GENTING SING

Genting Sing - these are my thoughts and findings on Genting Singapore Plc.  Genting Singapore derive it's revenue mainly from the operation of Resorts World Sentosa, a large integrated lesiure and hospitality resort located on Sentosa island of Singapore. It features six uniquely themed hotels, a casino, one of the world's largest aquarium S.E.A. Aquarium, Southeast Asia’s only aquatic park integrated with marine life - Adventure Cove Waterpark, Southeast Asia’s first and only Universal Studios theme park – Universal Studios Singapore, Singapore’s largest destination spa – ESPA, a wide selection of indoor and outdoor MICE venues, and a variety of dining, retail and entertainment options. Genting Singapore has went through a series of capital raising through debts and equity to fund the building of Resorts World Sentosa. This was a very large project undertaken by Genting Singapore years back which ran into billions of Singapore dollars in order to achieve what we see now as the completed Resorts World Sentosa. It is with this backdrop that I will discuss the performance of Genting Singapore after having spent so much capital into this huge project. Resorts World Sentosa had it's grand opening in 2012. Thus, it has been officially opened for the past about 6 years. I shall look at Genting Singapore's performance from 2012 to 2017 over the span of 5 years after the grand opening of Resorts World Sentosa, where it's derives almost all it's revenues from this huge project.quote :
( jeremyowtaip)  First, we look at the compounded annual growth rate (CAGR) in revenues for Genting Sing. Over the past 5 years, it's revenues have not grown but instead decreased by about 18.8%. I was surprised why it's revenues did not grow but instead decreased. I took a look at the breakdown of it's revenues of which the majority of revenues came from it's gaming revenue (casino operations) while the other second major revenue stream came from it's non-gaming revenue (other non-casino operations). It's gaming revenue is around close to three times it's non-gaming revenue. We can see that the total revenue of Genting Sing really depends on their revenue derived from casino operations. Over the past 5 years, the gaming revenue has decreased while non-gaming revenue has increased to offset some of the decrease in gaming revenue. But due to the majority of revenue are derived from gaming revenue, the total revenue thus decreased over the past 5 years. We see that the revenue of the casino has decreased over the past 5 years. It is worth investigating further why was there a fall in revenue of casino operations over the past 5 years? Next, we look at the CAGR in operating profits. Operating profits have grown at a CAGR of 0.83% over the past 5 years. Despite a fall in revenues over the past 5 years, Genting Sing has still managed to grow it's operating profits at a meager rate. I see that they have managed to reduce their administrative expenses and also selling and distribution expenses over the past 5 years despite a fall in revenues to protect their operating profits from suffering a similar drop. However, a CAGR of 0.83% is still like not much growth at all! There are so many much better investment ideas out there which definitely produces much higher CAGR in their operating profits even over a short period of 5 years! Next, we look at the CAGR of net profit attributable to shareholders of company. This has grown at a CAGR of 0.46% over the past 5 years. This again confirms that the growth in profitability over the past 5 years was not great. Next, we look at the CAGR of diluted earnings per share (EPS) attributable to shareholders of company over the past 5 years. The diluted EPS has grown at CAGR of 0.76% over the past 5 years. Again, this is another confirmation that the growth in profitability over the past 5 years was not great. I looked at the individual years from 2012 to 2017 to see how the individual year's profitability has changed. The profitability has decreased and then increased again in 2017. The drop in profitability reflected in it's operating profit and net profit attributable to shareholders of company can be quite significant for example in 2015. Therefore, I reach a conclusion that for a shareholder of this company, one has to be prepared to face wild swings in the profitability of this company as the swings can be quite significant in any year. Of course, if an investor can time his entry to buy the shares at lower prices when the profitability has dropped to a low point in preparation for any potential significant recovery in profitability in subsequent year, this investment could be a good candidate to speculate on it's swing in profitabilities. As such, due to the low growth in profitability over the past 5 years, the various returns on assets, returns on equity and returns on invested capital were consistently at low single digits suggesting Genting Sing is a low return investment. Next, we look at how some of their balance sheet metrics have changed over the past 5 years. I tabulated the various metrics as follows for 2012 vs 2017: Current ratio = 4.29 (2012) vs 4.78 (2017) Quick ratio = 3.59 (2012) vs 4.58 (2017) Debt to equity ratio = 0.3 (2012) vs 0.16 (2017) Ordinary shareholder equity CAGR over 5 years = 2.34% Genting Sing's balance sheet has been very strong over the past 5 years. It did a series of capital raising through borrowings and equity over the past decade to fund the building of Resorts World Sentosa. However, the various balance sheet metrics reflected that Genting Sing did not have any problems with over-leveraging or liquidity issues over the past 5 years. Genting Sing grew ordinary shareholder equity at CAGR of 2.34% over the past 5 years thus making their shareholders wealthier in their investment in Genting Sing.

However, at a CAGR of 2.34%, it pales in comparison with many other companies out there which can grow their ordinary shareholder equity at much higher growth rates making their shareholders wealthier even faster. Next, we look at the growth in cashflows. Genting Sing grew their operating cashflows at a CAGR of 3.92% over the past 5 years. It grew it's free cashflows at a CAGR of 25.4%. I noticed that their capital expenditures have reduced significantly over the past 5 years in which the capital expenditures to purchase property and equipment has reduced sharply. Perhaps they have already completed most of their massive capital expenditures when they built the Resorts World Sentosa and for the first few years after it's grand opening in 2012, the ongoing capital expenditures requirement has continued to drop to a lower level. This reduction in capital expenditures have certainly helped to grow their free cashflows at high CAGR of double digits over the past 5 years.

