UMS and AMAT. Are They Correlated?

I wanted to read through UMS Annual report (AR) but with 90% of revenue is from Applied Materials (AMAT), I should save myself the torture of reading 10 past years AR. Recently, AMAT gave the future guidance of their business to be perform poor. 

Hey, not all business huat all the time. If not just buy a stock await for it to fly every year. Just as Warren Buffet say, guidance for every quarter bring more harm than good as investor only focus on the short term.

With investor spoofed by the guidance, UMS stock price falls to 0.75 from 0.83. I wonder if AMAT performance really affect UMS? 

In Millions

A peek at UMS over the past 10 years, its revenue had been flattish, bottom line however has been improved. Total Equity hardly moved, so don't expect UMS to be a growth stock.

UMS Correlate with AMAT?

AMAT announced poorer foretasted revenues for the next quarter and flat for the following but BofA Merrill Lynch expects the company's semiconductor equipment revenues to drop 15.2% next quarter. So does the performance of AMAT affects UMS?

In Millions

Comparing both companies revenue history,  it hardly affects UMS. Am I interpreting this wrongly? (Scratch Head)

From What I see only both ends correlate when there is a drastic increase/increase in AMAT revenue. 

Hypothesis

Let's say AMAT revenue falls and lasted for a few years and it affected UMS. As long it doesn't become as bad as during GFC, dividend should maintain but share price is another matter.

But I hope market just corrects a bit and then continent business as usual and hopefully IoT will improve UMS earnings

Hey I can hope that history will repeat right?

Conclusion

I think UMS dividend can be maintain. Share price however cannot be said to be as certain. It was below 0.50 before 2017. However now that it has been discovered with high dividend, hopefully price can be supported by the dividend.

And AMAT's performance hardly correlate with UMS unless there is a huge change in revenue. let's hope AMAT performance doesn't drop too drastically anytime soon  and do not impact UMS earnings. However, Mr. Market would not think it that way.

The latest 2017 also show that as long as AMAT do well in the long run and grow, UMS stands to benefit.



Divest amid deteriorate results and swapping for more able reits for stability

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Accordia Golf Trust, Can The Weather Get Any Worst?

Accordia Golf Trust (AGT), I am reluctant to invest in it due to the uncertain business that depend heavily on the weather in the natural disaster borne Japan. And also that the DPU is dropping partly by the stated reason and deprecation of Japanese Yen. However the unit price has dropped a lot and warrant a look if it is cheap to own some.

FY2017/2018 Result is So BAD

FY2017/2018 is hit with higher than usually deposit repayment. DPU was also affected by loan renewal fees and lower revenue. DPU for that year is 3.85 cents vs 6.04 cents of FY2016/2017, with a distribution income of 3436 million yen. 

Assuming repayment to normalize, we should add back 934 million to distribution income. Loan term extension fee to Aug 2018, this fee of 384 million is also an one off item, we should add this back as well.

Everything remaining equal, with the one off items added back to distribution income gives 4754 million vs 5178 million in FY2016/2017. DPU is 4.32 cents. Giving a 7.65% yield base on a unit price on S$0.565

Can It Get Any Worst?

You Betcha! The May rainy season, June earthquake in Japan have further dampen the performance, the recent heatwave has not been taken into account but must have affect the business greatly. I can't imagine playing golf in a temperature higher than Singapore in an open field. Distribution income dropped 7.2% with provision for refinancing of all the debt to AUG 2023. 

With rainy season, earthquake in Spring, heatwave in Summer and low season i n winter (practically near zero profit during that period looking at the graph). Hence DPU will definitely drop. Assuming there is a drop of 5% in DPU, DPU will drop from the calculated normalize 4.32 cents to 4.1 cents, giving 7.1% yield.

Too Cheap to Ignore by KGI

Read KGI Analysis

Yep! My views is the same as KGI, FY2018/2019 will be worst in terms of business, but better in cash flow as the repayment normalize. DPU of 3.85 cents will return to 4.1 cents. Possible M&A may help DPU growth. KGI seem to think DPU will recover to 5.2 cents (9.3% yield) beyond FY2018/2019 but the weather is unpredictable however I doubt it could be any worst than the current year (finger cross).  Still 5.2 cents is lower than 6.04 cents of FY2016/2017.


Conclusion

Let's say this year is the worst year ever for AGT, this is the lowest point. DPU will increase once things are back to normal.  7.1% is a reasonable yield for potential recovery but don't expect it to be a fast recovery. One thing to note, if global warming is to increase as well as the intensity of natural disaster. AGT's business will keep being disrupted, this will not be the only period face with challenges. How will the average yield be over the years? Is average 7% yield good enough?

Looking at forward DPU of 4.1 cents, to have a yield between 7% to 8%, TP range of S$0.565 to S$0.51. PB ratio is 0.61.

Vested @ $0.496.

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Valuetronics, A Gem in SGX

Valuetronics, a manufacturing company headquartered in Hong Kong with facilities in china. Valuetronics provides Electronics Manufacturing Services (EMS) in Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) services, from design to logistic and marketing. Valuetronics delivers total solutions that meet the needs of their diverse client base.

NOTE: All figure in HKD.

Valuetronics emphasis on customer engagement resulted in high involvement in the designing and manufacturing engineering process of their OEM customers. Hence, the differentiation between OEM and ODM customers is blurred. In FY2013, business segments had been reclassified as Consumer Electronics(CE) Products and Industrial and Commercial Electronics(ICE) Product. In FY2014, an existing ICE customer close down its facilities and transfer production to Valuetronic's facilities.

