2015 continued to be filled with volatility as over the last 6 months the STI has gone nowhere! The STI struggled to hold itself above the 3500 level and quickly got sold down to find support around the 3300 level. The current main worries are on 2 points, the fear of a rise in interest rates and the fear of a Greece exit.
As for my current portfolio, its down by 2% (excluding dividends and realized gains) for 2015, under performing the index. So let us look at my counters one by one.
ARA gained 4% over the last 6 months as the over hang from the white paper on REITs slowly fates away, the expectation is for the full details to be announced early in the 2nd half of this year.
I do not think that the management and performance fees of REITs managers will be overhaul, well maybe just some minor changes. Once the doubts are clear, I do hope that valuations could go back towards 20 times earnings. After all, ARA is still a decent growth stock, net cash position along with solid recurring income from its property management fees.
CCT is down 8.5% over the last 6 months, the current price of 1.56 is also a whopping 19% below its 1.94 intra year peak. The sell down was mostly due to the fear of rates hikes and also the huge supply of office reits coming in from 2016 onwards. I took this opportunity to be greedy when others are fearful and managed to build up a significant 15% position
My preference for Office asset is that they generally have a long life span of 99 years, which is much longer than other assets such as industrial property (30 years), Utilities (30 years) and toll roads (15 years). Going forward I do believe that DPU will be stable as they have a long weight average lease of close to 8 years, its gearing is also low at 30% with over 70% of its debt at fixed rates.
M1 is down 10% in the first half of 2015, mainly due to the worries of an increase competition from the coming 4th telco. I do think that this will fundamentally impact their futures earnings but the market seems to have over reacted, so I continued to make contrarian bets and built up a 16% position in M1.
Realistically the 4th telco would only come in after 2017, it will then need to take around 2-5 years and a lot of hard work to capture a market share of say 5-10%. Given that view, I strongly believe that M1 should have no problems maintaining its earnings and dividends for at least the next 3 years (2015-2017). After which, in a bearish case... we could see 10-20% earnings decline.
OCBC down 1%. There's really nothing much of an update here as we shall look forward in the performance of their Wing Hang bank acquisition. I'm still pretty positive that it will bear fruit and that China would be a very huge and important market in the near future. However on the down side the China stock market seems like a big bubble... and I have worries of it triggering the next crisis. As a whole OCBC is still pretty diversified among its 4 core markets, Singapore/Malaysia/Indonesia/China and this makes it a good proxy bet on the Asia growth story.
Starhub down 4% as the fear of rate hikes dragged all dividend plays down. I think this level forms a strong support with its 5% yield (5 cents quarterly payout). Honestly I wouldn't be interested in adding more in this position as I think M1 has much cheaper valuations.
ST Engineering down 12% with poor results from its Marine and Aerospace segment. Fundamentally I do not expect a quick recovery, but fortunately management has guided that earnings and dividends for FY15 to be similar to F14.
Recent readings on forum, there's been arguments that STE is overvalued due to its high PE and low to little growth. My thoughts are that STE is not a growth stock and should be valued similiarly to a defensive stock like Starhub for its predictable earnings and dividends. A small cap company may sell cheaply for 10 times earnings because it doesn't have a track record (over 10 years) of stable earnings and dividends, whereas blue chip/mid cap dividends stocks are currently priced around 15-20 earnings because they have proven themselves from surviving the previous crisis and have had long record of stable payout to shareholders. As such investors are generally willingly to pay higher valuations for a better peace of mind.
UOB down 4% over the last 6 months and I still think banks are cheap at 12 times earnings or less. I noticed that a lot of small retail investors still shun away from bank stocks because of the nightmare stories they had heard from the previous global financial crisis, that banks are risky and that it could go bankrupt in the next crisis. All businesses do have risk and all businesses have a chance of going bankrupt, but the main job of a bank is managing risk! After the GFC, more regulations have been put in place and our banks have fundamentally become much stronger than before. They have sailed through the previous crisis unharmed and I'm confident in their management to continue being prudent, especially when the management themselves hold a large stake in the company.
|CapitaCommercial Trust||1.56||15%||18.4||5.4%||Commercial Reit|
|OCBC||10.40||16%||11.6||3.5%||Banking & Finance|
|ST Engineering||3.36||10%||20.0||4.5%||Engineering & Heavy Industries|
|UOB||23.41||17%||11.9||3.2%||Banking & Finance|
|Portfolio PE||Portfolio Yield|