Trader

Best World opportunity?

The following is taken from a Maybank Kim Eng Research report, if which I have made minor changes:

Best World prices fell following a negative Bloomberg article highlighting a government crackdown on alleged pyramid schemes in China, which prompted a SGX trading query.

Share prices for Herbalife, Nu Skin and USANA Health Sciences fell after China’s State Administration for Industry & Commerce announced a three-month campaign to police pyramid schemes, although it did not name any companies.

Given that the Chinese market is the key growth driver for the three global direct sellers, the regulatory clampdown could pose a significant risk on sales.

Best World has only recently made inroads into the Chinese direct selling market after obtaining its licence in Hangzhou city in Nov ’16

In 1H17, revenue from China contributed 48% of Best World’s overall sales of $100m, of which almost all stem from the export and manufacturing/wholesale segment.

Best World does not operate a pyramid scheme and will be introducing its direct selling operations in phases. The government crackdown is aimed at Ponzi schemes, which are illegal and is not directed against legitimate direct selling businesses.

As for now, Best World still operates the export model in China where it sells its premium skincare products primarily to beauty/hair salons, spa owners, etc. The model does not incentivise retailers to stock up on products (channel stock) as they would not receive any distribution gains, as opposed to the direct selling model.

Further, Best World has policies in place to prevent channel stocking, particularly in China, which could lead to pyramid schemes. Products sold in China are reportedly in short supply due to increased demand from consumer acceptance.

Following the selldown, Best World currently trades at 14.1x FY18 P/E, with consensus earnings growth forecast of 23%/16% in FY18/FY19.

Despite the near-term overhang on the stock, we retain Best World in the Market Insight Growth portfolio on the basis of its phenomenal earnings growth momentum as the group makes further inroads into China.

7 Up and 8 Down

The statistics of “Santa Rally” and “Sell in May and go away” are well known. But have you heard of “7 Up and 8 Down“? Likely, you have not! It means to buy in July and sell in August.
Please take a look at the Monthly Chart of STI. Green candle signifies up month,while red candle signifies down month. 
For months of July

In the 7 years of 2009 to 2017, the STI went up in the months of July 8 times, and went down 1 time (2015).

For the months of August

In the 7 years of 2009 to 2016, the STI went down all 8 times in the months of August. And as of 16 Aug 2017 today, it certainly looks like following the same pattern again!

Direction of months of July and August. 

Amazing? Check it out yourself in your own charts! Coincidence?

Ascendas HTrust entry

Last week, my REITs shifu invested in Ascendas HTrust, which I also followed yesterday, because I concurred with his assessment.

  • Yield : 6.9%
  • Gearing : 33%
  • P/NAV : 0.93
  • Run 11 hotels
  • By NPI, Australia (50%) + Japan (26%) + Singapore (15%) + China (9%)

I like the fact that the DPU trend has been very stable through the years. I am also speculating that Australia will growing in next couple of years. For me, this is a long term investment and not a short term trade. My yield on cost is 6.87%.

My shifu, Kenny Loh (http://mystocksinvesting.com/), will be conducting his signature REITs course on 30 Sep. If you’ll like to learn how a REITs expert evaluates and selects strong REITs, I strongly encourage you to attend his course. Contact me for a discount code.

Hyflux bad news is good news for me

Hyflux released their results yesterday and their Hyflux 6% CPS 10 perp price is again under pressure now as I am writing. Please read the report : https://www.theedgesingapore.com/hyflux-sinks-red-2q.

As you read the report, see the reasons given for their poor performance. Ask yourself if these reasons will affect their credit standing over the next 8 months?

Is this an opportunity? Yes, that is my opinion. Why?

