As the recent Hyflux downfall also focus on it's perpetuals bonds, I am looking into YY Inc's preferred shares. And then just yesterday, Frasers Properties announced a issue of perpetuals securities. After some chit chat at the post in Investingnote. Basically, perpetuals securities pose as equity but are actually debts. You can about it from this article from The Edge Singapore. To find the
actual gearing for Frasers Properties, I have to make some adjustments. I
have include the latest $400million perpetuals securities for 2019 Q1.
As you can see the supposed recorded Debt/Equity was 105.7%.
Although high debt deemed to be bad, as long as interest rate does not increase rapidly and the cash flow can support the interest expenses incurred, is of a lesser concern. Property Developer's profits can be lumpy at times, so I take the average 4yrs operating cash flow (OCF) of Frasers Property and that give a OCF/Interest of 2.71x. Interest coverage is also more than 3x.
Frasers Property Shareholders will have to monitor the numbers and if they continues to be more aggressive with the debt level.
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This an update to my original YY Inc analyst post. As
the recent Hyflux downfall also focus on it's perpetuals bonds, I decided to
look into YY Inc's preferred shares. You can about it from this article from The Edge Singapore. Huya Inc issue Series A and B preferred shares in 2018, both were non-cumulative.
Preferred Shares
I am still new to these perpetual securities, will try my best to explain the best to my understanding. Preferred Shares are like perpetuals bonds where it has priority over common shares. They will receive dividends instead of coupon payment before common shareholders
Non-cumulative preferred shares - If YY Inc is unable to pay the dividends, no dividend will be payout
Cumulative preferred shares - If YY Inc is unable to pay the dividends, the suppose dividend will be cumulated to the next fiscal year. Mean payout to be like double next year.
Series A and B preferred shares
Series A total capital rises = USD$852Million
Series B total capital rises = USD$709Million
Dividend to be payout to Series and B at no less than 8%.YY Inc payout dividend for Series A but not Series B in FY2018. This payout is about 20% of Operating Cash Flow (OFC). If Series B is also payout, that will cost about 40% of OFC. YY Inc has no other debts which I wonder why they need to issue out these shares. I guess they already have plans to buy over Bigo Inc.
OFC/Dividend come out ot be 2.77x, as Bigo Inc get integrated into the business, the cash flow looks more than enough to cover this interest expenses.
Revaluation
In my inital coverage, the SOTP give a US$90 for the business. This exclude YY core Business. My DCF give me an intrinsic value of US$111.89 with a discount rate of 12%, this is however this does not include the increase revenue from Bigo Inc.Hence by adding the SOTP value of Bigo ($25.86), I have an intrinsic value of US$137.75.
Do note the preferred shares belongs to Huya Inc and are still loss making, hence if HUYA are to be write off, there should be no material impact on YY Inc, instead the bottom line should improve. The preferred shares are not till perpetual like bonds, and is not mandated to payout dividend, as such I will take it as a one off payout for now. Due to the preferred shares taken up by Tencent, converting them to common shares in the future, YY Inc may lose the control to Tencent.
Vested at US$76.
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