Thus, Genting Sing is now reaping a good harvest from what it has previously sowed by getting free cashflows at a high CAGR on this huge investment in Resorts World Sentosa. As for current developments, Genting Sing has raised a Samurai bond of approximately $175 million to bid for casino license in Japan. It is still awaiting further legislation approval to allow the opening of casinos in Japan. Among the bidders are strong names like US's Las Vegas Sands and Macau's Galaxy Entertainment Group which have also expressed interest in vying for an entry into Japan market. I have attached a link to an article from Nikkei Asian Review which has details on the above development. Valuation wise, if we assume that Genting Sing will continue to grow their EPS at historical CAGR of 0.76% for next 7 years, using my method of estimation, the fair share price for it is $0.50. The market is trading Genting Sing at $1.12 which is assuming a higher CAGR of 7% to it's EPS. Can Genting Sing improve it's profitability significantly going forward at higher CAGR? If it can, then current share price is not over-valued. I also did a discounted cashflows analysis using a discount rate of 15% and the estimated intrinsic value per share comes out to $1.95. This is just an estimate and the intrinsic value per share could change significantly depending on the discount rate used. My conclusion is that if we focus on the forward profitability of Genting Sing, then it's share price could be over-valued now. However, if we focus on the forward growth in it's free cashflows, then Genting Sing is under-valued now. If we take both forward growth in profitability and free cashflows together with an average fair share price worked out from $0.50 and $1.95, it comes out to $1.225. Out of curiousity, I checked out SGX Stocks Facts to see what it reflected there for Genting Sing's current valuation based on an equal weighted combination of various ratios used in assessing Genting Sing's valuation score versus it's peers. The ratios used include P/E, P/B, P/FCF, dividend yield, EV/EBITDA and EV/sales. Based on an equal weighted combination of these various ratios, Genting Sing is currently estimated to be slightly over-valued as compared to it's peers. I think my main consideration in choosing a great investment idea is that it must not have any flaws or the only one or two flaws it have can be easily overcome in a short period of time. For Genting Sing, I see it's volatile profitability as a potential inherent weakness that is difficult to grasp even though it's reduction in capital expenditures and growth in free cashflows so far looks good. If there is another better investment idea which combines all growth in profitability, growth in free cashflows and strong balance sheet all looking good and the growths are visible into the next few years without the investor needing to guess on it, shouldn't he consider the investment idea that present all stars align together?

One plus factor is the dividend has been generally increasing from the initial 1 cents to 3.5 cents. An increase of 2.5 x .
Different individual may have different way of calculating the intrinsic value. I may roughly estimate the intrinsic value ( cashflows) as $1.95 x 0.8 = $1.56. The upside potential of 39% base on current price of $1.12

Thus, if I were to consider Genting Sing, it will only be a speculative value play when very visible value emerges rather than a long term investment.

SPH

Singapore Press Holdings Ltd

Incorporated in 1984, main board-listed Singapore Press Holdings Ltd (SPH) is Asia’s leading media organisation, engaging minds and enriching lives across multiple languages and platforms.

Media

SPH's core business is publishing of newspapers, magazines and books in both print and digital editions. It also owns other digital products, online classifieds, radio stations and outdoor media.

Properties

On the property front, SPH owns 70% in a real estate investment trust called SPH REIT which comprises Paragon, a premier upscale retail mall and medical suite/office property in Orchard Road and The Clementi Mall, a mid-market suburban mall.

SPH also owns and operates The Seletar Mall. It built an upmarket residential condominium, Sky@eleven, at Thomson Road, and is developing a new commercial cum residential site at Woodleigh Road. It also has a stake in Chinatown Point.

Other Businesses

It is in the aged care sector and owns Orange Valley Healthcare with the acquisition of the nursing home provider for an invested amount of $164 million in April 2017, Singapore’s largest private nursing home operator.

SPH runs a regional events arm and a chain of Buzz retail outlets. It also invested in the education business - MindChamps to further strengthen its education portfolio and entering into a joint venture in August 2017 that involves investing up to $8.5 million in Han Language Centre. When completed, SPH will hold a 75 per cent share in Han Language Centre.

Singapore Press Holdings is also increasing its stake in Handshakes, the analytics platform that visually and interactively maps out relationships and events between companies and persons.

Wholly-owned subsidiary, SPH Interactive Pte Ltd (SPHI) has subscribed for an additional 5% in the total share capital of DC Frontiers (DCF), the operator of Handshakes, for $2.1 million. Following the completion of the transaction, SPHI's stake in DCF will increase from 20% to 25%.

As can be seen from the Past years gross revenue has been dropping from 1231m to 1018m.

Total page count decline moderated at -12.7% yoy. Based on our page count of Singapore Press Holdings’ (SPH) The Straits Times, total page count was down 12.7% yoy in 2QFY18 while the three segments (Recruit, Classifieds, Display) reported a 19%, 16% and 11% yoy decline in page counts respectively. The decline was driven primarily by the Display segment, which accounted for two-thirds of the total yoy decline on an absolute basis. The quarter’s decline represented a moderation from 1QFY18’s -13.6% yoy.

The drop in media (print ) may not be able to cover by the revenue generated by other businesses. It may take quite sometimes before we can see further improvement.

