Company in focus - Suntec REIT

I've always liked this REIT as its portfolio of properties are in Singapore and its business is relatively easy to understand. REITs invest in a portfolio of properties and are professionally managed by their team. Income generated from the rental of properties are collected and distributed to shareholders of the REITs. In Singapore, REITs distribute 90% of rental collected to shareholders.

Suntec REIT has the following properties in their portfolio:

100% of Suntec City mall
100% of Suntec City office towers
60.8% of Suntec Singapore international convention and exhibition centre
100% of Park Mall
1/3 of One Raffles Quay
1/3 of Marina Bay Financial Centre




All its properties have very high occupancy rate at more than 97% as at 31 December 2012.
Currently, Suntec City is undergoing a major asset enhancement project who aims to transform the whole of suntec city to a new look. The asset enhancement at the Suntec city convention centre has been completed and now there are more shops and eateries there. Suntec City mall is still undergoing renovations and is scheduled to complete in mid 2015.

The NAV for the trust is 1.93 at 30/06/13. Thus, it is trading at a discount to NAV of 18% at the current price of $1.60. The REIT is set to benefit from the completion of its asset enhancements which will bring in more revenue for itself. This also means distribution to shareholders is set to increase in the next 2 years.

The yield currently is around 5-6% annually. I have bought at much lower prices before in Suntec thus i do not find current prices too attractive. Furthermore, with interest rates set to rise in the next 2 years, a 5% yield will no longer be attractive in the future. Of course, you can still buy at current prices if you're investing for income. The price is not too high and not too low. It can still go lower. If you buy now, make sure you have holding power to hold the stock and also more money to buy at even lower prices. By averaging down, you can always buy more at lower prices and your overall price will be much lower in the long run. I do not encourage averaging down generally for other stocks. REITS have assets and are generally safe thus averaging down is possible. For other types of stocks, you'll have to analyse the business yourself and determine if it will be still strong many years down the road.

Related Posts:
1. Company in focus - Breadtalk
2. Company in focus - Neptune Orient Lines (NOL)
3. Company in focus - Select Group

Company in focus - Select Group

Select group is a leading food service provider in Singapore. They started out with catering as their main business and branching out over the years to include restaurants, fast food chains, desert chains, F&B management services, event catering etc.

Below shows the select group of companies under them:

This company caught my attention as their financials reflect positively on their management capabilities. Some of their brands are quite successful and i'll describe my experiences of what i think of them.

Firstly, Texas Chicken is a well known brand in Singapore now. When they first started out, i was sceptical that they could survive with KFC and Popeyes already in Singapore. Later on, i've been hearing my colleagues, friends and relatives talk about texas chicken. The comments were good and most of them were saying texas chicken sells better chicken than KFC. It was then i decided to try it out and it was unbelievable. Their chicken were different from KFC indeed. More juicy inside and even their breast meat was not so dry. Even my foreigner friends were commenting positively on Texas chicken too. Indeed if you look into their financials, Texas chicken has seen an increase in revenue from 8.131 Million in 2011 to 11.094 Million in 2012.

Secondly, they have Stamford as their catering business. This caterer name i've seen a few times before and i realised my company has been engaging their services for many of our events. I remembered during my army days, SAF also engages Stamford catering. With big institutions as their clients, their business is relatively stable.

Thirdly, they have this restaurant called Peach Garden. This is the restaurant that contributes most to their revenues. Peach Garden made up 30% of their revenue in 2012.  I've not been to this restaurant before but have heard people saying about it. They specialise in Chinese fine dining.

Now moving on to their financials.

Income statement
Currency in Millions in SGD	2009	2010	2011	2012
Revenue	61.6	75.5	101.5	116
Net Income	0.3	-1.7	3.2	4.2

Balance Sheet
Cash and Equivalents	8.1	6.7	6.6	12.5
Long Term Debt	2.4	3.2	0.6	1.6

Cash flow
Cash from operations	4.2	6.5	8.8	17.3
Capital Expenditure	-5.9	-9.8	-4.4	-7.1

Revenue and Income has been increasing consistently for the past 4 years. Their balance sheet is healthy with strong cash and low debt. Cash flow has been increasing consistently also. If you look at some of the financial ratios, it is quite promising for the company.

Return on Equity: 25.03%

Return on Assets: 6.28%

PER is at 13.4x which is lower compared to similar companies like breadtalk (PER 21.5x) and Old Chang Kee (PER 15.4x)

Dividend yield is fairly attractive at 6.41% at the current price of 0.39. 

I have bought some shares of this company as of this week. I think their management have been actively expanding the business and it is good for the group. They are also planning to introduce two new culinary offers this year and expand each of their businesses to 20 or more outlets. 

Its share price has risen from 0.35 to the highest of 0.40 and closing at 0.39 today. This is about 10% increase this week. 

For more information on thier business, you can visit their website: www.select.com.sg

*Please read disclaimer at the bottom of this blog*

*All financial information adapted from investing.businessweek.com and Select group annual report 2012. 

