Saturday, January 23, 2021

What I am doing

Nothing.  I'm 110% invested overall.  Still holding my long term dividend stocks while my trading positions in oil/copper producers have been on fire.  I'm buying on margin when opportunities happen and added a small Alibaba position in Dec.  I think the market continues up in the first half, albeit with the potential for a quick 10% correction.  I'm like a pig with my snout stuck in the trough.

I think the rally ends around June/July.  Look to sell my copper/oil then.  Might be time to buy protection/volatility.  Gold and TAIL.  I expect a small sharp correction like Dec 2018, 

I also need to reconsider my Manulife REIT holdings, it has lot of properties in California and New Jersey.  News from those states is not good.

Other than that, nothing to do.  The market is rising like its on cloud nine.  Lay back and enjoy it.

Thursday, January 7, 2021

Fufeng (HK:546)

 An ingredients and animal nutrition producer, Fufeng is the largest and lowest cost monosodium glutamate (MSG) producer in the world.

1H20 breakdown by revenue: 40% from MSG, 30% from animal nutrition (half of that from corn products), and 30% others.

Industry Overview

MSG is a commodity - producers have no pricing power so the lowest cost wins.  It takes 2.4 tons of corn and 2.6 to 3 tons of corn  to produce 1 ton of MSG.  Fufeng's production plants are in the north of China near cheap coal and corn, giving them a cost advantage over their competitors.

Source: CICC Research 2013 (Meihua Holdings)

MSG Demand is not affected by the economic cycle:

My research (the first google result) sees MSG demand rising around 3% per year for the next 5 years.

The MSG industry is concentrated.  Fufeng has an estimated 31% global share of MSG by volume, and is the largest in the world.  It has an estimated 57% volume share in China, with the top three producers having a 90% domestic share.  The industry in China has experienced 3 consolidations and 2 booms in the past 20 years (p5).  The number of companies has dropped from over 200 to the current 3 major players (plus a handful of minor ones).  The last boom was in 2008-2012, followed by a bust in 2013-2018.

Their main cost is raw materials, especially corn.  In 1H20, corn kernels were the company's largest cost (55%), followed by coal (15%).  As well as MSG, half of their animal nutrition business is also from corn based products.  Other costs are depreciation (8%) and Employee Benefits (5%).

So this business takes corn & coal and processes them into bulk food materials, for which there is steady or rising demand.  Profits depend on total industry production vs demand.  Long term profits depend on how much new production capacity is added industry-wide.

The company's production capacity:

Source: Fufeng Group: A Leader in an Oligopolistic Market (July 2019)



CFO is usually greater than profits, which is expected due to depreciation:

The wild swings in the difference are caused by changes in working capital.

Inventories and Receivables levels swing wildly, but at least they are not trending upwards:

Debt and Equity

As of 1H20, total debt is equal to roughly the last 3 years PBT.  And 40% of this debt is covered by cash.  They have some USD debt.  Overall, their debt is small enough not to worry about.  

The company issues stock options to staff.  Potential dilution from options issued is less than 1% of existing shares (p85) as of end 2019.  But the company is authorised to issue up to new options for up to 8.4% of existing shares.  Something to watch out for.

They had convertible bonds which were redeemed in 2018.


First risk is the trade war reducing their exports.  With the effect of increasing supply in the domestic China market.

Second risk is the industry going back to being irrational, with new players coming in and adding more production.  Fufeng and the leading players need to keep adding just enough new capacity to discourage them.  Should be possible with the current industry structure, but in China - where new production capacity is not always driven by economics - it may not.

People may switch from MSG over health concerns.

Rising corn/coal prices.

Any China company can be a fraud.  This one does not fit that profile, generating cash (but not holding too much), paying a dividend, and producing a bulk tangible product.  It would be difficult to fake production of 30% of the world's MSG - many people might notice their food has no taste.


