Passive Income Update: August 13

Not surprisingly, the My Passive Income page is by far the most popular page in my blog. Understandably so, since everybody loves taking a peek or two at each other’s assets to better benchmark themselves with others. That’s what we all did back in army. Remember those times when we were showering?  😉

On hindsight, I also realised I did quite a shoddy job for that page. There wasn’t any explanations or rationale of why I bought into specific companies and I also did not divulge the entry prices of these investments. It was especially dangerous, since there are many people out there who buys what financial bloggers buy. (I know, because I was one of them.) So since this is my first monthly passive income update, I shall use this opportunity to correct this oversight.

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Stocks (As at 4th September 2013)

Stock Share Amt Share Price Valuation Dividend Est. Income
Vicom 4,000 $4.670 $18,680 $0.1820 $728.00
Wilmar 4,000 $3.070 $12,280 $0.0500 $200.00
Boustead 9,000 $1.305 $11,745 $0.0700 $630.00
Semb Corp 2,000 $4.820 $9,640 $0.1500 $300.00
Spindex 24,000 $0.390 $9,360 $0.0180 $432.00
SIA Eng 2,000 $4.660 $9,320 $0.2200 $440.00
Challenger 16,500 $0.560 $9,240 $0.0225 $371.25
Kingsmen 10,000 $0.860 $8,600 $0.0400 $400.00
First Reit 8,000 $1.045 $8,360 $0.0724 $579.20
Singtel 2,000 $3.440 $6,880 $0.1680 $336.00
LKH 10,000 $0.650 $6,500 $0.0450 $450.00
MTQ 4,000 $1.440 $5,760 $0.0450 $180.00
Total $116,365 $5,046.45

Others (As at 4th September 2013)

Asset Valuation Est. Income
Philip Sharebuilder $20,000 $400
CIMB Star Saver $10,000 $80
Total $30,000 $480

Total Valuation = $146,325

Total Est. Income = $5,526.45

Firstly, some general explanation of the tables. The share prices are based on the closing price of the “As at” date, whereas the dividends are based on the latest annual report (I will only check for new reports and update those numbers once every quarter). These information are also easily available from the internet.

And unlike other financial bloggers, I am actually not too interested in calculating the exact annualised returns from my portfolio or investment. It seems too complicated and I don’t really need to know if I have actually beaten the market. Except for maybe some ego boost, it doesn’t yield any material benefits for me. Instead, my core interest is the amount and sustainability of the passive income that I receive from these investments. You can find the entire list of investment records here.

Below is a brief description of my holdings:

Vicom (2 lots @$3.35 in Sep 11; 2 lots @$4.8 in May 13)

This is my largest holding and its core business is probably the easiest to understand. If you own a car, you know what I am talking about. Every few years, you have to send your vehicle to Vicom for inspection in order to drive it on the road.

Due to the nature of its business (low capex, economic moat due to govt regulations), its revenue, profits and dividends have increased steadily over the years. It’s true that growth is slowing but there’s no doubting this looks like a sustainable cash cow. If you’re ready for some intense Vicom analysis, you can proceed to sgyounginvestor.blogspot.sg

SIA Eng (2 lots @$3.38 in Dec 11)

If you’re interested in the SIA brand, SIA Eng does seem to be a better proposition than SIA itself. Buffet famously declared that airlines make poor business sense and it’s true, given that SIA, one of the most profitable airlines in the world, is churning out mediocre results consistently. While more and more customers are switching to budget airlines (i.e. tougher price competition), it is unlikely that many premium airlines like SIA would cut cost on aircraft maintenance.

SIA Eng offers quality MRO service, is a net cash company with decent and stable earnings and pays a good dividend of around 5%. There is a very recent analysis over at InvestmentMoats.

Boustead (3 lots @$1.13 in Nov 10; 6 lots @$0.84 in Sep 11)

This is a chapalang engineering business with many sections. Since I am not an engineer, I confess that I do not understand the value of its business well. It seems that Chairman F.F. Wong’s management is key to the company’s success and it helps that he still owns 1/3 of the company.

I admit that I bought it largely based on my understanding of Musicwhiz’s analysis and extensive recommendations on Valuebuddies. The good dividend yield is also a big plus currently.

Challenger (11 lots @$0.43 [$0.287 after stock split 1-for-2 in Mar 11] in Jan 11)

Simple business selling IT products and services. The moment I started receiving thumb drives and a wireless mouse for X’mas presents, I knew they should be making decent money in a growing retail sector. The financial numbers have improved steadily and it’s already almost a 2-bagger in my portfolio.

Kingsmen (10 lots @$0.62 in Nov 10)

Wife had some interactions with them in her previous company when she was organising an exhibition. They can be considered a big player in an expanding MICE industry. Steadily improving numbers although I feel they do not have much of an economic moat except for guanxi and reputation.

First Reit (8 lots @$1.035 in Aug 13)

Felt it was oversold 2 weeks back and nibbled at it. It’s backed by a big player (Lippo Group). The healthcare sector is also pretty defensive, even if they are mostly based in Indonesia. A 7% yield seems quite satisfactory to me at this point in time.

Low Keng Huat (10 lots @$0.69 in June 13)

Another recent property play. A relatively conservative building and construction company, its crown jewel is Paya Lebar Square. I am predicting that Paya Lebar Square would become a big hit in mall-crazy Singapore (no big malls in that region) with its superb location. With the government developing the area into a business hub, the office spaces have sold well too.

MTQ (4 lots @$0.925 [$0.74 after stock split 1-for-4 in Jul 13] in Nov 10)

Another engineering business which I am not familiar with. Similar to Boustead, the likely problem is that I could hold them for a very long time since I have no idea of a good selling price other than relying on basic financial ratios like P/E.

SembCorp (2 lots @$4.85 in Aug 13)

Owns 60% of Semb Marine and half of its shares are held by our Temasek. A typical government-backed blue-chip. If you believe in Peter Lynch that the average investor who buys stocks based on his everyday observation or consumption can beat wall street, this could be a good stock to hold. Afterall, you must have seen those Semb Corp trucks stopping by our HDB flats, right? Otherwise, you should be able to smell them easily. Can we do without them? Hmm…

Singtel (2 lots @$3.04 in Jan 11)

You are only going to get an average of 6-8% returns from this company. By buying during dips (like now?), you could achieve the higher range. Really defensive business considering they can easily amend contract terms (remember the reduction from 12gb to 2gb for your data plan?) to generate revenue. Singtel has a much more significant overseas exposure as compared to smaller players like StarHub and M1.

Spindex (14 lots @$0.35 in Dec 10; 10 lots @$0.30 in Feb 11)

A company involved in precision engineering, it’s a small fry in an industry without much of an economic moat. However, it is generally well managed and is profitable over a long period even though earnings and dividends are quite volatile (largely dependent on economic climate). A yield of between 4-6% can be expected. Gives me comfort that they maintain a high cash reserve although a good reason is due to its considerable capex requirements.

Wilmar (2 lots @$4.03 in May 12; 2 lots @$3.22 in Aug 12)

I got in without understanding or even knowing any of its numbers. From a high of $6 in Feb 12, it fell to $4 within 3 short months. “It’s a blue chip and it will rebound!” was ringing in my amatuerish head.

Unfortunately, cheap became cheaper and I even averaged down in Aug 12. Afterall, I was pretty long on resources like land and oil and Wilmar had plenty of that. Even though I like its agribusinesses, its high debt levels are really a concern and I am looking at an exit when the bull returns (STI closer to 4,000?).

Philip Capital Sharebuilder ($600/month since Nov 10)

Invested in 2 counters, DBS ($100) & STI ETF ($500). $600 ensures the expense fee of $6 is a more comfortable 1%. There seems to be better products out there nowadays.

CIMB StarSaver

People should really start opening accounts with them. 0.8% interest for a Sing Dollar savings deposit! It’s many times the interest one will be getting from our local banks.

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Additional Disclaimer: The above is just a simple description and explanation of why I bought into certain shares and is by no means a recommendation.

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    17 thoughts on “Passive Income Update: August 13

    1. Musicwhiz

      Hi,

      I can comment on a few companies, but first a few points to note. Boustead pays a full year dividend of 5c/share and this is the sustainable level. Last year’s 2c/share was a special dividend, therefore you should use the conservative level to forecast dividends. As for MTQ, it should be 4c/share after the 1:4 bonus issue (5c pre-bonus).

      Vicom – Not really right to say that they have limited growth prospects. Non-vehicle testing still has very good margins and has room for growth if they obtain more certifications. In the meantime, FCF generation is strong and can support increased dividends (8c interim was recently declared).

      SIA Engineering – Its strength lies in its share of earnings from JV and associates. Look at the cash flows coming from there over the years.

      Kingsmen – Not sure why you feel they have no economic moat. Look at their ROE (unlevered) and their FCF generation and compare this to competitors (e.g. Cityneon) and you can tell that the business is high-return yet asset-light. It is working capital intensive though which is why more cash is being retained on the Balance Sheet instead of being paid out as dividends. A lot of their moat is captured in the human capital (designers and project managers) and this is not captured as an item on the “Asset” side of the Balance Sheet.

      MTQ – Not a tough business to understand, really. Oil rigs have blow-out preventers which need maintenance and servicing. MTQ is one of the authorized companies to deal with such equipment – it is essentially a service company though after acquiring PSL and Neptune it is managed to diversify its offerings into subsea as well. Engine Systems is quite simple to understand too – they sell turbocharges like the ones used in motor vehicles and are partnering with Bosch in Australia. As a result of the Neptune acquisition, it will be wise for you to pay close attention to their Balance Sheet and FCF-generation ability moving forward, as well as required maintenance capex levels.

      Boustead – Not a “chapalang” company if you bother to look at each division closely and understand it. The AR provides ample information on each division and describes each in detail, so I do not think it is difficult to understand. Think about how all the divisions come together and synergise. This is why Boustead can keep operating expenses low and generate a very decent ROE even though most of its revenue is “lumpy”.

      Good of you to put down the rationale for purchasing these companies, though there are parts such as “oversold” which I do not understand.

      Keep it up!

      Regards,
      Musicwhiz

      1. Musicwhiz

        Oh yes I forgot to add. Your purchase price for MTQ of $0.925 in Oct 2010 is pre-bonus. After adjusting for 1:4 bonus your purchase price should be $0.74.

        Regards.

        1. My 15 HWW Post author

          Yes, you are right about MTQ. Got some of its numbers wrong due to the split.

          As for discounting the bonus dividend issues, I would be more inclined to do it if these two are the only stocks that I own. Especially since there is a likelihood that in this upcoming year, some other companies could also be issueing bonus dividends. Guess I am just choosing to be not so conservative by basing the estimated income based on the full payout of the previous year.

      2. My 15 HWW Post author

        Hi Musicwhiz,

        Thanks for your detailed comments. If I’m not wrong, those companies you commented on still form the core basis of your portfolio?

        I freely admit that I am still pretty weak in valuing businesses. Guess it’s time to really study some of the annual reports more intensely since I am normally guilty of just looking through the financial highlights. Oops. Below are some of my views on your comments:

        Vicom – I guess it’s fairer to say that the vehicle inspection business (which they have a large market share and significant moat) is maturing with limited growth prospects. Although they are also doing well with non-vehicle testing/certification with some big projects over the years, competition seems to be much more intense in this area.

        Kingsmen – I guess the problem is most of the moat is captured in the human capital. This is definitely riskier than the moats that Coke/Vicom have? This is partially offset by the typically asset-light nature of the industry and Kingsmen being better managed than some of their competitors.

        MTQ, Boustead and SIA Eng – Guess its time to really understand their various divisions better, especially since I can’t understand the value of turbocharges. Hopefully one day I can write an article/analysis on them!

        Cheers,
        My 15 HWW

        1. Musicwhiz

          Hi 15 HWW

          These companies do form the core part of my portfolio, yes. VICOM is a consistent cash generator, throwing up $20m of FCF every year. After paying out dividends, it would still be able to accumulate about $10m in cash every year – thus boosting their cash levels on the Balance Sheet to new all-time highs.

          The same goes for Kingsmen – it is generating copious amounts of FCF and a high ROE even though it has a somewhat low net margin of 5% to 7%. I would argue that the moat is different from Coke/VICOM but it is nevertheless still an enduring moat. They have been in operation for 37 years (since 1976) and have built up a reputation for quality and excellence. Even if the founders left the company, it would still have senior management in place who would be able to take the Company forward, and with the right skill sets and work attitudes (i.e. professionalism).

          Yes, it would be a good idea to dig into the numbers for MTQ, SIAEC and Boustead. It would throw up very interesting insights, and perhaps we can discuss some of these in the near future.

          Thanks

          1. My 15 HWW Post author

            Hi Musicwhiz,

            It’s sort of reassuring to know that you are still holding these shares. I have learnt so much from you in the past few years and I would definitely spend further time analysing MTQ, SIAEC and Boustead to be able to discuss them more intensively with you.

    2. B

      Hi Hww

      I think some of your portfolio resembles mine.

      I think you have a good grasp understanding of their earnings and balance sheet. As for the business it depends on your exposure to that business and how willing are you to understand the business. It’s not the easiest to learn but it takes time. I am too still trying to understand some of the business of a company.

      1. My 15 HWW Post author

        Hi B,

        You’re being too kind here. At best, I just have a general understanding of the businesses of my shares. Being a public servant without a solid accountancy background, it does probably take me more time to understand businesses whose products I do not consume.

      1. My 15 HWW Post author

        Hi Cory,

        Yes, I am also hoping that these businesses become stronger over time and I can hold them permanently. ;p

    3. Mike

      Hi,

      I just stumbled upon your blog.

      “And unlike other financial bloggers, I am actually not too interested in calculating the exact annualised returns from my portfolio or investment. It seems too complicated and I don’t really need to know if I have actually beaten the market. Except for maybe some ego boost, it doesn’t yield any material benefits fo rme.”

      I strongly disagree with your views above. IMO it is the other way round. You are just boosting your ego by publishing the absolute amount without revealing the actual returns. Because people will just WOW when they see $10k monthly passive income regardless of the capital invested.

      It is very important that one calculates the rate of return of one’s portfolio. You need to at least have a feel or compare the overall returns against a benchmark to see whether you are on the right track with your strategy. Just like when you sit for an exam, you dont just aim for a pass. You aim to beat a benchmark like “above median or average marks”. And for one’s portfolio if he/she cant beat the index in the longer term, I think he/she is better off buying the index. Cheers 🙂

      Actully its not hard to calculate. Just some basic Maths will do. You can refer to the following link for reference. Time weighted rate of return is the right way to calculate and 2015 should be a good year for you to start calculating. Good luck.
      http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp

      1. My 15 HWW Post author

        Hi Mike,

        I made a mistake talking about that in the past and have since “strikethroughed” those words. Not deleted to remind myself of the folly. =p

        I have also since calculated the returns for years 2010 to 2013. Have blogged about it before too and you can find them on the past transactions page!

        Thanks for dropping by. =)

    4. Wantanmee

      I’m just wondering what platform do you use to purchase stocks? For Standard Chartered the charges are very very low, but it doesn’t go into one’s CDP account (risky if the bank go bust) and banks’ broker fees are astronomical for the 100, 200 lots buyers (though the stocks are “in your name” placed in CDP account). What are your thoughts on these?

      1. My 15 HWW Post author

        Hi Wantanmee,

        I use iOCBC as my trading platform. Granted, the fees are not low due to the min $25 charges.

        When I first started, the fees were a genuine concern and I tried to minimize it by making sure each trade was at least $3,000.

        Now, with larger savings, it has doubled to $6,000 to ensure the fees account for <0.5% of the trade.

        If you're not comfortable with StanChart (I am not) and you might not have saved enough to make it worthwhile investing in individual stocks, a good way to start is through the regular savings plans (RSPs) that OCBC, POSB and PhilipCapital provides. You can easily google and find these plans.

        Hope the above helps.

        1. Wantanmee

          Thanks for the suggestions. I’ve been using Standard Chartered for a year now but have recently been cautioned not to “put all eggs in one basket.” Well… Google time 😅