Net Income has been dropping from $404 million(2014) to $361 million (2017).

Dividend has been decreasing from 15 cents to current 9 cents. A drop of whopping 40%.

In my opinion,It seems that SPH has successfully diversified it's revenue streams away from it's traditional core print and media business. Now, property and other income segments contribute more profits before taxation than core print and media business to stem the overall fall in profits. Also, cost cutting measures are seeing results. Now, SPH is a true conglomerate that derives it's profits from different diversified sources and no longer heavy on it's core print and media business. 

Will this be the turnaround point finally for SPH?

Today the share price has again weaken by another 8 cents to $2.46. 

With NAV at $2.207, PE of 11.5X, Dividend yield of 3.6% is looking quite attractive.

Looking at the past dividend being payout. The average dividend for past 5 years is about 12 cents. I have roughly estimated the fair value is about $2.40.

The current price is just about 8 cents shy away from the fair value of $2.40 and roughly about 28 cents away from the NAV. It might be a good candidate / opportunity to have a second look on this true blue chips counter..

BreadTalk

BreadTalk -  these are my thoughts on BreadTalk Group. As always, do your own due diligence!. BreadTalk has grown tremendously since it’s first outlet in Bugis opened in 2000. It is now a large global F&B establishment with exposure to 18 locations in Asia and Middle East. It currently has four business divisions namely, bakery (includes BreadTalk outlets and Toast Box), food atrium (which are the food courts), restaurant (includes well known brand Din Tai Fung), 4orth (a newly started division that works on partnership with other F&B brands to bring in innovative food concepts) and others.

TA wise, I think is on a uptrend mode patterns! Looking good to re-attempt $1.98. Crossing over with ease may rise towards $2.00 to $2.10. Dyodd.

I shall look at BreadTalk recent 7 years growth since it’s recent FY17 financial report presented the past 7 years of it’s performance. First we explore how the total revenues of BreadTalk over the past 7 years have grown. It’s total revenues have grown at a compounded annual growth rate (CAGR) of 10.25% over the past 7 years. This shows that BreadTalk is still a growth company with a double digits compounded growth rate in it’s total revenues. It is not surprising considering how BreadTalk continues to release recent news of various partnerships with different partners be it F&B or non-F&B partners to grow it’s businesses. It is still in the vein of expanding and growing it’s overall business and has not slowed down it’s pace of desiring growth.

Next, we look at how the operating profits have grown. The operating profits have grown at a CAGR of 12.7%. This growth rate is higher than the growth rate of revenues. It showed that BreadTalk has achieved a good operating efficiency by growing it’s operating profits faster than revenues. A few years back, there were news of the profit margins of BreadTalk declining due to challenges faced by it’s businesses. However, in it’s latest FY17, BreadTalk has managed to reduce it’s distribution and selling expenses which were the largest operating expense to them thus resulting in a jump in operating profits y-o-y. If BreadTalk can continue to work on reducing their distribution and selling expense and even their administrative expenses, it will go well in improving their profit margins which have always been the challenge to them to maintain their profit margins even while growing their revenues.

Next, we look at how the net profit margin attributable to shareholders has changed over the past 7 years. The net profit margin 7 years ago was 3.72% and has dipped to lower margin levels below 2% but has recently recovered to 3.64% to match the margin 7 years ago. Hopefully, as BreadTalk management has mentioned before that they must not sacrifice profit margins for it’s expansion and growth. And they can continue to watch their net profit margin closely to strategise and work towards in all the best they can to decide prudently which areas of business interests to expand into and optimise their operations to reach better efficiency, scale of economy and reduce costs and expenses.
Next, we look at the earnings per share (EPS) growth over the past 7 years. EPS has grown at a CAGR of 9.95% over the past 7 years. Again, this reflects a growth company since it is very close to a double digit compounded growth rate. 

Next, we look at their growth in cashflows. Operating cashflows have grown at a CAGR of 9.2% over the past 7 years. This is in step with their CAGR in revenues though at about a 1% lower rate. If the operating cashflows CAGR growth lags the CAGR growth in revenues too much for a business, this makes one wonder where are all the cash going when the business is growing it’s topline and make sound a red flag because the business is not generating cash from it’s operations even while it registers good growth in revenues. However for BreadTalk, this is not a concern at all. Their CAGR for free cashflows is about 25.8% over the past 7 years. This is a good sign suggesting that BreadTalk is generating owner’s earnings at a high double digit growth rate (which Warren Buffett likes to look to free cashflows as owner’s earnings). 

I examined BreadTalk’s past 7 years trend in capital expenditures and found that it has remained relatively stable about same level 7 years ago and now. If their capital expenditures continue to be able to somehow be maintained at similar levels going forward while their operating cashflows keep growing, that would potentially make this F&B group very good at generating owner’s earnings (free cashflows growth). And real cash generated in the form of free cashflows is so wonderful to a business for various uses such as dishing out fatter dividends to shareholders or could be used to reinvest into the growth of the business without taxing too much leverage from borrowings. Quote: jeremyowtaip

BreadTalk’s leverage has gone higher in previous years probably due to taking on leverage to grow it’s overall businesses faster. This has also once been a concern for some investors. However, looking at their free cashflows CAGR which is high, true enough BreadTalk has the cash to reduce it’s once high financial leverage to now a lower leverage. The debt to equity ratio has reduced from 1.38 in 2015 two years plus ago when it was still at it’s highest leverage level to now at 1.14. Based on it’s FY17 balance sheet, BreadTalk generated a free cashflows of $47 million and had $41 million net debt. Thus, there is no liquidity issue for it even while it’s debt to equity ratio is still high. 

