Friday 25 May 2018

Comparison between Tat Seng Packaging (Sgx: T12) and Hop Fung Group (Hkex: 2320)

Decided to do a comparison review between 2 companies that i feel are very similar in terms of businesses.

Both companies operate in the corrugated packaging business.

From the table we can see that Hop Fung Group seems to have better operating metrics than Tat Seng.

The only 5 metrics Tat Seng stood out were lower payout ratio, lower PE and lower Staff cost per dollar generated, return on assets(Roa) and return on equity(Roe)

From this we can see that Tat Seng has been able to extract more profits from their machines while Hop Fung has been more capable in cost management.

In addition, there has been purchase of shares by the owners of Hop Fung Group
The addition entries are plenty and can be seen from here
Whereas, this is not seen in Tat Seng Packaging

Both Companies has its pros and cons.
Tat Seng would be attractive to people who like higher Roa and Roe, being listed in Sgx means Singapore Investors would be able to attend its Agm.
I like Hop Fung Group more with regards to the operational context. However the full year results seems to not be well liked by Investors trading its stock in the Hong Kong Exchange. Following the results release after trading hours on 28 March, the stock is now $1.24, which is trading 12.67% below the price($1.42) on 28 March while it is still Cum-Dividend. Whereas this is not seen in Tat Seng which is trading at the same price($0.81) before results released if dividends($0.02) has been accounted as the company has went Ex-Dividend(Current Price $0.79).

Saturday 19 May 2018

Some thoughts on reits after reit symposium(OUE H-Reit and OUE C-Reit)

Attended the 1st half (before lunch break) of Reit Symposium and decided to jot down some thoughts i have after attending it.

*Do note that these are just some of my thoughts and there could be inaccuracy in my information.

OUE Hospitality Trust

  • Refinancing has allowed for 2-3 million in interest savings
  • Crown Plaza (Airport) is forecasted to receive minimum rental this year as RevPar still below the level of minimum rental
  • Income support of 7.5 million has been drawn down
  • Mandarin Gallery's negative rental reversion for FY 2017, -12% for 28% of Net Lettable Area (NLA) is starting to be reflected in its results as income from retail decreased
  • Mandarin Orchard continues to grow in NPI when compared to same quarter in previous year.
I got curious with regards to its gearings and decided to view the other hospitality reits that i can think of back of my head and do a very layman analysis.

In an increasing interest rate environment, one would look out for fixed loans as well as longer weighted average and lower cost of debt.

It seems like OUE H-Trust has not done so bad compared to its peers with the only 'red' mark being its gearing ratio being the highest among the other reits.

Its hard to understand why their gearing is much higher but they do have significantly lesser properties compared to their listed peers. It could be that they do think that their few assets are pretty prime and are unlikely to see a revaluation downwards that would make gearing ratios hit 45%.
A rough estimate will be that given debt levels remain constant it would need about 337 million (might not be accurate) reduction in asset value to hit 45%

Conclusion: Their Airport Hotel and Mandarin Gallery seems to be under-performing but they have done well in managing debt with a longer maturity weighted average and improved Mandarin Orchard performance to soften the impact of its under-performance of the 2 reits.

OUE Commercial Reit
  • Occupancy Rates of its 3 properties above average of its comparisons
      • Both Shanghai and Singapore Office market rental seems to be on the up-trend after a very prolonged downtrend. For Singapore Office market, rental rates was downtrend from Q1 2015 to Q1 2017. While the Shanghai Puxi Office market was downtrend from Q3 2016 to Q3 2017
  • In 1Q 2018, the average expired rents were much higher than market rental as well as much higher for passing rents for its Singapore Properties. These expired rentals seem to be on the higher end of its committed rents, which means that there is a higher chance that there is more negative rental revisions. For its China Property, the passing rent is higher than its average expired rent and the average expired rent is on the downside of the committed rents.
  • Gearing ratio of 40.5%, with 35.3% of loans set to mature in second half of 2018. It would be interesting to see the rates which OUE C-Reit is able to refinance at. According to its 2017 annual report, the nominal interest rate of its bank loans which matures from 2018-2022 is 0.8% to 2.62%.
  • Another point worth noting will be that aggregate leverage(gearing) increased from 37.3% in Q4 2017 to 40.5% in Q1 2018. This is due to redemption of some its convertible perpetuals issued in October 2015. These perpetuals which are roughly 360 million dollars on its books as of Q1 2018 are considered as equity. The distribution is 1% per annum of issue price (which is 1 dollar) and can only be converted after 4 years (October 2019) at a price of  $0.841. From a purely financial standpoint, unless the cost of debt is below 1% it really does not make much sense to convert these perpetuals. Furthermore with the stock trading at 71 cents (18 May 18). There is not much value in converting these perpetuals other than getting a higher dividend yield at the cost of current equity holders.
Conclusion: The properties seem to be well-managed although the expired rents seem to be on the higher end of the range of committed rents which could point to future downside in rental income. On the financing side, its quite boggling to see the redemption of its perpetuals before its refinancing its done as this has increased the gearing ratio which might increase the interest rate it refinances at.

Friday 11 May 2018

Thoughts on Qingling Motors (HKEX:1122)

Financial and Company Details
Stock Name: Qingling Motors
Stock Ticker: HKEX:1122 (H-Share)

Business Model: Selling of Trucks, Van, Suvs under Isuzu brand in China. Trucks types include light, medium, heavy duty, pick up.
Business Sales: 0.05% of FY 2017 is exported to Japan, the rest of sale is done in China.
Shareholding Structure: Qingling Motors (Group) Company Limited 50.1%, Isuzu Motors Limited 20%. Allianz SE 4.11%, Edgbaston Investment 2.77%.

Price as of 11 May: 2.60 HKD
Issued Shares: 2,482,268,268
PE Ratio: 12.99
PB Ratio: 0.67
Cash on Hand: 2.64
Dividend Yield: 7.63%. After Dividend withholding tax = 6.86%

What I like about this Company

  • Cash on Hand > Market Cap. Effectively buying the company is buying over the portion of cash it has.
  • Shareholding Structure. Ensures there is interest on both sides to work towards making this company a success
  • Good Dividends despite a cash rich company.
  • Niche Focus. Instead of targeting luxury segment, Qingling Motors focus more on the industrial side of the automobile segment. Which means luxury car makers like Geekly, Dongfeng, Byd etc are not their close rivals.
  • Interest Income increased  by 45.83% yoy. Contributing to 29.79% of Profit Before Tax
  • Venturing into Wealth Management via the use of their excess cash. To invest in capital protected products, could signal higher interest income.
  • Preferential Tax Treatment of 15%
  • No debt
  • A good company to ride the logistics and property boom as these vehicles are needed for such industries and growth in these industries would inevitably contribute to the 'industrial vehicle demand'. Coupled with One Belt One Road Policy, the demand might increase.

Some Concerns about the Company
  • The company's product might be subjected to obsolete by tight government polices over emissions.
  • Qingling Motors sells diesel and petrol engines, which might be less environmental friendly compared to natural gas, hydro and solar etc.
  • High R and D Expense,  FY 17's spending is 117% higher than FY 16
  • Macro Factor: Government to open up automobile sector might pose increased competition to Qingling

I do think that this is a good company to buy and hold for its dividends. The dividends currently are sustainable and the current price reflects owning the profitable business for free. However, investors out of China will have to take note of the 10% dividend withholding tax H-shares have.

Will look to be vested if my financial circumstances allow (student not much funds to rotate around...)