-growing plantation companies in the region. Today, we manage more than 100,000 hectares of planted oil palm plantations and operate 8 palm oil mills in Indonesia. Our plantations produced approximately 1.4 million tons of fresh fruits bunches and 323,000 tons of crude palm oil in 2008.

Why First Resources
I decided to look into the following companies for comparison: Indofood Agri, Golden Agri, Kecana Agri, First Resources and the company with the biggest market cap, Wilmar. Going by market cap, First Resources ranked 4th among these 5 companies.

For the year ended 2008, the profit margin for Golden Agri came up tops with 48%, while First Resources profit margin was 41% and Wilmar was 5%. Delving into the Operating Profit Margin, Golden Agri had a margin of 67% with First Resources having 75%, Wilmar having 7%. Total Profit for the Year is as follows (based on today's exchange rate):

Indofood Agri - 1,066,727 Rp Million - 157 million SGD
Golden Agri - 1,418,645 USD '000 - 1977 million SGD
Kencana Agri - 10,324 USD '000 - 14 million SGD
First Resources - 1,151,597 RP Million - 170 million SGD
Wilmar - 1,556,431 USD '000 - 2169 million SGD

P/E Ratio for 2008 showed that GAR was trading at a P/E of 1, with First Resources at a P/E of 3. All companies were not highly leveraged, all with a gearing ratio of less than 1.

The noteworthy point however, is that in 2008, due to an increase in value of CPO and kernels, resulted in all companies posting an increased profit. This fair value gain however, is not a realised gain, and as valuations change, so will the income statement. Taking that factor out, First Resources had an operating profit margin of 61%, and a YOY of 105%. Wilmar had a YOY operating profit of 138%. Golden Agri posted a drop of 10% YOY when the factor was removed.

Looking at the most recent earnings release (3Q 09), at this point I narrowed down to First Resources, GAR and Wilmar, First Resources posted a drop of 34.7% in Gross Profit over the YTD, Wilmar with a drop of 33.1%, while Golden Agri posted a change of -55%. EPS for YTD of FR was 436Rp, Wilmar was 18.12USD cents and GAR was 1.18USD cents. Extrapolating it to a full year, FR would have an EPS of approximately 580Rp, Wilmar to be at 30USD cents and GAR with 1.6USD cents, giving the following P/E ratio:

GAR - 21
Wilmar - 15
FR - 11

Furthermore, upon looking further into the Q3 report, First Resources had an increase in 10.3% volume of CPO and 1.7% of Palm Kernel, while Wilmar had a decrease in 5.4% of Palm Oil, while seeds increased by 19.4%. Values were not available for Golden Agri.

The only 2 challenges that I foresee is the price of palm oil being a hindrance, and that First Resources has a much lower market capitalization than its competitors. For the first, as the demand for palm oil will increase and play a greater part for the next decade, the price of palm oil will increase, and as for the latter, it would depend greatly on the management.

*Disclaimer I am vested