Straco

Straco builds and operate tourist attractions.  They run two aquariums (Shanghai and Xiamen) and the Singapore Flyer. 

Successful tourist attractions are immensely cash generative when things go well.  In 2014, Straco bought the Singapore Flyer from receivership, and turned it around within two years. 

The Aquariums produced the over 90% of the company's PBT in 2018.  Even though the Flyer is profitable, it is still appears to be under-utilised.

The Shanghai aquarium lease lasts till 2037 (plus renewable for another 10 years).  Xiamen is till 2034.  The Flyer is till 2035, with an option to renew for 15 years.

Ticket sales are 90% of revenue.

The income and cashflow statements are straightforward.  The biggest cost is staff, followed by (depreciation + operating lease).  Then repairs plus maintenance.

In normal years, this business spits out money.  In 9M19, net margins before tax were 50 percent!  EPS for the 12 months till 3Q19 were 4.91c.  EPS for 2018 was 4.85c.

All their attractions are currently non-operational.  Annual operating costs in 2018 was 63m, around 8c per share.  Mostly cash, with about 1c/share depreciation.  And mostly fixed costs (staff).  So we could see the company losing 0.58c per share (cash) every month until their attractions re-open.

As of Feb 2020, net cash is 12.6c/share.  After subtracting all liabilities.

I see the coronavirus as a chance to buy the dip.  I think the virus will die down in summer (June).  Assuming 2020 is a write off, they still have 13 years for Xiamen, 16 for Shanghai, and 14 for the Flyer.  Then I would just sit back and collect dividends, or wait for it to re-rate (eg: 12 times earnings ex cash).  The price may shoot up if we get another acquisition and the stock is re-rated as a growth stock.

Bought 31000 shares at 51c. Thats 8X normal-year earnings, ex cash.

Risks:

• External events can affect visitor numbers.  Gulangyu island was listed as UNSECO world heritage site in July 2017, and the government tried to reduce the number of visitors, which declined over the next two years.  OTOH, the opening of Disneyland Shanghai helped increase visitors to underwater world.
• CEO Mr Wu Hsioh Kwang has been an astute and cautious capital allocator.  But he is 69 this year.  Not sure if his experience, judgement and intuition can be replaced ("It was the same feeling I got while standing in Pudong in 1990....").  He and his wife own over 50% of the company.
• As an S-chip, I would limit purchase to 2% of my portfolio.  There's a risk of China devaluing its currency, and in a crisis they may not allow money to be transferred out.
• The Singapore Flyer stopped in November due to a "minor" problem, but we have heard no news yet.  The company has not provided any updates, timetable, or detailed description of the problem.  The stock market hates uncertainty, but the company does not communicate well.  We start to wonder if its a "bigger" problem.

Update on Frasers Logistics and Industrial Trust

I looked at FLT 10 months ago, but it never reached my buy price.  With REITs starting to fall, I look again.

July 2019 Acquisition

They acquired another 12 properties.  9 in Germany, 3 in Oz.  Its a significant acquisition, adding 21% to FLT's existing assets.

The numbers look good.  All freehold.  8.6 years WALE.  Slightly DPU accretive.  Better lease expiry profile (p4).

But the one of the tenants may not be so reliable.  Hermes Gmbh is now a top ten tenant, leasing two buildings.  Its a large logistics company that claims to handle 1 in 3 B2C packages in Germany.  Couldn't find any financial info.  But they are owned by Otto Group, which has 177m in profits, zero cashflow from operations vs 172bn in debt (pp 104-106).

Grading the new tenants as reliable, unknown or dodgy (weighted by property price): 37% would be reliable, 44% unknown, and 18% dodgy (just Hermes Gmbh).

FCOT Merger

Just evaluate this as another acquisition.  Its actually 2 acquisitions: the FCOT merger, and an acquisition of (the remaining) Farbourough Business Park. 

Gearing will be 37.4% after the 2 acquisitions.  A bit high.

FCOTs properties are quite big compared to FLTs:

Lets look at the larger ones individually.

China Central Square

This is a is a Grade B office building in the Singapore CBD, with a small retail component.  90.8% occupied (93.9% for the office tower).  WALE is slightly short at 3.7 years (p4).

