Quarterly Results Review - 2015Q4

From this year onward, I shall commit to writing brief quarterly results review for several reasons:

1. Regular evaluation ensures the company still have fundamentals and meets my portfolio goals.
2. Keep a long-term record of basic valuation metrics to help future decisions.
3. A deterrence to myself rashly purchasing businesses I do not understand.
4. A good training for increasing my investment aptitude.

I will be using the calendar year to perform this review. (2015Q4 will be reviewing the results from Sep 2015 to Dec 2015)

For this time only, I will use rough figures from the previous year. Subsequently I will use the previous quarter's numbers. For prices, I will just use any value in the period when I was writing the update.

These review will be very brief and only highlight the most important developments for that company. This is so that I have the motivation/time to regularly update them.

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Frasers Centrepoint Trust (FY2015)	DPU in previous vs current: $0.114 -> $0.116 Price in previous vs current: $1.78 -> $1.87 Yield in previous vs current: 6.4% -> 6.2% BV in previous vs current: $1.77 -> $1.91 Woodlands Regional Hub in 2020, Northpoint City in the next 18 months and Downtown Line 3 will bring massive crowd and growth to their top 3 malls. In the short term, DPU may be affected due to asset enhancements (i.e occupancy drop) at Northpoint, their 2nd biggest mall.
Super Group (FY2015)	EPS in previous vs current: $0.0617 ->$0.0424 DPU in previous vs current: $0.031 -> $0.023 Price in previous vs current: $1.73 -> $0.73 Yield in previous vs current: 1.8% -> 3.2% BV in previous vs current: $0.446 -> $0.468 Results continue to disappoint with EPS falling over 30%. Its saving grace lies with its robust operating cash flow, improved margins (mainly from lower material costs) and strong balance sheet. Management and analysts are betting on China growth (which is showing some momentum) and new products innovation.
China Merchant Pacific Holdings (FY2015)	EPS (HKD) in previous vs current: $0.6731 -> $0.4376 EPS (SGD) in previous vs current: $0.12 -> $0.08 DPU in previous vs current: $0.07 -> $0.07 Price in previous vs current: $1.0 -> $0.78 Yield in previous vs current: 7% -> 9% BV (HKD) in previous vs current: $0.586 -> $0.532 Quite bad results with payout ratio skyrocketing from 63 to 96%. Management gives a challenging outlook, but still believe in the long-term growth of China toll road industry. They are proposing to adopt scrip dividends to save cash, but dilution will not benefit minority shareholders. If there's no turnaround, they will not be able to sustain 7c dividends next year. I may look to off-load this should the chance arises.
Sembcorp Industries (FY2015)	EPS in previous vs current: $0.443 -> $0.292 DPU in previous vs current: $0.16-> $0.11 Price in previous vs current: $4.8 -> $2.5 Yield in previous vs current: 3.3% -> 4.4% BV in previous vs current: $3.15 -> $3.6 (~$3.0 excl. pref shares) Expected horrible results with Marine provisions dragging down the entire group. Even Utilities, to my dismay, registered lower profits (-19%) if you exclude 1 time divestment. Singapore Utilities are facing immense pressure as well. ROE plunged from 15.2% to 9.4%. Interest cover more than halved from 20.8 to 7.2 times and debt ballooned by $2 billion. Overall it's very very jialat. Only hope is on overseas contribution to step up from 2016 onwards.
M1 (FY2015)	EPS in previous vs current: $0.191 -> $0.191 DPU in previous vs current: $0.189 -> $0.153 Price in previous vs current: $3.51 -> $2.3 Yield in previous vs current: 5.4% -> 6.6% Dividends were slashed to their minimum payout of 80%, but luckily not due to reduced earnings. Company is conserving $ to bid for the new spectrum and "fight" against the 4th Telco. When they come onboard, EPS might fall by 10% as an estimate, consequently resulting in a 6% yield. Painful reminder to myself to evaluate the payout ratio. Note that after looking at Starhub results, M1's does not look as bad.
Capital Commercial Trust (FY2015)	DPU in previous vs current: $0.085 -> $0.086 Price in previous vs current: $1.55 -> $1.3 Yield in previous vs current: 5.5% -> 6.6% BV in previous vs current: $1.73 -> $1.73 No negative or positive surprises. Do not forsee office-supply glut in 2016 to negatively impact DPU. Growth may stagnant but should not fall.
Accordia Golf Trust (9M2015)	DPU in previous vs current: $0.0571 (9M, 100%)  -> $0.0232 (6M, 90%) Price in previous vs current: $0.63 -> $0.56 Yield in previous vs current: 7% -> ~10% (If 100% distribution) BV in previous vs current: $0.87 -> $0.89 After a disastrous 2Q, results were a huge positive surprise with 17% more profits compare to previous year 3Q, mainly due to good weather and strengthening yen. Management also decide to "release" back previous retained 10% distributions back to shareholders. Costs were controlled and visitors/utilization remain stable. Overall great results but what bother me is that the main catalysts aren't exactly recurring or dependable. To take a conservative stance with 90% distributions and a worst case DPU of $0.04, yield is 7.1%, which provides a good buffer.
ST Engineering (FY2015)	EPS in previous vs current: $0.1706 ->$0.1705 DPU in previous vs current: $0.15 -> $0.15 Price in previous vs current: $3.6 -> $2.84 Yield in previous vs current: 4.2% -> 5.3% Given the previous guidance, results were slightly better than expected. They managed to achieve comparable profits despite being dragged down by Marine. Management expects 2016 profits to be comparable.
Straits Times Index (FY2015)	DPU in previous vs current: $0.098 -> $0.102 Price in previous vs current: $3.4 -> $2.6 Yield in previous vs current: 2.9% -> 3.9% Half year dividends increased from 0.048 to 0.051! P/E of 10.54 and P/Cashflow of 9 makes it near historical low. This is the deal of the decade right here.