At a price of HKD 3:

  • Their TTM dividend is HKD 13.8c, giving a yield 4.6% (4.1% after 10% WHT), with a payout ratio under 40%.  I did not see a dividend policy.
  • Its trading at a PE of 4.5 to 6, if we use 2018 or 2019 profit numbers (excluding exceptional items).


Worth a bet at current prices.  They produce an essential ingredient in an oligopolistic market.  There may be short term fluctuations due to rising corn prices and its hard to know where we are in the cycle.  But in the long run they should make a good return if the industry remains rational.

Bought this for 2% of my portfolio.  Limit to 2% because its a China stock and I can't follow this industry closely.  Also cause I got no more money.

Saturday, October 31, 2020

My Dividend Portfolio

I started building this portfolio 18 months ago.  Its been a wild time!  From an "high-and-dry" market in late 2019, where I'd be desperately scrounging around for something to buy like an animal in the desert, to the liquidity crunch in March, where you would buy something a deep value, get punched in the face by Mr Market dropping it 10% in a few days, then repeat the breathtaking recovery which no one believed.  

I was lucky that covid occured when it did.  If you can't build a portfolio when a once-in-50-year pandemic occurs and the end of the economic cycle, you never will.  My timing wasn't great.  I only bought 10% of my portfolio in March.   You can make a lot of mistakes in this business, but as long as you manage risk and don't buy shit that goes to zero, you'll make more than you lose.

My dividend portfolio is now worth SGD 670K, after the last few weeks market hiccups, and can probably pay me SGD 2.7K per month.  Here it is:

What next?

  • Keep grinding away at my day job, plow all my salary back into the market.  Its still fairly valued, I can find things with a 5% yield.  No need to time the market too much.
  • The portfolio is weighted heavily towards Singapore REITS.  Try to diversify away from this.
  • Reits and Utilities weight it heavily towards companies that benefit from low rates.  At some point of the economic cycle, we start expecting higher rates.  Look to buy dirt-cheap banks to balance this out.  "Neither a borrower nor a lender be."
  • Keep learning to trade.  I have a small trading portfolio (~SGD 120K), where I learn to trade by following Hedgeye.  Commodities look like a good bet now.  There may come a time when I can't add to my dividend portfolio (like late 2019), and I may need to learn to trade at different points in the economic cycle.

Monday, October 19, 2020

Bought European Airports

I think we get a covid vaccine in the next 2 weeks (Pfizer & BioNTech) to 2 months (Moderna or Novavax).

It won't mean everything is over.  Pfizer and BioNTech's vaccine requires 2 shots and must be stored at -70 degrees Celsius, making distribution hard.  We can expect most people in the US to be vaccinated by the start of 2023.  Mid-2021 if an easier-to-use vaccine makes it.

News of a vaccine will remove uncertainty and give a timetable for recovery. The stock market hates uncertainty but it can take bad news of a known quantity.  I think this is the turning point for covid plays.  If I'm right on the vaccine timing, its now darkest just before dawn, when uncertainty (when will this virus ever go away?) gives way to bad news (one more year to go).

And even if the all the vaccines somehow fail, I think the virus turns into a normal seasonal flu by the start of 2023.  The 1957 and 1968 pandemics lasted around 2 years.  So 2023 is the last we see of corona chan.

My covid recovery play is airports.  They've made it through the crisis without raising cash so far.

I'm buying European Airports because:

  • Regional Airports (Australia/NZ/Thailand) are too expensive, even based on pre-covid earnings.
  • MAHB has is changing their regulator model to be more capital intensive.  Its probably good for them, but we can't use historical numbers to value it.
  • NYSE-listed Mexican airports have only 28 years concession left
  • is too expensive, as if covid never happened!  The other OTAs are bring squeezed by google.

My picks are Aeroport de Paris and Aena, from Sven Carlin.   Bought 210 shares of AENA @ 118.8 Euros, and 300 shares of ADP @ 82.45 Euros.