However, it seems like this group is never resting on it’s fast expansion and growth as it takes on another debt of a $100 million medium term note issued in Jan 18. While it barely has just got comfortable with reducing it’s debt to equity ratio level, it again increases the debt to equity ratio with this recent medium note issued. As long as it’s free cashflows are still fast growing through it’s expansion and growth, I guess there is still no cause for concern on their liquidity. It seems that this group is still setting it’s sight to keep expanding and growing it’s local and especially overseas businesses. 

Next, we examine the various business divisions to compare which are the better performing ones. For the bakery division, revenues have grown at CAGR of 8.2% over the past 7 years. The EBITDA margin has fallen from 11% to 7.8% over the 7 years. The number of bakery outlets have expanded from 395 to 871. It seems that even though number of outlets have more than doubled, the EBITDA margins have not been able to be maintained for this division. 

For the food atrium division, revenues have grown at CAGR of 6.8% over the past 7 years. The EBITDA margin has dipped down from 16.8% and has since recovered back to 16.8% in FY17. The number of food atrium outlets have grown from 32 to 60 over outlets and then reduced in number to 53 outlets over the past 7 years. The dip in EBITDA margins could be due to some of the food outlets not performing well and thus the group has scaled back and probably stop operating those outlets which were not performing well and thus managed to increase their EBITDA margin back to same level as 7 years ago.

For the restaurant division, revenues have grown at CAGR of 14% over the past 7 years. The EBITDA margin has increased from 9.5% to 21.4% over the past 7 years. The number of restaurant outlets have grown from 10 to 25. This clearly shows us that this restaurant division must be their strongest performing division because CAGR for revenues grew at a rate 14% which is higher than total revenue (all divisions taken together) CAGR rate of 10.25%. Also, the EBITDA margin is the highest among all the divisions.

For the 4orth division, the revenues did not grew but remained at about same level after 7 years. EBITDA margins were negative but have since recovered to positive territory in recent two years. The number of 4orth outlets have reduced from 8 to 5. This division used to own the 5 RamenPlay outlets which have now converted to So Ramen restaurants in Singapore. Hopefully with this conversion and revamp, the new So Ramen restaurants can perform better and improve on their EBITDA margin. Belonging to this division, there is also a partnership with Song Fa Holdings to bring their Bak Kut Teh cuisine to China and Thailand. Hopefully this also pans out well and this division can improve it’s performance going forward. 

Overall, I find that BreadTalk being a F&B group operates in a naturally competitive F&B environment where the operating costs and expenses are also keen with generally low single digit net profit margins. They have to strategise and play their game well in the markets they are expanding into. It seems that their restaurant division is the strongest division. Perhaps it may be good to focus resources on expanding this division more? The more they diversify into different markets with more F&B brand offerings and partnerships, the more resilient and better will be their earnings quality going forward. 

As usual, in any of their new markets they are entering, they may need some time to adapt to stabilise and then start to grow their operations and earnings. But, with their current size of operations and number of outlets in various divisions, any potential shocks from entry into the new markets should be very manageable. It appears that they can manage their current high debt to equity ratio even while they continue to take on more debts to fund their overseas expansion. This is due to their fast growth in free cashflows favouring their expansion into the various overseas markets.

Valuation wise, on the assumption of BreadTalk continuing to grow their EPS at historical CAGR of 9.95% going forward for next 7 years, using my method of estimation, the fair value of BreadTalk share price is $2.20. BreadTalk last traded (9 Mar) at $1.94 which the market is according a CAGR of 8.27% on it’s EPS going forward. I think that if one is conservative, then current share price is already fair to buy BreadTalk shares at. I will prefer to be conservative to have a lower assumption on it’s CAGR in EPS than historical growth rates to have a margin of safety. If the share price should trade even lower than $1.94, it becomes even more attractive to buy and own the shares of this F&B group which is still fast expanding into overseas locales and also fast growing it’s owner’s earnings (free cashflows) at high CAGR of more than 20%. 

PS: BreadTalk has announced they will do a 2 for 1 share split in near future. Thus, all the fair share prices I have mentioned we just need to halve them to look at after the share split.

ThaiBev

ThaiBev - here goes my thoughts on Thai Beverage.

Thai Beverage has grown tremendously over the years from making many acquisitions to now being the largest beverage group in Thailand and also the leading beverage group in Southeast Asia.
 Thai Beverage is a company operating in four different segments, namely, Spirits, Beer, Food, and Non-Alcoholic Beverages. One of their iconic acquisitions in recent years was the acquisition of Frasers and Neave, a large beverage group in Singapore. With this acquisition, Thai Beverage has cemented it's position as a leading beverage group in Southeast Asia.quote:Jeremyowtaip

Also, Thai Beverage not only expanded in size of operations through many acquisitions made, it has also diversified it's businesses to now owning four business segments namely spirits, beers, non-alcoholic beverages and food & restaurants. Another iconic acquisition made by them recently was the acquisition of all KFC franchisees in Thailand from Yum Brand to own a substantial stake in the food and restaurant business in Thailand.

I looked at their past decade trend in financials and my first impression even before I zoomed in on the specifics of each important metric is that I am 'wowed' by their trend in financials. Let us dissect this acquisition beast which have grown tremendously over the years to look at their interesting growth in the various metrics.

I will present their compounded annual growth rates (CAGRs) of the various important metrics below for the past decade from 2007 to 2017:
Total revenues CAGR = 7.26%
Gross profits CAGR = 6.95%
Operating profits CAGR = 5.6%
Net profits (adjusted for one-off items) CAGR = 9.7%
Total assets CAGR = 9.34%
Shareholders' equity CAGR = 9.21%
Operating cash flows CAGR = 6.05%
Free cash flows CAGR = 4.48%

Next, I will present a snap shot of some more metrics a decade ago in 2007 and recent in 2017:
Cash conversion cycle (days) = 138.57 (2007) vs 97.13 (2017)
Gross profit margin = 29.51% (2007) vs 30.58% (2017)
Net profit margin (adjusted for one-off items) = 10.33% (2007) vs 12.8% (2017)
Return on assets = 12.58% (2007) vs 13.4% (2017)
Return on equity = 19.32% (2007) vs 19.6% (2017)
Debt to equity ratio = 0.45 (2007) vs 0.47 (2017)

I will now discuss Thai Beverage's trend of financials over the past decade in the few important aspects of profitability, efficiency, liquidity and leverage to see how they have performed.

First on to their profitability. We see that the total revenues, gross profits, operating profits and net profits have all grown at mostly high single digits compounded growth rates over the past decade. Thai Beverage may not be a fast grower commanding strong double digits compounded growth rates, but it has grown at a respectable high single digits compounded growth rates in these metrics. If we look at the gross profit margins and net profit margins a decade ago and now, the margins are maintained and in fact net profit margin has become better. I took a deeper look at the trend for these two profit margins and indeed the margins have maintained well over the past decade with no sudden drops in between. This shows us that Thai Beverage does boasts of a stable and resilient profitability in it's overall businesses over time.

Next on to their efficiency. Thai Beverage's return on assets (ROA) and return on equity (ROE) have maintained well one decade ago and in recent 2017. In fact, I looked at their one decade trend in these two returns metrics and they have maintained well at current levels of ROA (above 10%) and ROE (above 15%). We must realise that it is not easy to maintain the ROA and ROE in any business while it is growing it's assets and shareholders' equity through time. To be able to maintain the same level or even increase the level of ROA and ROE would mean the business has high efficiency. Thai Beverage just demonstrated their high efficiency in their businesses. If they can continue to maintain these same levels of returns, I will be even much more impressed with them.

Now on to their liquidity. We see that Thai Beverage just got much better at their cash conversion cycle. The number of days in their cash conversion cycle has decreased significantly over the past decade meaning that it takes them much lesser time in number of days to convert cash on hand into even more cash through their operations. Also, their operating cash flows and free cash flows have grown over the past decade generating more cash flows albeit their free cash flows have grown at a lower compounded growth rate. Their free cash flows over the past decade have been on average about four times their capital expenditures in any single year. They are definitely generating hell lots of free cash flows from their businesses with such relatively low capital expenditures requirement. It is no wonder with their strong liquidity and cash flows that they have the means to maintain a high dividend payout ratio of at least 50% of their net profits..

Next on to their financial leverage. Thai Beverage's debt to equity ratio has maintained at 0.45 to 0.47 level over one decade period. However, lately, there were concerns of chalking up too much debts to make four recent acquisitions (see link below). The debt to equity ratio of Thai Beverage from their most recent 1Q results ended 31 Dec is now around 1.76. Good gracious! They have just leveraged themselves higher at slightly more than 3 times their historical average leverage level. The big question now on every shareholder's mind should be whether they have just chewed more than they can swallow? Will they choke on so high a leverage or are we simply getting too overly worried?

I did an estimation of how long their free cash flows at current level (assuming their free cash flows do not increase anymore) will pay back all their debts. It will take them approximately 9.6 years to pay back all their existing debts (both short term and long term debts) by their existing free cash flows. I think Thai Beverage will likely roll over some of the debts by refinancing while repaying some debts along the way to reduce their current high leverage. If we examine their current assets versus current liabilities, current assets stand at about 79 billion Baht while current liabilities stand at about 90 billion Baht. Thus, with another 24 billion Baht from their existing free cash flows, immediate working capital needs should be adequate for them. We must not forget also that the new acquisitions will also contribute to their cash flows and create another additional buffer for their liquidity needs.

All in, I think we should not fret out on their high leverage at the moment but continue to monitor their progress at this stage of their expansion to give them time to work things out to reduce their leverage gradually which they have the strong cash flows generation and enough resources to manage this high leverage.

Valuation wise is tricky at the moment with these new acquisitions and high leverage now taken to work out how the future growth in EPS will be like. Perhaps a few more quarters will paint a better picture on how the new acquisitions will impact their earnings and cash flows for working out any fair valuation for them. At the moment, I will just observe this beverage giant going forward for new developments on their earnings and cash flows.

Article from Bangkok Post: ThaiBev riding Asean acquisition wave 

As per mentioned in my comment, I have no fair value for Thai Bev until I can see how their earnings and cash flows for next few quarters change after these recent acquisitions.

However, just for interest sake, I did an estimation of their enterprise value per share using figures from SGX Stock Facts (assuming the figures presented there are accurate). It works out to be $1.79 per share. Enterprise value (EV) is often thought of as a more robust measurement than market capitalisation of the true value of a company in the event of a take over of the company.