For grade B offices in general, you need to wait for Grade A rents to rise, after which there is a lagging spillover effect onto Grade B    (1) (2).  The company expects Singapore office rents to be capped in the next 6-12 months (p35).

WeWork is a tenant.

Alexandra Technopark

A technology park building in Singapore outlying area.  WALE 3.5 years.  97% occupied.

FCOT noted (p36) that Singapore Business parks have a 12% vacancy rate , so not expecting positive rent revisions.

Farnborough Park

A business park.  Wale of 6.6 years, 99% occupied.  Long WALE.

The others

Both buildings where WeWork is a tenant have above average vacancy rates (7% for China Square, 18% for Perth).  May not be easy to replace them if they go bust.

Conclusion

The buildings don't seem so good as FLTs existing portfolio.  The Singapore buildings have short WALEs, and don't seem to have potential for rent increases.  The Australia buildings look OK, hopefully Perth is at the low point in the cycle.

How would I value this?

First, I expect the AUD to remain at a low level of SGD 90c.  The Australian Government shows no sign of wanting to raise rates, due to housing prices.

So if the merger fails, I expect DPU of SGD 6.8c.  At a 6% yield, I would pay SGD 1.13.

If the merger goes ahead, they project DPU of 7.38c:

But this is proforma (going back in time, as if the acquisition had been done earlier).  I adjust for a my lower AUD exchange rate, to get 7.14c.  I also deduct WeWork's contribution to get around 7c per share.  So at a 6% yield, I would pay SGD 1.16.

Sold Gold Companies, TLT, bought GLD

https://www.investingnote.com/posts/1862353

Shaken out - can't trade such a volatile market.

From now I post my trades in InvestingNote.  I will post thoughts here that require longer writing.

Sold India and HK stocks

Sold these a few days ago, before the market correction started:

• https://www.investingnote.com/posts/1852605
• https://www.investingnote.com/posts/1854555

India was because Hedgeye confirmed bearish trend.  HK was lucky.

IAG has been badly affected by the crash, down more than 20% (around SGD 8K) in a week.  That was really the worst time to buy it.

My other stocks are not affected yet.

I am now 50% cash/TLT, 9% gold companies, the rest stocks:

What stocks do I lookout to buy in the correction?  I don't think Singapore REITs will drop enough for me to bother.

Bought TLT

Bought TLT (20 year treasuries) in 14th Feb.  310 shares at $144.78.

Mostly as a hedge for my China/India and IAG positions.

SPY is overextended, but still keeps going up.  Gold and long-term bonds are also going up, so they don't believe in the previous sentence.  I wait for SPY to drop, probably taking the rest of my stocks with it, and for the Fed to lower rates by a lot (0.5 or 1%).  Gold and TLT cushion me in this scenario, and give me some money to play with if the market corrects like in 4Q18.

This weekend, the coronavirus has broken out in Italy and South Korea, spectacularly for the latter.  Markets should go down....but with so much stimulus, I don't know if they will.

I am now:

• 50% invested in stocks.  Slightly more than half of that is long term dividend stocks (mostly Netlink Trust & Manulife US Reit).
• 35% in cash
• 15% in Gold Financing Companies and TLT.  Should go up if SPY goes down, thought they are going up now anyway.

Bought shares in IAG

Based on the report at undervalued shares  (Its $50 per year to join).  Buffet bought into US airlines in 2016; the European airlines are not yet as consolidated at the US airlines were then, but they are expected to consolidate further.

Its trading at 7.5X earnings, a low valuation, with a reasonable leverage (and fleet age), and decent operating margins.

The main risk here is a US recession.  I guess a 50 percent chance of a recession starting in 2020/2021, else we get a slowdown and the recession comes a few years later.  I've bought a 5% position.

This is a long term buy-and-hold stock.  The only one I have found at a reasonable price in the last few years.  If it rises to a reasonable valuation (like 12 to 15 times earnings), I may sell to buy back in the next recession.

Bought 3213 shares at 7.594 Euros on BM last night.  I held off a while, waiting for the coronavirus impact on airline stocks...which dosen't seem to be happening.  Eventually I bit the bullet - at 7 and a half times earnings, just buy.

Bought some China shares

Bought some HK shares yesterday morning.  China consumer stocks.

https://www.investingnote.com/posts/1822953

Around 5% of my portfolio - this is half my position.  I may be a bit early.  We don't know how bad the virus will get.