Performance Highlights
Global markets continue to be volatile, led by interest rates concerns, upcoming US elections and fears on the health of Deutsche Bank.
Locally, STI is flat - gaining a mere 1% quarter on quarter and year to date. The likely entry of the 4th Telco and non-performing loans of O&G seems to be exerting its pressure on the STI (roughly 40% made up by Singtel & 3 Banks).
Our portfolio performed slightly better, gaining 1.5% quarter on quarter, and roughly 12% year to date. We are now roughly break-even since IPO (on 1st Jan 2015).
In 3rd quarter, we paid out dividends of over $800. This is over 50% more compared to $500 last year. We will continue to build up recurring income, brick by brick, little by little.
Operating Highlights
Income for the quarter were up around 8% mainly due to increased revenue and dividends. Actual percentage were lower due to the absence of the one-time SG50 bonus in July 2015.
Expenses were much higher largely due to re-contracting and signing of Samsung Galaxy S7 in July, and gift expense to our parent company in August.
Accounting changes took place which affected the expenses for August - The company decides to perform monthly deduction of income tax instead of one-time lump sum deduction in August 2015.
The main reason is to set it in line with the actual cashflow expenses, and spread out this expense over the year instead of misleadingly inflating August expense. This mean that every month expense will be slightly higher compared to Year 2015 from this quarter onwards.
Note: The income tax for a specific year starts in May and ends in April. For example. The income tax for year 2015 is paid from May 2016 to April 2017.
For the 4th quarter, we forsee higher expenses due to higher social and entertainment activities, as well as costs related to the structural revamp.
Investment - Frasers Centrepoint (FCL)
FCL is one of the largest real estate company on SGX with business units focusing mainly in Singapore & Australia, spreading across the entire chain of residential, commercial, hospitality and industrial properties. It hold stakes in 4 of the Frasers REITs, and as of 9M2016, derives around 70% of its profits from recurring income. This makes it ideal as a dividend and growth play (30% property development).
At $1.48, it trades at more than 30% discount to its book value of $2.19. 9M2016 EPS is 11.9 cents. Annualized conservatively, we expect EPS to be at least 15 cents.
FCL dividend policy is to distribute up to 75% (although usually around 50-60%) of its core earnings, which is in line with 0.86 cents in the past 2 years. Assuming it is able to retain its dividend, this presents a yield of around 5.8%.
Key risk include interest rates hikes as FCL is considered to be quite highly geared (interest cover of 6 and gearing of 0.7). At current valuation, we feel that there is sufficient margin of safety and see it as a good value play. Given its diversified investments, we see this as a mini "Property ETF" that we can hold indefinitely.
Major Structural Change
The company will be undergoing a major structural change in Nov. Revenue in Oct will be slightly affected, and Nov to be majorly (~90%) affected. A one-time asset (leave encash) sale is expected to help offset this revenue loss.
Thereafter, revenue should resume in December and see positive progression in the long term.
Financial Status
We intend to open a Bank of China (BOC) SmartSaver account - designed to takeover OCBC360. This is expected to increase our standard interest rates from 1.75% to 2%, and possibly 3.55% should we meet the required conditions.
[Afternote: After trying out BOC, we were hit with a few major pain points. The internet banking is bad and lack of mobile banking, no e-statements. For the meantime, we feel that the additional admin work is not worth it.]
Maxigain bonus interest is now 0.6%, and should exceed CIMB Fastsaver regardless of the SIBOR soon.
As per last quarter, we continue to anticipate the following services and events in the last quarter of 2016:
1. Smartly, a robo-financial advisor who is gearing for launch.
2. 8 Securities, a potential alternative for much lower brokerage fees.
3. Singapore first ETF REIT
Outlook
With the hot-dividend period winding down, our focus now shifts to preparation for Year 2017. We will start accumulating positions in high dividend investment for the long term with the objective of taking a great leap in dividends amount. This will be further detailed and set in the Annual Report.