Theres still some risk.  From their results, I can't figure out their opex and capex (ie: cash outflows with zero revenue), and Paris has high borrowings.  If the recovery is delayed till 2023, there's a chance they do end up raising money.

Swire Properties

 Hong Kong's largest office landlord.  They hold (mostly freehold) investment properties which they rent out for a steady income stream, using this to develop more property in HK and China.

I want to look at their Investment Property (rental stream) business first, because its recurring and easy to value.  Like a REIT.  So I exclude their lumpy Property Development and Property Trading for now.  Their past ten year Property Investment income is impressive:

Source: 2019 Annual Report, p10

Theres no depreciation in their "Profit Attributable to Company Shareholders" for Investment Properties.  Properties are valued every year and the gain/loss is added to the P&L (HKAS40 does not require depreciation (p17) for Investment Properties held at fair value).  The company helpfully puts revaluations on separate line.  So these profit numbers are purely for rental and 'cost-of-rental', similar to a REIT's Distribution Statement.

These numbers make me excited.  Can you find any SGX listed REIT or property company that doubled their rental profits in 10 years while reducing debt?  And the number of shares issued in this period is only up 3%.  This shows the power of compounding when a company reinvests some of its income, instead of paying it all out as dividends.

Investment Properties

Geographical Segment breakdown

They rent out office and retail properties in HK, China, with a small business in Miami.  They only give breakdown by Total Revenue (not Investment Properties revenue/profits):

Source: 2020 Interim Results Briefing


I estimate that 70-80% of their Investment Property profits are from HK.    I guess 50-60% of HK profits should be from office, with the rest from retail.  Their Office is mostly Grade-A, and saw positive rental reversions in the first half of the year - so not much to worry about here.  Retail is mixed: they have 2 main malls: 

  • The Mall, Pacific Place: an upscale mall surrounded by offices and 4 hotels, next to the High Court and British Council.  It boasts a large number of luxury brands as tenants (p29).  Retail sales fell by 47% here in 1H20 (p11).  Long term, I expect the squeeze to continue even after covid and social unrest are resolved, as luxury brands decrease their HK footprint.

  • The largest regional shopping centre in HK, with MTR access, shopping & dining, cinemas and an ice-skating rink.  Retail sales fell 20% here in 1H20, I expect it to rebound long term, as things recover.
  • Other properties, around 15-20% of HK Investment Property GFA (weighted by ownership).
4.5% of their HK retail rentals expire this year, followed by another 23.5% in 2021.  We can expect continued pressure here.  This may already be reflected in 1H20's numbers (gross 1H20 HK retail rent was down 10% - p11), as Swire has already given concessions to luxury tenants, showing they will cut rent to keep occupants.  Both malls remain 100% leased as of June.

How bad can it get?  Back-of-envelope calculation: Lets say that The Mall accounts for 40% of HK Investment Property Retail profits, or 20% of HK Investment Property profits.  Then lets say The Mall's Profits halve (following a further 30% decrease in gross rental to 1H20 results).  So we could see a 10% drop in HK Property Investment income, which is maybe a 5-8% drop in total Investment Property income.


28% of their Gross rental is from Mainland China, I guess it accounts for 15-20% of profits.  Most of the China rental is from retail.  Skewed towards luxury (p15): 40% if their rental is from "Fashion and Accessories", and 20% is from "Jewellery and Watches".  They are optimistic: "Footfall and retail sales in the Chinese mainland have recovered strongly since March 2020. Retail sales are expected to continue to improve for the rest of the year, led by sales of watches, jewellery and other luxury brands." 


Since I'm valuing based on property rental, I need to know their property tenure.  62% of their completed HK investment properties have leases of 800+ years (by GFA), 23% have leases 30 years of less.  All China properties have 40 year leases.

Future Growth

Their development pipeline calls for a ~10% increase in GFA by 2023:

Spending on this is forecast to range from 2bn to 5bn a year:

Assuming 1H20 is as worse as it gets - Investment Property profits were 4bn in six months - they should have no problem covering this expenditure.