In FY2016, Valuetronics exited LED light bulb business after 8 years as the margin eroded and switched to Smart LED lightings, riding on the Internet of Things for the CE segment. This resulted in the drop in revenue in CE segment in 2016. Similarly, its expansion of the ICE to automotive business in car connectivity aid in ICE segment growth.

After 2 years, the licensing business was terminated in FY 2013. The business produced products like air purifier and fans under US brands, which were sold in US.

Business Moat

The way Valuetronics do business by engaging with customers, developing long-term relationships with global customers and to bring value added service to them. Customers brought in Valuetronics expertise in their OEM engineering, transfer production to Valuetronics are examples. This resulted in customer stickiness with Valuetronic. As old customers stays with Valuetronics, Valuetronics can look for new customers or business to expand to.

Growth Factor

Smart LED lightings as expected from Philips should improve in 2H2018. Automative business customer had engaged by a second automaker customer of the automotive customer, high probably of continuous growth (look at revenue by segment chart of ICE). Valuetronics has been reducing cost and increase productivity, with expanding business, its staff count remain stable at around 4000 employees. They can expand their capacities as it has an empty plot of land at Daya Bay site.

Business Risk

Weaken in demand like what happen to the Smart LED lightings or margin erosion like the LED light bulb. However, Valuetronics has in the past always taken the necessary decisions to exit certain lines of business which it feels will drag down the overall financial performance. So we should believe the management expertise in their business. 

Conclusion

Valuetronics top line and bottom line is growing, there is no perfect businesses that won't have hiccups now and then. Even Tencent has its first drop in profit in its latest quarter result. It is obvious that the company is growing but face challenges in FY2019 as Trump is the president of US right now.

Historical ROE at above 13% and Net Margin average 6.7% for the pass 5 years. Healthy Current ratio of 1.86, quick ratio of 1.43. Should not be an issue if a crisis hits. Zero debt with cash horde growing every year. Current yield expected to be HKD0.20,4.57% minimum, hopeful to have HKD0.27, 6.17%

Valuetronics appear in my earlier screening with the following criteria :
Current Ratio >1 
Net Income > 5% 
Debt/Equity < 0.5 
ROE>15%

I am Vested at 0.665 and will continue to accumulate below 0.79 and TP 1.26 -1.4.

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Quick look at Raffles Medical Group

Base on this article, Raffles Medical Group (RMG) has 168 beds. RMG is to ramp up an addition of 200 beds in the extension wing, which effectively will more than double the revenue of hospital services. However the beds are coming in slowly, 50 beds during opening and another 50 in FY2019. This mean RMG's revenue will increase 56% over the next few years, excluding any effects from china operations.

Beijing and Shenzhen, where Raffles already operates clinics, want hospitals, too. Loo says he'll expand at a measured pace. "We want to make sure we will manage them well. We are not in any hurry." ---- Forbes Asia Interview with Loo Choon Yong

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CapitaRetail China Trust

Singapore Retail Segment is facing headwinds from eCommerce, most malls now have cater to more F&B outlets. However China's retail segment has a better prospect as middle class grows and spend more. 

Comparing from the past results against 1st Quarter results, the recent placement (an increase of 10% shares) has diluted the DPU. the current DPU is supported by the capital distribution from a portion of the gain from the disposal of Anzhen.  Probably why the price tanked since FYQ4 results was released.

2nd Quarter results, Rock Square provide full quarter contribution. DPU increases with capital distribution from a portion of the gain from the disposal of Anzhen.

Forward looking: The Joint venture acquisition of Rock Square reported renewal revision of more than 20%. More than 50% of expiring leases are expect to renew from 2018 
to 2020.

DPU has a CAGR of 13.34%. Recent drops relates to the implementation of value added tax, divestment of Anzhen and the placement of shares.

1HFY2018 DPU of 5.39cents, assuming full year DPU of 10.76 cents which gives a current Yield of 7.3% with the price of S$1.47. Gearing is at a healthy 32.1%, interest coverage of 5.9x, PB ratio at 0.86.
 
 

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Hui Xian Reit

Hui Xian Reit (HXR) 30% owned by ARA Asset Management, is make up of malls, offices, service apartments and hotels. The segments' profits are shown on the pie chart below.

Note:There is an estimate adjustment to mall and office in 2015 & 2016 from Chongqing Metropolitan Oriental Plaza

The Mall's profits has been increasing steadily, the recent drop could be due to the AEI at the malls of Chongqing Metropolitan Oriental Plaza as occupancy drop to 75.8% and also headwinds from eCommerce. The Malls at Beijing Oriental Plaza has direct access from Beijing's subway, another extension to another subway line is on the works, which give the mall footfall with easy accessibility.

Office faces headwind from new office supplies and slow down in china's growth.Office segment is still growing but Chongqing Metropolitan Plaza's office NPI drops. 

Service apartments has been stagnant, recent growth is due to converting 107 hotels rooms at Grand Hyatt Beijing to service apartments.

Hotel properties have the worst performance for HXR. Occupancy has not grew above 70% since IPO and was below 40% in 2014. Recently acquired two more hotels (Harbour Plaza Chongqing 66%, Sheraton Chengdu Lido Hotel 73.6%). Not sure what the management is thinking, however hotels only contribute 7% of profits.



The implementation of Value Added Tax in May 2016 greatly affected HXR's growth. NPI remain stagnant for the past 3 years.With the recent devaluation of RMB, base on last year's DPU of RMB0.268, which equals to 8.1% yield base of a price of RMB$3.31.

NAV is dropping, probably due to the increasing gearing affecting the total assets. Gearing at 23%, interest coverage 8.4x, NAV of RMB4.795. At a price of  RMB$3.31, PB ratio is at 0.69 with a yield of 8.1%. With low PB and high yield, anyone wants a piece of this Reit?

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