REITS, Holding It Versus Buy Low Sell High

I always wonder if a holding a REIT is better or selling when the profit is  hit 3 years of dividend or more, that is profit is 3x the yield. The same question also pop up in InvestingNote, especially when prices has been going up all time high with current yield dropping below 5%. In this post, I will try to plot out and compare the difference in gain for Holding vs. Buy low sell high (BLSH).

Fun Fact
Just before the GFC, CMT was trading at $3.5 with a yield of about 3.8%, CMT current yield is 4.8%, high but not crazy high yet. During GFC, CMT issue 9 for 10 rights, which mean when adjusted for the rights, CMT is now worth $4.52 pre-crsis.

Mapletree North Asia Commercial Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Ascendas Hospitality Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

CapitaR China Trust
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Capitamall Trust
Buy Criteria:Close to 6% Yield
Sell Criteria: 3 years worth of dividend from Gain

Mapletree Commercial Trust  
Buy Criteria: 6.5% Yield
Sell Criteria: 3 years worth of dividend from Gain

Conclusion
No one Reit is the same, investor's reaction to the price differ as well. Comparison show that one is better off holding AHT and CMT as the difference is minimal and CMT is definately a HOLD rather and BLSH. The comparison is base on hindsight so there are rooms for error in executing as well as broker's fees. 

For MNACT, there is a substantial gap in gains. 90% vs 112%, BLSH is the winner. 

MCT show a unique situation. The price never come down low enough to reach 6% yield  and rebound at 5.9% after selling off in 2016. LOL, if one stick to the TP, he would have missed the boat since 2016. However, he will be rewarded handsomely if he did catch in at the low. gain will turn out to be 120% vs 48.8% total gain. It's tought to be right all the time.

So in conclusion, It is better off to hold on to your REIT unless there is a better investment (Just sold FLT for First Riet) or when the price is so high that the yield has reached GFC level of below 4% yield.Human nature, even with the comparison proof that holding is the better strategy , I am still tempted to sell! the immediate gratification! I need to find a way stop my hand from the sell button!

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Wai Kee Holding - a quick update for FY2018

Revenue of Build King jumped 50% for FY2018, hence the 55% gain in market cap (or share price). However more than 90% of revenue from Road king form the revenue of Wai Kee, hence this has little effect on Wai Kee. The sum of the parts valuation of Wai Kee has jumped 32% but the share price has since increase only 25%. There is still much upside to catch up. 

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Declining Rupiah Eating Into Lippo Karawaci Healthcare and How It Will Affect First Reit

Investors should know by now that the conglomerate Lippo Karawaci (Lippo) are facing cash flow issue, bring uncertainty to their Reits, hence their ability to pay rent to First Reit. Paying the rent in SGD made things worst as Rupiah deprecates against SGD. 

Lippo mall price had crashed in terms of its yield affected by the falling Rupiah. First Reit's yield isn't affected but sentiment is bad and hence has fell below NAV. Base on Stockcafe stats, First Reit is the number one shares that stockcafe users are buying. Although cheap I am wary to jump into the reit as Master lease will expire in DEC 2021.

Lippo Karawaci Healthcare

As Rental fees are not recorded separately, I will have to make do with General & Administration Expenses(GAE). If you have not already notice, the GAE is growing much faster than the top line can climb. And we shall see how the bottom is like.

Net Profit CAGR is -14.46%, forming newer low in 2018. I believe this is due to the fall of Rupiah and Lippo has to paid rent in SGD.

How Net Profit Reacted to Weaken Rupiah

The weaken Rupiah has devastated the profitability of Lippo's Healthcare segment.To mitigate the fallen profit, Lippo can

• Build more hospitals for growth
• Increase Hospital fees
• Pay rental in rupiah instead of SGD to First Reit

Master Lease Expiry

The deprecation of Rupiah is relentless over the long term. I believe it will be of Lippo interest to change the payment of some sort if not of Rupiah. First Reit current yield is 8.7%.

Worst Case Scenario

Assuming Lippo wants to stop paying in SGD, affected income will be affected by 22% base on GFA in the next 3 years.

As for how much lower is will the income be affected? Rupiah has depreciate 37% since 2010, if it was to be adjust accordingly, income for First Reit will likely drop 37%. It could be a lower drop depending on how it is structured.

A 37% drop would mean a drop of  3.2% in yield, (8.7%-3.2% = 5.4%). But only 22% of GFA will be affected so the yield will drop 0.7% instead when the first lease expired in 2021. This mean if price and income of First Reit is to remain constant, yield will drop from 8.7% to 8%

Conclusion
What I have done here is speculation of a possible and the worst that could happened. Lippo may decide to carry on to pay in SGD. If one is to invest in First Reit now, I think the risk reward is good. Taking 8.7% yield for 2.75 years and a possible drop to 7.3% for another 4 years till the next round of expiry.

Lippo although with cash flow issue, with their assets, there is a low chance of default or bankruptcy. However that will affect First Reit share price if things deteriorate.   