*Picture adapted from Select Group corporate website.

Company in focus - Neptune Orient Lines (NOL)

The next company i'll be analysing is NOL. This is a shipping company and since i've been talking about shipping companies turning around if the economy recovers, i'll put it in this blog post.

This shipping company has 2 main brands: 

APL

APL Logistics

If you pass by the singapore  shipping port near tanjong pagar area and harbourfront, you'll see a lot of APL containers. Due to the crisis in Europe and the financial crisis in US, import and exports around the world were affected badly. NOL has been in a net loss for the past 2 years from 2011 to 2012.

Temesak holdings, a government linked corporation is still one of the largest shareholder in NOL. 

The top few largest shareholders in NOL according to its 2012 full year financial report is as follow:

1) Lentor Investments Pte Ltd (39.58%)

2) Temasek Holdings Pte Ltd (25.94%)

3) Citibank Nominees Singapore Pte Ltd (2.74%)

4) DBS Nominees Pte Ltd (1.97%)

5) Raffles Nominees Pte Ltd (1.77%)

As i said earlier, NOL is in a net loss at the moment. In 2011, net loss was 478 Million and in 2012, net loss was 413 Million. You may be scared by the losses this company is incurring but in actual fact, shipping companies go through cycles and during low growth or recession periods, most of them are in losses. Only those big companies can survive through the storms and emerge out again. 

In 2009, NOL was also in a net loss of 739 Million, much higher than the loss currently. However, in 2010 when the economy started to recover, it swung into profit of 464 Million. 

Let's fast forward to Q1 of 2013 where NOL reported its financials for the period ending 5th April. It has turned into profits with a net profit of 76.5 Million for Q1 of 2013. If the next quarter it reports profit again, i would think that the shipping industry is on its way to recovery. NOL shares are trading at $1.09 now. It was trading at more than $2 before it collapse to the level it is now. A strong support is seen at $0.90 to $1 as the stock has bounced from this level a few times.

This is quite a risky investment as the various valuations methods do not work anymore. There is no p/e ratio, no intrinsic value to calculate and negative roe. 

The growth of this company will depend a lot on the economic conditions especially in the US and Europe. I am watching this closely and getting ready to ride on the recovery. Investing at this junction requires risk management and a lot of guts too. It is really a bet into the future. We will see how the economy develops and whether this bet on the shipping recovery will be correct. I think it may take at least 1 more year for it to fully recover. Investors will buy in early anticipating the recovery. Remember, the stock market is always ahead of the economy by 6-9 months. 

Company in focus - Breadtalk

I would like to start a series of analysis on individual companies. The recent stock market correction presents an opportunity for us to buy fundamentally strong companies at cheaper prices. My analysis on the companies will focus on the business aspect of the company and how it is run.








Today, i'll start of this first session with a company named breadtalk. This is a company that i find has been successful and has the potential to expand itself more. The man who started this business is George Quek Meng Tong. He's also the chairman of the board of directors at breaktalk group currently. Breadtalk started as a small pastry shop selling bread with pork floss as a filling. An example of it is shown below.



Many of us in Singapore are familiar with the breadtalk brand and have seen its bakery shop every where in Singapore. But they do not just have the breadtalk bakeries. They also have other flagship stores under their group. Other names include toast box, the icing room, Ramen play, Din Tai Feng, Food Republic and Carls Junior in China.




Now, some statistics on their business and operations:

Business operations spread across 15 countries in Aisa and the middle east.
609 Bakeries worldwide
47 Food Atrium
30 Restaurants

Breakdown of profits:
52.1% from bakeries
22.9% from restaurants
25% from food atrium

Net profit has been increasing steadily the past 4 years
2009: 11.1 Million
2010: 11.3 Million
2011: 11.6 Million
2012: 12 Million

Some financial ratios:
PE: 20.4x
ROE: 15.89%
EPS: $0.04

The profit margin for breadtalk is relatively small mainly due to the high rental cost they incur from their premises. This stock i would think of it as a growth stock as the dividend yield is only around 2% last year. It is trading at a stock price of 0.89 as of friday's close. The stock price has gone up from 0.33 in 2008 to where it is now. That's almost 3 times of its price in 5 years. However, their PER is relatively high. Unless they can really increase their profits, this stock is quite overvalued.

I forgot to mention that recently, they have bought over a traditional pastry shop called Thye Moh Chan.
This shop sells traditional Chinese pastries as shown below.


I would think that if breadtalk continues its expansion, its potential is endless. Recently, they have moved to its new HQ at upper paya lebar road. There they have a R&D centre and it also house their central kitchen, automatic manufacturing line, offices, breadtalk bakeries and restaurants. It shows me how serious they are with their business and they will definitely have more business and will become even bigger in the future. I would wait for a lower price to buy the shares of this company and ride on their growth internationally.

Watch this corporate video of breadtalk: