Non Income Portfofolio Building: One year On.

One year since looking for great companies, moving away from Reits and SG blue chips, things are not looking good thanks to the trade war. On the this journey, my preference for stock picking is evolving and adapting to what I have learnt, read and experienced. What I thought on day 1 might have changed due to the Marco environment or the change in preference.

As the trade war escalate, I decide to hold onto more cash and relook at my portfolio.

My concern with IGG is that with the trade war, if Apple lost it market share, the services that apps provide on IOS will lose its revenue. Services such as gaming will be affected more as the game saves may not be able to port to android. Even within android, the game saves has to be in the cloud. Losing the game saves, the gamer will lost the motivation to carry on the game, hence losing revenue. China market segment of IGG is about 28%, Apple Iphone Market share is about 15%. Another concern is 90% of revenue come from just one game. New games have been released. Let's see how the new games fare.

There is growth for live streaming and YY Inc is undervalued. Market share eroded as well as margin due to intense competition. Just like Grab/Uber. Broadcaster will move to whatever platform that  benefit them. YY Inc still has the largest market share and profitable growing net income. 75% owned by founder, he has much skin in the game.

Companies that I had look into and divested.

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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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High Yield Stocks on My Radar Now

Ascendas Hospitality Trust

My favorite pick. Read all about it. Forward yield of 7.5% at current price of S$0.77. Have no reason for it price to drop.

Frasers Commercial Trust

HP vacated part of its office at Alexandra TechnoPark (ATP) in FYQ4 2017 and FYQ1 2018. DPU maintained at 2.40 cents since. HP to fully vacated ATP by Sept 2018. Assuming with AEI and rental space back-fill improves, 2.40 cents should maintain. which give a 7.05% yield at a price of  $1.36. with up to 10% MOS. TP is S$1.23 to S$1.29.

StarhillGbl Reit

On my last take on StarhillGbl Reit, yield is at 7.27% with a price of S$0.65, estimate DPU  of 4.73 cents adjusted for possible DPU reduction and effects from AEI. If I demand a 7% yield with up to 10% MOS. TP is S$0.61 - S$0.675.

Sasseur Reit

Go into outlet retail growth in china as middle class grows. China being so big should have no issue to grow as big as US/EU. Estimate 6 cents DPU from FY2019, current yield 8.1% at a price of S$0.74. Current trend is bearish, price been tanking since IPO. Another 10% MOS will be S$0.675

Capitaland Retail China Trust

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

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

Current Yield of 6.8% with the price of S$1.48. Demanding 7% yield with up to 10% MOS, TP will be S$1.3 - S$1.44

M1

M1 drops further. And while everyone joked about it falling to S$1.68 in forum and social apps, most are just joking but the price high a new low of  S$1.51, giving a yield of 7.55%. Price had since rebounded. But I doubt it is the end of it as TPG launch is approaching. dividend of 15.3 cents in 2015 has drop to the current 11.4 cents, that is a 25.5% over 2 years.

At its peak on 22/2/2015 of S$3.96, dividend was 18.9, 4.7% yield. The price was pushed up by the increase in dividend, obviously M1 will not be able to payout that amount anymore. Price of course has come down and are still being corrected. We would need to see a stabilize dividend and that is not gonna happened until we see how TPG will impact its profits.

Demanding a 7% yield, TP will be at S$1.62. assuming profit to be further hit 25% for the next 2 years. with a MOS of 25% to 30%. TP S$1.14 to S$1.22. Historically, M1 yield range from 4.3% to 7.1% (AR 2017). So it won't be unreasonable for M1 to have a price giving a yield of 4 to 5%.

UMS Holdings

Their Strong FCF still stands, promising the same amount of dividend will be of no issue, for the last 8 years. The world is going into the era of IoT. As these item become part and parcel of our life, it would not go away. Demand will soar and more tech products will be produced. Just like the internet did. Main customer Applied materials has been growing in double digit, this will create more demand from them.

With a dividend of 6 cents, give a yield of 7.19% at a price of $0.835. This is quite a nice price to get some.

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