26 April, 2017

A Quick Glance: Sembcorp Industries

As we should all have known, the SG market is currently selling at premium prices. However, there will always be gems to be uncovered since different equities move in different directions. I personally find that Sembcorp Industries can possibly be a good call with suffice safety margin. Below is a simple breakdown:

1) Operating Nature:
Sembcorp Industries is segmented into four major plays, at least as per its financial statements.
-Utilities: Its strongest and most defensive segment
-Marine: As compared to FY15 deficit, FY16 was a comeback year which it returns to a flat positive net profit. This may be a great rebound.
-Urban: Definitely not its strongest sector but consistent between FY15 and FY16. 
-Others/Corporate: Biggest loss contributor of the Group in recent years


2) Profits sustaining for the Losses 
This acts as a risk by itself as well as an insight of its defensive nature.


3) Potential Upside Risks:
As per DBS Research, Sembcorp Industries will be the current best pick of the three Oil and Manufacturing Large Caps in Singapore in terms of potential returns/upside. A $3.80 Target Price translate up to a 22.5% gain in share price as per today's context.

4) Current Dividends is not the most attractive 
If situation allows, the dividend yield may return back to its good old days at 5%+/-. Thus, there is potential gain in price + gain in dividends yield. (Double up or double down)

5) Competition in Power and Gas Supply
The increasingly competitive power segment in Singapore is another worry plaguing investors along with the current oil rigs offshore's situation. 

6) List of Major Support
Nevertheless, Sembcorp Industries is backed up by transactions from Singtel, SATS, Singapore Power, SATS, PSA etc. It is also heavily invested by Temasek Holdings. 
7) Charting:
The "Max" chart also speaks for itself: 

22 April, 2017

Fortune 500 Rankings: The Top Are Not Necessary the Great

If you stroll through the Fortune Rankings of the world’s companies, you probably see the MNC you are working in at the top 500 list. Or in another instance, your employer may be one of the best or top performers in a particular market or industry which is operating similarly to how the smartphones’ market share is dominated by a few major competitors. The main point here is not that they can be toppled down on any day since it is always possible to fall when one climbed so high. The point to be made here is that being the elite or tyrant does not necessary makes one fantastic. This is what I learnt from my recent months and it is really true to say “do not judge a book by its cover”.

There are countless strategies to becoming a top notched market leader but there will never be a perfect company. Loopholes will always linger waiting to be exploited, to be revealed or to surface. A company can reach the top of the world through dignity and sheer hard work or through means of attempting to hoard as much market share as it possibly can. Predatory pricing with the mentality that the firm will rather breakeven or lose money than to invite competition is near to the term which I am trying to describe. However, I am referring to examples in which it is still legal. These are where elite companies climb up the ranks to be on top but are they really great in terms of monetary profit?

The loss by setting low prices will be shown on their annual Net income. It is not a wise long-term choice to aim for mere breakeven due to market inflation, needed future investments and the highly sought wage increments/staff bonuses. All these require money and without profit, it is like taking your own meat to sustain the company. And let’s not forget that due to the low prices, work volumes are also high for your staffs to manage. Due to high stress, greater mess and peak volumes, you either need more staffs or your staffs have to sustain highly stressful workloads.  Either way, your service will eventually deteriorate. Thus, top companies may look good on the outside but the high volumes will likely make its internal operations a real mess. When an organization gain more, it will lose more control on how to manage the load.

 An organization can be one of the best but such power will only be temporary when the pillar (finance) to lean on is slowly eroding.

15 April, 2017

Stocks to watch during this Cum-Dividends Period

In my current watch list, 42% of the Singapore stocks are now trading at CD. This also means most of the stocks are "highly" valued while it does not cancel them as possible potentials. I came to notice Straits Trading and added it into my watch list. It is probably old news but this company deals with quite a number of business such as mining, metals, mineral resources, real estate management and hospitality. It is also a company with long withstanding history and dividends records. Despite recent price surge, it is currently undervalued with potential upside risks. At the near end of the likes of a “U” shaped chart, it is probably something to be watched. Nevertheless, the stock will fall after the dividends period.  May research and time change my decision to invest in this Metals and Mining industry.

3 Year Chart

The other well-known stock will be Sembcorp Industries. Similar to Straits Trading, I will be eyeing on this stock and it seems like oil prices have started to stabilize.  With my own research, I will rate Sembcorp Industries at 7.1/10 at the current valuations. Keppel Corp will score higher at 8.5 but its current price is of a higher premium as well. Last year, I have given this a pass due to the instability of OPEC’s situation and uncertainty made from political issues and elections. Sembcorp Industries’ resilient Net Income did not even reach near deficits level despite the public’s focus on plunging oil prices. This is because its business risks are well diversified into multiple sectors ; energy, urban developments , utilities, waste management while its Marine arm focus on rigs and shipbuilding. Like a replicate of Keppel Corp, both are pillars that will be difficult to take down due to the well diversified business nature. With utilities as one of its core, it is somewhat a defensive stock to me.  However, Sembcorp’s Net income only grew about 16% from 2005 to 2015 (using first /last 3-years average) and its debts are rising in the recent years. I will recommend adding it to your watch list as a start.