  1. 3% coupon in Oct 17. Another 3% in Apr 2018. Total 6%
  2. Assuming I buy at 99.0, in Apr 2018, Hyflux is likely to return the money back to me at 100. That is another 1%.
  3. If money is not returned to me in Apr 2018, coupon will be reset to 8%. Hyflux is in my opinion likely to call back the bond as they do not need to resort to 8% borrowing cost.
  4. Hyflux has been paying good dividends, so they must pay the perp holders first before shareholders. In the event that they do not pay coupons, the coupons will be cumulative anyway, meaning that they must make good what they did not pay in the past on their next payments.
  5. Their main reason for poor performance is “continued weakness in Singapore power market”.
  6. Total of 7% gain in 8 months. If annualized, it will be higher. And this is before the use of margin.

Here is the daily chart. The last candle on the right is today’s candle which have not closed yet. Note the long wick a couple weeks ago on 21 July.

This is the market depth as of 12.07pm

SGX only allow queueing 0.20 away from last done. With last done at 99.00, I am queueing to try to get some between 98.80 to 99.00. Hyflux is considered Grade C bond, so its good to have some, but not too much. Ideal for buying using SRS account. Please read this article with a tiny pinch of salt as I am already holding some Hyflux perps.

You may be interested to know 2 other posts I made on Hyflux 6% perp recently.

Investing ideas for high yield bonds

Top grade bonds that can be supercharged using margin accounts are few. I was asked recently what are the junk bonds (high yield) bonds that have caught my eye. I have listed some bonds that looks interesting and have ordered them according to my preference. Admittedly, i have yet to dive deep into these companies as I do not plan to invest in them.

  1. Sabana 4% Mar 2018, price 99.0, YTM 5.5%
  2. Sabana 4.25% Apr 2019, price 96.0, YTM 6.8%
  3. Religare Heath Trust 4.5% July 2018, price 99.7, YTM 4.8%
  4. CWT 4.8% 2020, price 99.8, YTM 4.9%
  5. Ara 5.2% perp, price 103.5, YTC 4.4%
  6. Centurion 5.25% July 2018, price 100.7, YTM 4.4%
  7. Tuan Sing 4.5% Oct 2019, price 98.2, YTM 5.3%
  8. Tuan Sing 6% Jun 2020, price 100.5, YTM 5.8%
  9. Tat Hong 4.5% Jul 2018, price 99.0, YTM 5.6
  10. G8 Education May 2019, price 99.9, YTM 5.5%
  11. Oxley 6.375% 2021 USD, Price 100.4, YTM 6.2%
  12. Aspial 5.05% Jun 2019, price 100, YTM 5%
  13. Tiong Seng 4.75% Jan 2018, price 100, YTM 4.7%
  14. TA Corp 5.5% Mar 2018, price 97.5, YTM 9.4%
  15. Banyan Tree 5.75% Jul 2018. price 101.1, YTM 4.6%
  16. Banyan Tree 5.35% Nov 2018. price 100.4, YTM 5.0%
  17. Pacific Int Lines 7.25% Nov 2018, price 99.8, YTM 7.4%

Note that these bonds are not investment grade and hence cannot be margined at good rates. The prices used are from bondsupermart.com prices which is only a guide to the real prices and does not include any commission.

The market agrees with my view of SGD interest rates

When i ask investors who attend my seminars if SGD interest rate will increase in 2017, the majority took the view that Singapore will match US Fed increasing interest rates. For me, I have always told them that I will not be so sure if I were them.

My reasons are:

  • US economy doing well, is Singapore economy doing well?
  • If we follow US rates as we have been known to do so historically, won’t our currency be much stronger than our neighbouring countries? Won’t this make us noncompetitive? As far as I know, all asian countries, including China, are devalueing their currency.
  • I am a very keen bond investor, and have observed corporate bond market rally. Interest rates cant be increasing too much when smart institutional money are buying bonds.

Well, I have been proven right. While the US interest rate has increased 3 times in the last 7 months, look at what happened to our SGD interest rates. Its at 2017 low.

Note that I am not an economist, but I do keep abreast of macroeconomics.