Thus, if we look at the current share price, it is definitely trading below the EV per share. As I have mentioned, EV though being a more robust measurement of the true value of an enterprise will only be potentially realised upon a take over of the enterprise. I will thus refrain from commenting whether the share price is really cheap now based on an ongoing business basis and not being viewed as a near term potential take over target. I will wait a while more to see how things work out for them (in view of recent changes to their leverage and substantial acquisitions made) based on this full year's results before being able to work out a fair value per share on an ongoing business growth in earnings basis.

Jeep wise, maybe not so soon for me until I can work out a fair value for them. But, I have a hunch with the current drop in their share price, it does present a very tempting bargain proposition for many investors.

Yup TII, I think they must already know how much leverage they could have managed on their risk scenario and ROI analysis for them to be so confident to take on these 4 acquisitions within a short time. Afterall, they have been on a track record of many acquisitions done before and never had liquidity issues before. But having said that, history may not be 100% a guarantee of future. I think it is better to observe their performance for a while going forward how they manage their current leverage and how the acquisitions contribute to their overall profitability, cash flows and ROI before commenting on whether they might have chewed off too much than they can swallow. As of now, I am cautiously positive based on their existing profitability, cash flows and cash level that they might not have reached a stress breaking point yet with these acquisitions. We shall see going forward.

Yup! The lower price to jeep, the better! No hurry yet until things pan out clearer for them. If already vested, no worry too as I think they are strong enough to manage this current leverage .

Cash flows are key going forward for Thai Bev. I think the huge amount of goodwill and the interest payment for the loans may drag down the reported earnings. How much will depend on how strong are the cash flows from the new and existing businesses.

Being such a large corporation, their finance team must have run through extensively on the risk scenario and ROI analysis, for them to be so confidence to buy these 4 acquisitions within a short time span. All The Best!

From TA point of view, It is still on a downtrend mode patterns.

Last Friday touched the low of 81 cents with slightly higher volume transacted which could see further selling down pressure. If the recent low of 80.5 cents has been broken down then it may likely side down towards 75 cents with extension to 70 cents.

dyodd.

StarHill Global Reit

The share price has been drifting lowered each day from 76 cents to a low of 64.5 cents.
Looks like value is creeping up !
NAV of 92.2 cents.
DPU of 4.36 cents , yield of 6.7%.

Looks like undervalue it is surfacing now!

These are my findings for Starhill Global REIT. Starhill Global REIT as they described themselves on their website is a REIT which currently has a portfolio of 11 properties used primarily for retail and office uses. Their flagship properties are Wisma Atria and Ngee Ann City located in Orchard Road of Singapore. They have grown in their portfolio from their two flagship properties to now total of 11 properties located across KL Malaysia, Chengdu China, Tokyo Japan, Perth and also Adelaide Australia. Thus, they are now diversified into different geographical regions.

For this sharing, I will do a comparison of Starhill Global REIT versus CapitaMall Trust, a very familiar Singapore large retail REIT which is also the first listed REIT in Singapore. Since Starhill Global REIT derives majority of their revenue from retail tenants and less so from office tenants, it is still a reasonable comparison against CapitaMall Trust. I will compare their compounded annual growth rates (CAGRs) in three different important metrics over the past 11 years since 2006 to 2017. These three important metrics are net property income, distributable income and value of investment properties. The exact period of comparison may differ slightly due to different reporting timings of their full year results. Nevertheless, it is still kept to not more than half a year difference in both their period of comparison.

First, we look at the net property income growth. For CapitaMall Trust, it's net property income has grown at a CAGR of 7.42% over the past 11 years from 2006 to 2017. For Starhill Global, it's net property income has grown at a CAGR of 9.2% over a similar period.

Next, we look at the distributable income growth. For CapitaMall Trust, it's distributable income has grown at a CAGR of 8.02% over the past 11 years. For Starhill Global, it's distributable income has grown at a CAGR of 7.2% over a similar period.

We look now to the value of investment properties growth. For CapitaMall Trust, it's value of investment properties has grown at a CAGR of 6.1% over the past 11 years. For Starhill Global, it's value of investment properties has grown at a CAGR of 7.29% over a similar period.

Just to have some perspective on the size of these two retail REITs currently. The value of investment properties held by CapitalMall Trust as of Dec 17 is around $8.77 billion while the value of investment properties held by Starhill Global REIT is around $3.15 billion. We can see that the latter is less than half the size of the former in terms of the value investment properties held in it's portfolio. Thus, we are comparing a much bigger retail REIT player CapitaMall Trust which is focused on a Singapore retail mall market to a smaller global retail REIT player Starhill Global which is diversified across retail mall markets in different geographical regions.

In terms of net property income growth, Starhill Global has delivered close to 2% higher CAGR than CapitaMall Trust over the past 11 years which is significant. In terms of distributable income growth, Starhill Global loses marginally in less than 1% point to CapitaMall Trust in the CAGR of distributable income. Perhaps CapitaMall Trust is slightly more efficient in growing and managing it's cash available for the purpose of distributions despite producing a slightly lower growth in it's profitability as a retail landlord as compared to Starhill Global.