Other Segments

They have a small hotel segment, which usually operates at a loss (pre-covid).  Hotel P&L numbers do include depreciation.


Company-wide, net debt (including leases) is around 17bn.  Or 2.1 times annualised 1H20 Investment Property Earnings.  This debt is so low compared to their earnings/assets, its not even worth looking at the debt repayment schedule (p28).

Property Development Segment 

"Property Trading" and "Sales of Investment Properties" have been lumpy over the past ten years:

Instead of analysing the history of property transactions, lets look at where they are now.  It means have some residential properties to dispose of after covid:

My guess is that they write down some Miami condos as the market crashes, but most are already sold anyway.  For Singapore and Indonesia, worst case is they sell at a discount if theres a recession.

Second, they are developing new properties:generally, the residential units will for sale in their "trading portfolio" (p18), and office/retail units will be added to Investment Properties.


I'd be happy to buy it at a 5% yield, or HKD 18.  What really gets me excited is that this dividend is only 63% of their Investment Properties profits (1H20 numbers, annualised).

Theoretically - as a comparison to SG Reits - a 100% payout ratio with a 6% yield would give them a target price of HKD 23.


This company has a great long term track record, and is conservatively geared.  The risks come from the external environment, principally HK Real Estate, and China.

Hong Kong property prices have boomed for the past 10 years:

Source: Trading Economics

This is a bubble.  There are no signs of it deflating, and even signs the government may continue to blow it up.  It must pop one day - one way or another.  High property prices are one of the causes of unrest, and there's always a political risk the government will enact policies against property developers.  This line of thought is that HK's unrest is a structural problem, and one of the fixes required is lower property prices.

Another risk is the China bubble bursting.  The giant China bubble pops, and it becomes like Japan in 1989.  Or the Soviet Union.  The problem is best summarised here.  

Its a book.

I don't think "Work From Home" is a risk to this company.  I think that most people in Hong Kong will not work from home as their units are too small.

Medium term, I'm not sure where we are in the HK property cycle.  HK office rents have fallen for 6 consecutive quarters.


While Swire Properties and HKL gave concessions to luxury tenants, Wharf REIC did not, causing LVMH to plan to close its 10,000 sq ft Times Square store.

Monday, September 7, 2020

Ascendas India Trust

Quick look at this company.  

The Numbers

Long term, the numbers are excellent.  They have been growing.  In INR:

And DPU has grown too, meaning they did it without too much dilution:

The payout ratio has been 90% since 2013, and (I think) 100% before that.  I think it's the only SGX REIT/trust that keeps a little bit of its income for future growth.

Just to double check, lets compare the growth rates of debt, units issued and distributable income:

Most of their past growth has been funded by debt.  Their last big issue of new units was in November 2019, as a private placement.  They are still only at a 29% gearing, giving plenty of room to grow.

There is one catch: the Indian currency (INR) is constantly falling against the SGD:

Over ten years it has depreciated at a CAGR of -4.3% a year against the SGD.  Its like the INR has high inflation build into it - if you hold this currency, you are running just to stay in the same place.  AIT's growth has to outperform this depreciation.  When we look at the DPU in SGD, its still growing:

The bad performance from 2010 to 2013 was mostly due to currency.

The Properties

When I look at a REIT's property, I just look at two simple common sense things: is it freehold?  And where is it located, in the middle of a city or the middle of nowhere?

Here I look at AIT's top 4 buildings by value, and also describe their property location from google maps:

All of the property is freehold, or for long enough that it doesn't matter.  The important buildings, making up 75% of the Trust's property value are all in outlying areas that are quite built up - medium to high density, some with a little vacant land nearby.  They are what we would expect from business parks, the point here is to make sure they are not in the middle of nowhere.


