Capitaland Mall Trust Results Review (Q12016)

CapitaLand Mall Trust released its Q1 2016 yesterday.

1st Key Metric: Funds from Operations Per Share (FFOPS)
To assess Reits/Trusts, a very important metric to use is Funds from Operations(FFO) as it measures the profitability of the reit/stock after taking into account of depreciation and gains from disposal of assets. Funds from operations is a much more reliable metric to assess how well the trust/reit is doing.

The formula : Net income - Interest income + Interest expense + Depreciation- Gains on asset sales + Losses on asset sales = Funds from operations 
For CapitaLand Mall Trust, FFOPS:
1Q2015: 0.0297
1Q2016: 0.0317
There is an improvement of about 6%

2nd Key Metric: NAV Per Share
The NAV of a company is its Assets minus liabilities, divided by the outstanding number of shares, we get the NAV per share. It is the 'book value' of a stock. If the market price of the stocks is below the NAV, it may mean a good opportunity to buy the stock.

Current NAV (1Q2016): $1.88
Current Stock price: $2.17
Premium: 15%

Earnings implication- Saved by Bedok Mall

 

 

1. The revenue of Bedok Mall- $14.6m attributed mainly to the increase in revenue. This means that if CMT did not acquire Bedok Mall, its revenue would have been $152.7, a decrease as compared to 1Q2015 which inherently means the other malls are not faring as well. The improvement of IMM by $1.3m can barely save all the other malls.

This is why for a reit to grow, it is important to acquire new assets and improve on the existing ones.

 

2. Other assets- Jcube, Sembawang Shopping Centre, Clarke Quay, The Atrium @ Orchard are performing worse.

 

 



Looking at this chart, retention rate for:

Clarke Quay: 66.7%

The Atrium: 44.4%

Other assets (Jcube and Sembawang shopping centre): 71.4%

 

Not a very good sign..

This also means that Heartland malls are doing much better, which Frasers Centrepoint Trust is very strong at.

 

Overall- Will not buy now.

Better than expected performance results, DPU also increased. But the current price of $2.17 sets a premium of 15% to its NAV value.

 

Not a good bargain.

 

I am also cautious of how the other malls are doing in future especially Clarke Quay, Jcube, Orchard.

 

Bedok mall cannot save the day, all the time.





IPO of Secura Group (Review)

Secura Group, the newest company to get its share listed at SGX yesterday, opened at $0.24 and closed at $0.225.

Some of  its core businesses now:
1. Security printing- printing of valuable items such as cheques and parking coupons.
2. Security guarding
3. Homeland security

Moving forward, Secura will be looking at several sources of growth:
1.Build market share in guarding business
2.Expanding homeland security
3.Expanding cyber security segments

Source: Secura Group’s IPO prospectus

Here's what I think about this company:

Profitable segments:

1. Security guarding:

Right now, I only know of CISCO providing trained security guards. It seems that there is growing demand in this area especially when there are so many new condos/commercial properties/industrial properties popping up in Singapore. Looking at the revenue growth of Secura, its security guarding business is doing very well and sees a jump of  68% from FY2013 to FY2014.

My 'concerned' segments:

1.Security printing services:
This was their core business when they started out in 1976. However, the printing industry in general seems to be declining in profitability. Much of printing has been replaced through the advance technology of computerization, internet and digitalization.

It is no wonder why companies like Interplex sees its Imaging and Printing product sector declining  by 24% against 1Q2015 due to changing consumer preference for digital media.

Even Fuji Xerox, the world's largest printer company, seeks to earn more by encouraging less printing.

2.Cyber Security solutions:

It is a big industry with a lot of business opportunities out there.

However, IT business in Singapore is VERY competitive. Just take a look at Street Directory. A search of 'IT Companies in Singapore' will give you 259 companies.

Majority of these companies are able to provide some form of cyber security solutions.
 
I have not even talk about the big boys like IBM/HP/Microsoft, which provides more comprehensive cyber security solutions to bigger companies.

I think that a good business is sustainable when entry of competitors to the same business is difficult/capital intensive, or you have a very distinct competitive advantage.

Therefore, I do not think that Secura can yield very good results in its Cyber Security segment, at least not in the next few years.

Conclusion:

At this moment, I will not invest in Secura as I am skeptical of its Security Printing and Cyber Security segments for future growth.

 

I will wait till it release its first financial result and study how well it manages its Security guarding business first.

 

Why is Noble a bad buy even at $0.47

I know there are many Noble fans in Singapore. Sorry, but I really cannot super cannot understand why are people still buying Noble in this market?

Before I study its financial statements released yesterday, let's look at how Iron ore prices importing from China have dropped since last year. I relate to Iron ore since Noble group has a major business unit in metals and mining.

From a high of US$160+ in 2013 to the current $40+ now, the Iron ore prices have dropped so much. When iron ore drops, metals/mining/scrap all others drop too.

In fact, the commodities market has sucked so badly this year and it is of no surprise that companies dealing in this sector will face a drop in profits. When your revenue drops but your fixed costs remain, it just means that the profit will drop a lot more.

But here's the thing:

Sorry to say, metal prices show NO signs of recovering as of now.

This is because I work in the frontline of metal commodity prices so I do have some knowledge on the prices.

So if it's still not recovering, can I safely say that next quarter's financial results will still be as disappointing? Which means stock price may drop even more?