If we look at the growth in value of investment properties, Starhill Global REIT has been growing at a higher compounded annual rate at about 1% higher than CapitaMall Trust. This is not surprising due to the former which is a smaller retail player as compared to the latter with room to grow faster. The larger the investment property asset size a REIT owns, the slower growth it will likely experience as it needs to look to acquire more properties and also properties of larger value quantum as it grows larger in order to match it's previous growth rates. Also, the value of investment properties may fluctuate at times and properties in different geographical regions may be subjected to different valuations depending on the property market conditions affecting property valuations in the different regions and subsequently the growth in value of investment properties. A possible question to ask here is how do the valuations and the growth in valuations of retail mall properties in Singapore compare against that in KL Malaysia, Chengdu China, Tokyo Japan and the two places of Australia that Starhill Global REIT has properties in? Is a diversified strategy in this sense better than a Singapore focused strategy?

Other metrics of comparison such as overall occupancy rate and gearing are about similar for both retail REITs at more than 90% and about 30 plus % respectively. Thus on an overall basis, Starhill Global REIT a geographically diversified retail REIT player compares favourably to CapitaMall Trust a large established retail REIT based in Singapore.

Starhill Global REIT is currently trading at $0.72 and has a $0.91 NAV per unit and a distribution yield of about 5.99%. CapitaMall Trust is currently trading at $1.98 and has NAV per unit of $1.92 and distribution yield of about 5.64%. It seems that Starhill Global REIT is currently trading at a cheaper valuation versus CapitaMall Trust even though both are comparable in terms of their growth performance on net property income, distributable income and value of investment properties over the past 11 years.

Hi Sporeshare, I attached below a link to the Straits Times article which summarises what are the current developments in Starhill Global REIT which caused their overall drop in gross revenue, net property income and DPU for most recent performance.

The reasons given were due to:
1. the effects of straight-line rental adjustments.
2. higher withholding taxes for Malaysia and Australia properties.
3. weaker contributions from offices.

4. disruption of income from ongoing asset redevelopment works at Plaza Arcade in Perth.
5. lower revenue at Myer Centre Adelaide Australia.

The CEO of Starhill Global REIT commented that their Singapore retail portfolio has remained stable while new take-ups for office space were encouraging.

Also, the asset redevelopment works on Plaza Arcade and Lot 10 will likely be completed this first quarter meaning for the rest of this year, these two properties can start to contribute to revenue and net property income etc. again.

The chairman of Starhill Global REIT also made similar comment that earlier initiatives to rejuvenate the portfolio has been timely and the REIT will be in a good position to ride any retail sector upturn.

If we look at the reasons given for the recent few quarters weaker results and the replies by the CEO and Chairman, we should ask a question. Do these guys know what they are doing and are what the various actions they are carrying out currently for this REIT and unitholders make sense to grow the distributions for the long term?

As far as I can observe, some factors were not within their control to be fair to the management. Things like straight line rental adjustments and higher withholding taxes on Malaysia and Australia properties. This maybe one of the thing to look out for when investing in overseas properties. If Singapore has a comparatively lower tax on retail properties, then perhaps a Singapore focused retail property portfolio maybe better. But then again, there maybe certain tailwinds found in overseas retail mall markets which may not be present in Singapore especially if the growth element in retail mall market in our saturated tiny red dot is going to be limited going forward.

The CEO commented recent new office take ups were encouraging. Also, both CEO and Chairman thinks that sacrificing a few quarters of lower net property income and DPU to redevelop their Australian assets at this timely moment will ensure the assets there can capture the ride in retail sector upturn. Thus, I think it is only fair to give the REIT another few more quarters to see whether there is any improvement in their metrics such as gross revenue, net property income, distributable income and DPU. This will tell us whether what the management is doing currently really is of good foresight in terms of future benefits for the unitholders. Next few quarters, there are no more excuses such as asset redevelopment works affecting their performance. Let's see whether their performance picks up from here going forward in order to make a fair opinion on them. As of now, the various reasons given are reasonable in my opinion to explain why their various metrics are performing weaker.

Straits Times article Business section: Starhill Global Reit's DPU down in Q2 

http://www.straitstimes.com/business/starhill-global-reits-dpu-down-in-q2

To ride on the return to better profitability going forward......Let me also do a comparison against Suntec REIT to see how Suntec REIT pits against both CapitaMall Trust and Starhill Global REIT for the past 11 years. Then there is also Mapletree Commercial Trust also another touted good performer which is also a retail-office hybrid landlord to compare against. I am getting quite excited here.

I have tabulated Suntec REIT and Mapletree Commercial Trust's (MCT) growth performance to compare against Starhill Global REIT and CapitaMall Trust (CMT). However, for MCT, it was only listed from April 2011 onwards. As such, I have taken only the period from 2012 to 2017, a five year period of growth for MCT to compare against the rest.

Net property income CAGR for 11 years (5 years for MCT)
CMT = 7.42%
Starhill Global = 9.2%
Suntec REIT = 6.23%
MCT = 18.7%

Distributable income CAGR for 11 years (5 years for MCT)
CMT = 8.02%
Starhill Global = 7.2%
Suntec REIT = 9.71%
MCT = 25.5%

Value of investment properties CAGR for 11 years (5 years for MCT)
CMT = 6.1%
Starhill Global = 7.29%
Suntec REIT = 9.87%
MCT = 16.56%

The current gearings for these four REITs are quite close hovering around 35% plus minus 1 to 2 % points. Thus, they are financially geared about similar levels currently after rendering their respective historical CAGR growths in the past period considered.