Letter To Shareholders (1) - Performance Review 2015Q4

We are proud to present the 1st issue of ZZ Holdings Shareholders Letter, a brand new effort to bring regular updates to its shareholders. ZZ Holdings is a private investment holding company aimed at achieving long term financial growth and capital protection for its investors. We achieve this with our unique 3-pillar management strategy - strong cashflow generation, long-term sustainability and fortress balance sheet.

Strong Cashflow Generation

We invest in companies with predictable cash-flow and strong dividends record. A steady cash flow offsets expenses in good times, and sustain the company in bad times without dipping into reserves.

Long Term Sustainability

We invest with a long-term view, avoiding market speculation and short term economic trends. We invest in quality companies that will still be profitable far in the future, and limit our exposure to cyclical industries and unproven startups.

Fortress Balance Sheet

We never overstretch, always maintaining a fortress-like balance sheet to give investors peace of mind and more importantly, capitalize on downswings and opportunities. Our reserves grants us exceptional holding power, ensuring the company can withstand any crisis and emerge stronger.

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Streamlining Operations

In late 2015 and early 2016, the company streamlined its financial accounts by closing OCBC Bonus+ (which pared down its interest significantly) and other legacy savings accounts. CIMB StarSaver was also vacated in favor of the higher interests and no frills FastSaver. Following this, our funds are now parked in CIMB FastSaver and OCBC360, generating risk-free interest of 1% to 1.75%.

The company also applied for its first credit facility, the AMEX, in Nov 2015. AMEX provides a 1.5% true cashback rebate, and we are already reaping its benefits.

Performance Highlights

2015 was a bear market year, with the STI losing over 13% of its value. Comparatively, the company made losses of 12.2%. In light of its 5-year low valuation, we brought into the STI for the first time in 2015Q4 as we believe it represents the most prudent investment at the moment. Going forward, the STI is expected to become the core holding in the company, supplemented by other higher yielding investments.

The board is glad to announce that over $2400 total dividends (excluding interest) has been paid out in 2015, our first full year since listing. This is in line with our initial forecast of $200/month in our prospectus.

Outlook

The global economy and market is expected to remain volatile, with possible recession looming in the horizon. The company may also lose its main source of revenue in 2016Q2. Despite the challenging outlook, ZZ Holdings remains committed to actively pursue a replacement that will enhance shareholder value.

Lessons From Felix

Came across a post by Felix (a local investor in mid 30s who have achieved financial independence) which I find very meaningful and resonates greatly with me.

Rephrased and share:

"
In today's world with so much social media, we are too pressured to be like others.

Most, if not all, of my friends are trying to do the same thing.

Get a high paying job, get married early, big wedding, fancy honeymoon, tie themselves down with 30 year loan with big car and house, eat restaurant and buy branded.

End up keep complaining they are poor, ask me how they can earn more money, ask me teach them how to "play" stocks and get rich.