Now, let's go on to Noble's financial results:

1. ROE (Return on Equity) Based on info provided by Noble: 5%+
A healthy, growing company should have an ROE of  >15%. 5% is not even 1/3 of that omg..

2. D/E ratio is 2.80+ approx.
This is like super high. A healthy company should be looking at <1

3.When ROE sucks and D/E also sucks, the company show signs that it is heading for Disaster.
If you have a high ROE and a good D/E, it is a very good growing company. If your ROE is low but D/E is also low , it implies that the company is surviving but nothing fantastic.
But if your ROE sucks and your D/E also sucks, then likely it is heading for a disaster.

4. Profits dropped 83%,
Not a surprise when commodity prices drop so much. However, cash flow is now positive and it seems that Noble has done a good job in cutting costs.

I can't determine what is a good price to buy given that the earnings are really volatile in this terrible market.

Conclusion:
Will only consider to buy when the commodity market in general show signs of picking up.

Oxley retail bonds review (5%)

There has been much hype on this Oxley retail 5% bond, spanning over 4 years maturity. However, it is unrated and that means I can't rely on any Moody's analysis to discern whether it is a good deal a not.

I have to analyse on my own then. After studying its financial report and ripping it apart, below are my takeaways and humble thoughts.

Before I go to the financial jargon, I need to express that this is only my opinion and may not bear any truth at all. Analysis and thoughts are of personal opinions only. For every statement I make here, I will put 'I think'. (but it is up to you to discern what I say correct anot ;P)

1.Profit before tax dropped from FY14 to FY15 by a whopping approx. 62%

FY 2014: $377,367m
FY 2015: $142,705m
Oxley holdings has achieved very impressive profits in Year 2013 and 2012, when the property market in Singapore was booming.
However, after the cooling property measures were implemented, many developers are facing a lackluster response in its properties. It is no surprise that Oxley was badly affected by it too.
Oxley has plans to expand overseas aggressively instead but looking at its financials, I do not find them promising. (to explain later)

2. Marketing expense increased 99%

I think when you increase your marketing expenses by 99% but then your results decrease by 62%, it means:
A. Your marketing strategies CMI. (cannot make it)
B. You are not getting the response that you want, i.e, demand is not that good.
I think that it is option B because Oxley's marketing agents are mostly from Huttons and Huttons really produce impressive results in other properties previously. When you spend so much more on marketing yet get poor results, it just shows that your products are not as good.

3. Debt ratio and D/E ratio is high

I think it is high.
Debt ratio (Total liabilities/Total assets) = 0.85 approx
The industry encourages standard of about (0.3~0.6) only.

Debt/equity ratio (Debt/equity)= 5.807 approx.
Other companies are <1.......

I think Oxley has too much leverage and it is risky.This means that if their business fail, I think I will be in queue 1,000,000 to get back my money lor omg. (Just joking, queue no. is a fake anyhow say number)

Look at its fixed notes it previously issued:

I think those that were issued in Year 2013 were for its projects in Y2013/Y2014 which did receive resounding success. Oxley should be able to pay them.

But for notes issued now, the money I think will be used for its overseas projects venture moving on but this leads me to the next point.

4.No confidence in Oxley's overseas projects venture

Look at this:

Forget its FY2015 poor performance. I think future plans are very important and the strategies form the crux of whether the company is a good investment a not.

Looking at this table, I really do not think Oxley overseas projects are promising.

A. Projects in Cambodia
I go to Cambodia- Phnom Penh every single year (I'm not a Cambodian btw) and I have some close friends there. There is an association there which I am committed too and has a close relationship with. As such, I think I have some knowledge to really say how Phnom Penh is like. And this is what majority of Phnom Penh is:

1. Mud & uneven roads
2. Slums
3.Corruption
4. Poverty
5. Main language of the people is Khmer
6. More well off people work as factory garment workers
7. Less well off people open shops infront of their living area and sell the same stuffs that other shops sell too.
8. Children not wearing underwear and running around
9. many many other scenario depicting a 3rd world country

Phnom Penh has a very very long way to go for foreign investments. And to build high rise condominiums and to attract expats to stay there, well, I think, more likely they will become AirBnb.

I do not think that Oxely's property developments in Phnom Penh are promising although their first project there did receive a good response.

B. Projects in Malaysia
Exchange rate of those people who bought properties in Malaysia during year 2013 when the market is booming there: SGD 1: MYR 2.65

The exchange rate now: SGD 1: MYR 3.05

Exchange rate in future: ????

With a very questionable government, weak currency, poor security, I think the property market there is certainly not as attractive as in year 2013. As such, I do not think that projects there will receive good response.

Also, Setia Berhad, the leading property developer there, has much more competitive advantage in its home land as compared to Oxley.

Given that Singapore's developers are facing a weakening demand here, and Oxley's prime focus is shifting to overseas with such projects in such countries, I do not have the confidence in their ventures.

5. You can get 5% yield elsewhere too
5% yield capital guaranteed by AAA credit rating from Moody's is a must grab.

But when it is unrated and it has poor future strategies, then I think it will be better if you put your money into blue chip stocks or diversified reits- Probably 6% over 7 years horizon, your money is safer.

Conclusion

I will not buy Oxley's retail 5% bonds because the risk does not justify the returns.