If we ignore the duration of period considered, clearly the winner here is Mapletree Commercial Trust (MCT). But, it would not be a fair comparison since the period considered for MCT is only most recent 5 years which the retail and office markets long way back and recent 5 years may have seen changes thus affecting the growth rates at different periods in time. The big question is whether going forward can MCT continue to grow at current CAGR? This is because the property asset size of MCT is also by no means smaller than some of the rest in this comparison. Thus, to give it some fairness even if the period of growth considered is only recent 5 years, it really has made impressive double digits CAGRs on it's various metrics on a large property asset base.

Suntec REIT seems also quite good in terms of growing it's distributable income and value of investment properties at close to 10% CAGR over the past 11 years winning over Starhill Global REIT and CMT by a large margin. The only thing is that the net property income CAGR for Suntec REIT loses out to the latter two despite having grown faster in it's distributable income and value of investment properties. Perhaps, it is worth investigating further for interest why Suntec REIT did not grow it's net property income at higher CAGR over the past 11 years? Is it a matter of difficulty in keeping property expenses low? Is it the gross revenue are not growing as fast due to generally lower rental income rates on it's properties over the years?

In conclusion, I see Mapletree Commercial Trust as experiencing strong growths in net property income, distributable income and the value of their investment properties even though their growth considered is only most recent 5 years. If it can continue at current or close to current CAGR for these various metrics over next few years, it may really become a clear winner in this segment of retail-office landlord space. Starhill Global REIT may not be a stark winner against it's peers in this comparison. However, it is definitely also not a loser trailing behind it's peers in terms of growth performance.

My picks as follows according to their growth performance.
1st = MCT
2nd= Suntec REIT
3rd (tie up) = Starhill Global REIT and CMT

Reasoning as follows: I like MCT for it's current high growth rate. I look forward to it's future developments whether it can continue to maintain the current high growth rate from it's future growth strategies. If it can do so, this is really one of the best performer in this retail-office landlord space.

Suntec REIT I like how it has rewarded unitholders well over time in terms of it's high growth rate in distributable income and growing it's property asset base through itself and also forming joint ventures with others. The only thing I would wish they could improve upon is to grow their net property income in step with their overall growth. If I am considering Suntec REIT, I will watch their future net property income closely for signs that they are growing their rental income on their properties well and also managing their property expenses more efficiently.

Starhill Global and CMT are lagging slightly behind the above two picks. If their growth going forward can be more exciting with their ongoing growth strategies, then I will upgrade my opinion on either or both of them to be on par or higher than MCT or Suntec REIT.

These are the unit price, NAV per unit and distribution yield for these four comparisons currently.

Unit price vs (NAV per unit)
MCT = $1.56 vs ($1.37)
Suntec REIT = $1.92 vs ($2.119)
Starhill Global REIT = $0.72 vs ($0.91)
CMT = $2 vs ($1.92)

Distribution yield
MCT = 5.77% (annualised based on 9M results)
Suntec REIT = 5.21%
Starhill Global REIT = 5.99% (annualised based on 1H results)
CMT = 5.64%

In terms of trading at cheap valuations, this is the ranking I give based on unit price vs NAV per unit and also their current distribution yield.

1st = Starhill Global REIT
2nd (tie up) = Suntec REIT and CMT
3rd = MCT

This proves the point that good things do not come cheap. MCT may rank as best growth performer in it's various important metrics considered earlier, it also comes with a not so cheap price tag. But, a thing worth considering is that if MCT can continue to grow at current growth rates, perhaps at an annualised distribution yield of 5.77% is still worth some nibbling.

If a bear market should come soon, at least one will now know which are the strong growth performers that can be snapped up at a rare discounted price. There are certainly more REITs to compare against these few whether in similar retail-office landlord sector or other REIT sectors and I am sure this is not the end to the comparison in this REIT universe as one may just be surprised that there maybe even better performers out there than MCT.

PS: I will hope a bear market comes soon and then shopping for REITs will be a real bargain as discounts will be everywhere even for excellent REITs. My target buy-in prices will be the lower the better for these few REITs mentioned. {

jeremyowtaip}

some exchange discussion:

Gearing ratio is average relative to other similar players. Though I don't like to see it go up to max 45%.

But of cos if it's needed, they could still gear up for acquisition or even raise rights for funding, happy to participate as long as its yield lucrative.

To me most impt is the reit manager, a strong track records are impt.

To buy a retail reits under 1x PB is hard to find in current market environment and of course we cannot compare to capital mall reits, investor pay a premium for them.

For me buy a below 1x PB is always nice to have with a 5-6% yield.

Yup! For REITs, we look at their gearing. The allowed limit REITs can geared up to by MAS ruling is maximum 45% for credit rated REITs and 35% for non-credit rated REITs. Gearing is calculated by taking the total borrowings divided by total assets expressed as a %. These gearing limits have been revised to current allowed limit. It used to be even higher in the past. Thus, a lower gearing limit ensures REITs maintain a safe reasonable debt level and do not over leverage excessively which can be risky.

For Starhill Global REIT, it's gearing is currently close to 35% which is comparable to many REITs in Singapore too. There are some REITs with even lower gearing but around 30% to 40% is where you will find most REITs tend to maintain their gearings.

35.3 % gearing is normal. Other reits as high as Kepple Reit 38.7%, Viva Trust 39.8%, Soilbuild Reit 40.6%, MLT 37.8% etc..