Letter To Shareholders (11) - Performance Review 2018Q2

Economy Commentary
Market slip further into correction terriority - falling from its peak of 3600+ points in mid May to its current 3200+ points, mostly on fear of trade war between China and America. Yes, we are on the brink of war. Year to date, STI is down about 2%.

Locally, we can see a how a seemingly defensive and government link business - Hyflux, can be brought down by immense debts and losses.


Performance Review Highlights
Our portfolio suffered an almost $10K decline in 1 single quarter, despite a much less severe correction compared to 2015. It proves how much our portfolio have grown - 3 times bigger than 3 years ago. After meeting our warchest goal in 2017, we have been dedicating all future incomes to investments. 

YTD, we underperformed the STI (chunking up 8% losses), mostly due to the continued decline in Telco industry (our biggest holding) and to a lesser extend, REITs and Property. Thanks to the dividends collected over the years, we are still in the green.

We took up 3 big positions this quarter - Netlink Trust, Kimly and adding further into Singtel. We paid out $1500 in dividends in Q2, the highest Q2 payout since inception. At this rate, we should have no issue hitting 5 digits passive income for the year.

Operating Highlights - Income
Q2 income is at all time high, mostly from higher salary (increment and benefits) and passive income. Compare to 2015, our salary have increased almost 30% and our passive income have grown almost 75%! 

Operating Highlights - Expenses
Expenses were horrendously high due to much higher than expected costs during the April vacation, costing nearly $3000 alone in total. It really went beyond my budget.

For recurring expenses, aside from some personal products and a pair of new office shoes (old one was 3 years old and think starting to grow mould), everything else were quite minimal (in line with other years)

Acquisitions

3 big positions taken up this term:

Netlink NBN Trust - This will further beef up our dividend portfolio as we believe this defensive monopoly that will form the backbone of Smart Nation in the next 20 years. We expect earnings and dpu to be minimally around 4.5c (5.5% yield), and in optimal case up to 6% yield on cost. Unless the price drops drastically (which is highly unlikely), we will freeze it for pure income.

Kimly - Defensive consumer staple with strong cash flow and organic growth prospects. This is more of a capital-gain and opportune play.

Singtel - We did not expect the support at $3.3 to give way, but it did. We accumulate yet again at 5.6% commited yield. We first brought into this company at 4.5% yield, so there is no reason why we would not at this price.

Outlook

With the recent acquisitions, we have almost depleted all our working capital. Barring a greater market correction (STI to 3000points), we likely would not dip into our warchest. Our plan is to invest as we re-accumulate our working capital through monthly cash inflow. Instead of buying new stuff, we will actively look for opportunities to do some capital recycling in the next quarter.

Some stocks on our watchlist include:

STI ES3 (3.2), ST Engineering (3.2), Capitaland (2.8), Sembcorp Ind (2.5 or 75% of book value), Mapletree Commercial Trust (1.55), Singtel (3), Raffles Medical Group (0.9), Ascendas H-Reit (0.75), EC World Reit (0.68).