The majority is due in 2022 and 2023:

Source: July 2020 Results Presentation

35% is denominated in SGD, as SGD loans have lower rates.    There's a risk here, if INR drops, the debt rises compared to the asset value.  If the SGD rises 30% against the INR in a few years - like it did in 2010 to 2013, then that 29% gearing ratio becomes 32%.

The Trust's rules specify at least 50% of debt should be in INR.

Tenants and Leases

WALE is 3.6 years:

The fine print at the bottom says the retention rate from July 2019 to June 2020 was 57%.  Pretty low.  If we assume most of those who left did so during covid (Jan onwards), the retention rate may be low till Covid is over.

There is some room for new rents to rise: each buildings' average rental is below its recently renewed rental rates:

(The numbers in red at the bottom are the percentages of each each building's property value for the trust).

They have high quality tenants:

  • 86% are MNCs
  • "Collections for office rents remain healthy with 99% of April, 95% of May and 92% of June billings collected." (slide 6)

The top 10 tenants account for 38% of rent, the top tenant accounts for 9%.


The biggest risk is "Work From Home".  In their latest update, the company says "Park population remains below 10% across all parks."  If the people in India figure out they can all work from home, less office space is required.  I believe most middle class Indians live in condominiums with a domestic helper for the children, so they should be able to WFM.

Next is the currency risk.  If we get a big INR depreciation like from 2009 to 2013.

Lastly, de-globalisation.  India is less affected than China, but the issue of outsourcing and H1B's may come to the attention of US politics.


Great long term growth, management, properties and tenants.  Manageable debt.

The currency risk is the biggest one.  No way of predicting these.  But at a yield of  over 6%, I think they are priced in.  I am wondering if I am comfortable with a 5% position or 10% position?

DPU from 1st April 2019 to Dec 2019 is 6.45c.  Annualised its 8.6c.  Thats a 6% trailing yield at $1.43 and a 7% yield at $1.23.


A good blog post that brings up some points about India's demographics, AITs Management Fee structure and currency:

A series of good posts by Snowball about competitors in the Indian commercial property marketIndian Interest rates & Lease terms, and comparison with Embassy REIT.

Saturday, September 5, 2020

Hong Kong Property Companies

 Quick notes on 3 HK property cos:


  - Yield 4.55% (at HKD 63, year ending March 2020 results), 100% payout ratio, mostly 50 year property leases

  - Neighbourhood shopping centers, a bit like FCT in Sg.  Largely unaffected by economy/covid.

  - Good LT track record growing assets without raising cash from shareholders, but yield too low for me, esp with 100% payout ratio.

Wharf REIC:

  - Yield 6.3% (at HKD 32.10, end Dec 2019 results), only 50% of CFO paid out, mostly freehold property. 

  - 75% operating profit from one mall: Harbour City.  Overall high exposure to luxury/tourism: 81% rental from leather, fashion or jewellery. 

  - Luxury brands are reducing their footprint in HK: eg: LV closing their Times Square store after Wharf refused a rent reduction.  Aug 19: (pre-covid) Prada's Causeway Bay landlord "willing to cut rent by 44%" after Prada leaves.

  - If Wharf's 2019 rents fall by 40%, CFO is down roughly 50%.  I think the market is pricing this in.

HK Land:

  - 65% of 2019 operating profit from investment properties portfolio, 35% from development.  Development is lumpy, so ignore it now.  Conservative estimate 515m operating profit (excl D&A (not clear?) and change in properties' values) from investment properties in 2019.  Or USD 22c/share.

  - Dividend is also 22c/share (in 2019 and 2018), thats a 5.6% yield (@ USD 3.89/share).  Mgt said they intend to keep it constant.

  - For investment properties: 83% operating profit from HK central, 11% from Sg.  Mostly office (banking/legal).

  - Stock is cheap based on recurring income from Investment Properties alone.  Their development are is highly leveraged, but lets them expand their portfolio without raising more capital.  So cheap value with some growth.  Worth looking further.