End Of September 2020 - Portfolio Updates

Total value = 26,647.73

Current P&L (+Div) = +568.09 (+2.18%)

Overall P&L (+Div) = -3,569.09 (-13.68%)

Portfolio breakdown as of 30/09/2020

Yuexiu Transport Infrastructure (1052) Is Undervalued!

INTRODUCTION

Yuexiu Transport Infrastructure (1052) is engaged in the development, management, and management of 15 x expressways/bridges (toll roads). Yuexiu has been a favourite amongst dividend investors as the DPU has been on an uptrend for over 2 x decades! Earlier in 2020, the government implemented a toll-free regulation on vehicles for 79 x days in response to the covid-19 crisis. Due to the impact on revenue, the management was forced to cut dividends, and share prices plunged > 40%! Toll collection has resumed to normal from 06/05/2020 - however, share prices have remained depressed.

QUALITY OF ASSETS

I determined the quality of the projects via the average daily toll traffic volume from 2015 - 2019. The vast majority of projects have seen an uptrend in the average daily traffic volume across the years. I paid attention to the top x 3 projects by revenue - GNSR, WEIXU, and SUIYUENAN have kept strong uptrends. The declines in traffic volume for CANGYU, JINXIONG, SHANTOU, and HUMEN were largely due to structural changes. However, I'm not too concerned because these projects don't make significant contributions to revenue. The exception will be HUMEN as it contributes 5-10% of revenue - I will need to keep it in view.

CONCESSION OF ASSETS

From my knowledge, the toll roads are loaned from the government for a duration of 20-25 years. This is a lot shorter compared to REITs that have tenures that range from 30 years - freehold! I believe that the shorter concessions -> greater depreciation in valuations -> share prices will be impaired. I will need to keep in view the impact of concessions on the valuations. I believe that the management is aware of the risk as evident from the recycling of projects over the years.

POTENTIAL FOR GROWTH

Yuexiu's management has proven to be able to acquire high-quality projects as evident from at least a decade of growing distribution per unit. This has been underpinned by rapid economic growth -> higher car ownership. I believe that China has a growing middle class -> higher car ownership -> organic growth in revenue.

FINANCIAL PROFILE

Yuexiu is highly dependant on debt as evident from the gearing ratio > 50%. However, management has been prudent in keeping the ICR at a healthy level across the years > 5. For this reason, it was able to survive the impact of the toll-free regulation on revenue. Despite the impact on revenue, the company was able to make payment on interest expenses.

VALUATION

• Historical P/B
• Highest = 1.19
• Lowest = 0.78
• Average = 0.99
• Historical yield
• Highest = 6.77%
• Lowest = 3.81%
• Average = 5.30%
• Current P/B = 0.78
• Current yield = 7.58%

I have based my calculations on prices from 2015 - 2019 - I didn't include the prices in 2020. The numbers speak for themselves...

Rooting For CapitaLand Retail China Trust (AU8U)!

INTRODUCTION

CapitaLand Retail China Trust (CRCT) is a 100% retail REIT - 12 x shopping malls in China. Due to the covid-19 crisis, CRCT's price has dropped to the lowest in over a decade! In my opinion, CRCT is an ignored gem at the current valuation - I'll explain the key reasons.

DIVERSIFICATION

From 2015 - 2019, CRCT's diversification profile has been improving - the numbers don't lie. In particular, CRCT's management has recognised the impact of e-commerce and made an effort to reduce the amount of exposure to department stores. As a result, CRCT's largest tenant - BHG Group - has seen a reduced contribution of 4.1% to GRI. These are testament to the sound management of concentration risk.

DEBT

The fact that the gearing and interest coverage ratios have been consistently at healthy levels is testament to the prudence of CRCT's management. This was reflected in CRCT's latest results too!

GROWTH

I believe that CRCT has potential to grow for a couple of reasons:

• China will remain amongst the fastest-growing economies
• China is increasingly reliant on domestic consumption for growth
• CRCT's management has been active in doing AEI
• CRCT's management has been active in doing capital recycling
• CRCT's management has been able to engage yield-accretive acquisitions

VALUATION

• Historical P/B
• Historical average = 0.96
• Historical high = 1.09
• Historical low = 0.76
• Historical yield
• Historical average = 6.71%
• Historical high = 8.10%
• Historical low = 6.02%
• Current P/B = 0.70
• Current yield = 8.84%

I have based the historical P/B and yield on information from 1/1/15 - 31/12/19. The numbers speak for themselves...

The Barbell Strategy

Since beginning my F.I.R.E journey in January of 2020, I've devoted myself to income investing - i.e. investing in dividend stocks to fund a lifestyle. I was inspired by the likes of ASSI, dividendsrichwarrior, STE etc. However, I couldn't help but feel like it wasn't suitable for me - an element was missing from it. Earlier this week, I chanced upon an article about an investment strategy - DBS Barbell Strategy. I found it - it's the perfect fit! I've decided to blog about it because I believe that it might be useful for novice investors that are looking for an investment blueprint. Before I begin to ramble, I should give a bit of context:

• Dee is 23 years old this year
• Dee doesn't have a high paying career
• Dee's objective is to F.I.R.E before midlife

Without further ado, I'll provide a brief introduction to the Barbell Strategy (BS)! The BS comprises 2 components: growth and income assets. On the one hand, the growth component should comprise of companies that will benefit from long-term, irreversible growth trends - the innovators, disruptors, enablers, or adapters. If it is done right, this component should provide superior returns (10 - 20% per annum). Given the nature of high-growth stocks, it's inevitable that it will experience volatile price movements. On the other hand, the income assets will serve to dampen the volatility of growth assets. It should comprise of dividend stocks that will remain resilient by paying in times of crisis. I believe that it's possible to find dividend stocks that will pay 5-8% per annum. 

How does the BS compliment my investment profile? On the one hand, I want to learn the art of picking dividend stocks. The goal is to F.I.R.E via dividend income. On the other hand, I should strive to grow my capital as a youngster. Since I have the luxury of time, I think it will be wise to allocate a portion of my capital into growth assets. By growing my capital at a faster rate, I should be in a better position to achieve F.I.R.E before midlife!

If you're keen to learn about the BS in detail, I'll attach a couple of links at the end of the post! What do you think of this strategy? What's your strategy for F.I.R.E?

Link #1 - https://www.dbs.com/aics/templatedata/article/generic/data/en/CIO/042019/190430wf.xml

Link #2 - https://www.dbs.com/aics/templatedata/article/generic/data/en/CIO/022020/200228wf.xml

Link #3 - https://www.dbs.com/aics/templatedata/article/generic/data/en/CIO/122019/191209wf.xml

End Of August 2020 - Portfolio Updates

• Total value = 20,916.02
• Current P&L (+Div) = +1,352.35 (+6.88%)
• Overall P&L (+Div) = -3,222.73 (-16.37%)
• Portfolio breakdown as of 02/09/2020