I tell them, I'm just an average investor, just that I have a simple lifestyle. Spend little and invest most of my money, let it grow for close to a decade then have today.

Do they follow my advice? Nope. They just brush me off, think I CSB.

"

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How true! This short post completely sums up what I think of the world today and on investing.

Sorry, but we don't know how to "play" stocks.

We are not super talented stock picker like Warren Buffett.

We don't know any way to get rich quick.

We just live a simple lifestyle, invest regularly and let time do its thing.

Revelation From The Bear Market

As of this writing, I have already suffered 5 digits "losses" from my investments in the first bear market of my investing life.

Compare to people I know, I must say I am least emotionally affected. How do I build up this resiliency? 

If I have to guess, it's because what I focus on are largely different from other people.

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1. Focus on Cash Flow

I have always kept my goal of investing in mind - generate enough cash flow to attain financial independence.

A simple analogy: You brought a shop for $10000 that generates $1000 for you every year. 2 months later, others are buying/selling that shop for $5000. Are you going to panic sell your shop? Or are you going to buy more?

When I first make a decision to buy a stock, I am already satisfied with the yield. As long as the company fundamentals are intact/does not cut dividends, I will receive the exact amount each year, regardless of how much that investment is selling for on the market right now.

This is one of the biggest advantage of dividend investing compared to growth investing.

Note: It is a different matter altogether if the company cuts dividends and/or fundamentals are affected. In that case, more evaluation will be needed.

2. Focus on Fundamentals, Not Marco-Economy

I don't know why people are always trying to figure out where interests rate will go, what the Fed will do next, what China government will do next, etc...

Macro-economy -> Country specific economy -> Sector outlook -> Company

All these are "upstream" factors are so far away. We already have difficulty forecasting a company earnings, why are you trying fruitlessly to guess the impact of macro-economic decisions beyond your control?

Just go straight to the source - company earnings, balance sheet, debt profile, economic moat. You will make way better decisions then trying to figure out what the Fed wants to do, how it will affect the market and in turn how it will affect your company.

Have you heard of Singtel subscribers cancelling their mobile plans because of "Yuan devaluation"?

Neither have I.

3. Ignore Real Time Pricing

We are too affected by the "real-time" nature of stock prices because it is updated every second. Comparatively, in property investment, we don't care what the price is until we want to sell it. We don't have access to a real time price tag on our house 24/7. We need an agent to thorough valuation and find buyers, etc...

If you brought a property for $500k last month and today someone knock on your door and offer you $400k for it. Are you going to sell your house? Or are you going to tell that person to f-off?

We should view stocks in the same way. If you have no intention of selling it, why should you care how much others are paying for it at this moment?

4. Stock Prices Are Not Reflective Of True Value

Most people don't realize this, but the stock price is actually set by a VERY small percent of people in the market. For example, Singtel have a total of 16 BILLION shares, and its average volume per day is 25 MILLION. That's less than 1 percent!

In other words (for most companies), the majority of shareholders are not doing anything most of the time.

To put it into perspective: let's say 100 people own an iPhone. 99 of them are happy using it and 1 guy in desperation for cash decides to sell his for $1. That becomes the "price" of that iPhone for that day. Does this imply that the iPhone is worth $1? (Note: Of course, this is an extreme example)

I am sure the answer is no.

A company true value is dictate by how much profits it can make for you, NOT by how much one percent of its shareholders are willing to sell it for at any one time.

5. Ignore the Media and Analysts

If you believe every piece of nonsense they write, you will be in a world of pain. They are the greatest "prata-flippers" in the world and I have seen how fast their target prices and economy outlook can change overnight.

It is okay to read their opinions, forecasts and figures, but always do your own diligence and form your own decision. In 2014 when Keppel fell to $8, every analysts were forecasting $12. It is sitting at $4 now.

"Trying to determine what is going on in the world by reading media news is like trying to tell the time by watching the second hand of a clock."


6. Ammo Management

If you are losing sleep, you are over-allocated. Diversify, buy solid companies and keep a large war chest.

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Pinning these down makes my thoughts and "acceptance" of this bear market clearer.

From this year onward, I am going to treat my portfolio like an investment company, where I am the CEO. I think it is a great way to enhance my investment acumen and understand each of my business better.

Look forward to my "1st quarterly earning reports" soon!


"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." -Peter Lynch