I think it is worthwhile to collect the dividends and wait for the plans for the mater lease to be updated in 2021.  Rights issue may happen for future acquisitions, which may or may not be a good things, as long not like OUECT. 

Honestly, to save Lippo Healthcare bottom line, the rent fees in SGD is highly likely to stop.

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Live Streaming Business, YY Inc

I chanced upon YY Inc on the latest Edge Singapore issue this week (March 11). The name made me curious to make a search on the company and got my interest. Social media as we know it has been evolving, from profiling( Friendster) to Text wall (Facebook/Twitter) to Photos (Instagram) and Video (YouTube) to streaming social media platform (Twitch.Tv).

A streaming social media platform has a much bigger audience. Facebook and Instagram are more personalize social platform. One such video social platform is twitch which cater to the gaming audience and also you tube live. However China has bring this to a whole new level, to anything you can think of, Talkshow hosts, dancing, eating, outdoor activities, gaming,  reading a book/manga even online tution.

YY Inc catogories them as follows:

• Music, Dance, and Talk Shows. Users can watch music, dance, and talk shows on the YY Live platforms. Viewers may show support and appreciation by purchasing and giving virtual gifts.
• Game Broadcasting. Users can live stream their online games, either casual or competitive. Professional teams and commentators often attract many viewers, who may show support and appreciation by purchasing and giving virtual gifts.
• Dating Shows. Users host, participate in, or live stream dating shows through live video or audio, during which participants and audiences can purchase and give virtual gifts to the host or other participants. The format of our online dating show is based on a popular dating TV show in China.
• Finance (Zhiniu Finance, www.zhiniu8.com). Users interested in finance and investment can stream finance shows hosted by financial experts that cover a wide range of investment-related topics, from stock market trends to the basics of investment.
• Outdoor Activities and Sports. Users can live stream outdoor activities, such as camping, hiking, travel, and tourism, as well as professional sports, such as basketball, football and snooker.

Business Model

Revenues comes from Internet Value-added Services (IVAS) and advertising. For IVAS, offers a variety of virtual items on the platform, which users can purchase to gain privilege status or give to performers or channel hosts to show support and appreciation YY takes a proportion of the revenues generated from selling of the virtual items.

IVAS businesses, including music and entertainment, online games (In game items or advantage) , online dating, live game broadcasting and the membership program. In online education, we generate revenue through charging students tuition fees for accessing premium content. As a small part of the business, we also generate income from third party online advertising on our separate game media website Duowan.com.

HUYA Inc
HUYA Incis the No.1 game live streaming platform in China, with cooperation with e-sports event organizers, as well as major game developers and publishers, have developed e-sports live streaming as one of the most popular content on the platform. Huya also furhter extended our content to other entertainment genres, such as talent shows, anime and outdoor activities. HUYA Inc had recently IPO in NASDAQ. 

BIGO Inc
Bigo is a fast-growing global tech company. Headquartered in Singapore, Bigo owns BIGO LIVE, a leading global live streaming platform excluding China. Bigo has created a video-based online community for global young generation users. It has established footprints with a strong presence in South-Eastern Asia, Southern Asia, the Middle East and America, paving the way for further global expansion. Their Product Line Includes Live-Broadcasting, Vocal Social Media, Short Video Platform Video editing, Anime Social App and live game streaming many more. YY Inc to acquire 100% of Bigo Inc announced on 4th March 2019.

YY Inc Acquired 100% of Bigo Inc announced on 4th March 2019

Business Growth
Just like Instagram, YY Inc give millennials another tools to express themselves. Bigo presence globally could bring in more profit than YY Inc operation in just china. And ultimately like all social platform when it mature, advertisement may be a future growth segment.

Business Risk
High competition for quality content performers,  YY Inc paying more to the performers to keep them on the platform from competitors such as MOMO Inc. Gross Profit Margin and Operating Margin has been falling. Acquiring Bingo should mitigate this, Bingos market are outside china.

Revenue come from virtual gifts from content viewers, revenue will be affected if the group of user stop spending. However, judging from how crazy Chinese/Japanese/Koreans are to their idols or anime. Check out those go gaga over virtual idols like Natusmi Miku and the new ones in China. The audiences should growth. But these guys will follow where the content is so market share is important.

Cash Flow
YY Inc, even though the margin is lowered, it is still generating healthy cash flow, contributing to its coffers. Cash and investment assets have been increasing throughout the years.
Free Cash Flow (FCF) = Net Profit - CAPEX 
Adjusted FCF = Net Profit + Non-Cash items + Borrowings - CAPEX
All $ in RMB, Millions

Sum of The Parts Valuation (USD)

Total worth of YY Inc's subsidiaries and cash is worth almost USD$90 and the current stock price is USD$76 as of writing. This would mean buying YY inc core business for free and its subsidiaries at a cheap valuation.

Conclusion
We know how successful Facebook and Twitch.Tv originated from the West, now come the Video streaming madness from Asia. However YY has no moat, its main contributor, the broadcaster will shift to diff platform depending on where they can earn more. Just like uber and grab.

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