StockPick

The figures fm the fllwg table are extracted fm the periodical SHARES Investment (Issue 254),

SingTel	2001	2002	2003	2004	2005
Margin (%)	48.43	25.65	13.35	46.60	29.33
ROE (%)	22.91	11.19	9.06	22.71	16.96
DIV (S$)	0.13	0.055	0.055	0.064	0.13
EPS (S$)	0.151	0.092	0.079	0.251	0.196
Turnover (S$M)	4925	7338	10259	11994	12617

StarHub	2001	2002	2003	2004	1Q05
Margin (%)	NA	8.95	NA	NA	10.70
ROE (%)	9.49	10.96	-5.14	-6.10	--
DIV (S$)	--	--	--	--	--
EPS (S$)	--	--	--	-0.025	0.014
Turnover (S$M)	777	911	1118	1355	374

MobileOne	2001	2002	2003	2004	1Q05
Margin (%)	20.53	23.08	25.54	24.58	25.59
ROE (%)	31.61	28.78	30.10	38.40	--
DIV (S$)	--	0.073	0.094	0.107	--
EPS (S$)	--	0.122	0.135	0.158	0.041
Turnover (S$M)	639	698	717	747	189

Note : StarHub was listed in 2004. MobileOne in 2002

MobileOne is a good reference to start off this analysis as it's business are mainly in providing Mobile Telecom services and it operates only locally. Margin is consistent and flat at 23-25% fm 2002 onwards. ROE improves every year fm 28-38% since it's listing in 2002. Dividends and EPS has been on the uptrend since 2002. Turnover is growing every year at 20-30%.

StarHub was listed in 2004, so there's only one year of financial data and it may not be meaningful to use it for analysis and comparison.

SingTel merged with Optus (Australia) in 2001 and the impact is the erosion of Margin, ROE and EPS fm 2001-03. A strong recovery was seen in 2004, with Margin and ROE back to 2001 levels. However, in 2005, we see a sharp drop in Margin, ROE and EPS again. Dividend payout has been increasing every year though and except for 2004, it is more than 50% of EPS.

Non-Financial Criteria

1. Simple and Understandable - Telecommunication services are simple and understandable to all. It is a service that we uses in our daily lives.
2. Consistent Operating History - MobileOne has a consistent operating history. StarHub has too short a history to do a meaningful study. SingTel has inconsistent operating history, perhaps due to it's many different acquisitions over the years.
3. Favourable Long Term Prospect - SingTel may have favourable long term prospect if they do a good job in consolidating the regional telcos they had acquired. StarHub has a more varied composition of businesses and has just turned a profit but again, has too short a track record for any meaningful conclusion to be drawn. MobileOne's prospect does not look very favourable in the long term if they do not venture out of Singapore.

Conclusion - MobileOne at the moment is more useful as a Dividend Yield play. StarHub is a question mark, although the share price has risen a lot recently after it announced it's first profit. Prices may have risen ahead of it's future performance. Need more analysis to confirm. SingTel has been aggressive in its regional expansion and it shows in their results of fluctuating figures. SingTel does hold the most promise in the long term if they can do a good job of consolidating their acquisitions.

My Action - My current interest is in SingTel and I recently sold off all my hldgs before I even started on this study. Now, looking at the Margin, ROE and EPS for 2005, I see a worsening of their fundamentals. The mkt has however shown optimism in SingTel (will be paying $0.13 div and mkt expects special div after its failure in buying a stake in Pakistan Telecom) and we'll see if there's any better reason for that in the coming Q1 results. I plan to buy back some SingTel shares on mkt weakness. Target price is below $2.60.

Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D

The figures fm the fllwg table are extracted fm the periodical SHARES Investment (Issue 254),

OCBC	2001	2002	2003	2004	1Q05
Margin (%)	25.28	26.31	38.92	42.18	39.25
ROE (%)	8.81	7.23	9.49	10.34	--
DIV (S$)	0.18	0.20	0.23	0.38	1.25
EPS (S$)	0.603	0.517	0.745	0.883	0.227
Turnover (S$M)	3862	3441	3138	3685	1030

UOB	2001	2002	2003	2004	1Q05
Margin (%)	28.46	29.79	36.69	40.23	37.24
ROE (%)	7.27	7.98	9.05	10.80	--
DIV (S$)	0.40	0.40	0.60	0.60	--
EPS (S$)	0.770	0.640	0.765	0.945	0.264
Turnover (S$M)	4208	4617	4383	4765	1412

DBS	2001	2002	2003	2004	1Q05
Margin (%)	20.79	25.70	26.30	39.42	32.62
ROE (%)	7.38	7.71	6.88	12.23	--
DIV (S$)	0.30	0.30	0.30	0.40	0.11
EPS (S$)	0.691	0.746	0.697	1.352	0.276
Turnover (S$M)	6559	5907	5463	6373	1582

Buffett's criteria for managerial excellence

• Margin - Fm 2003, OCBC enjoys the highest margin, at an average of 40%. UOB has average margin of 38% and DBS lowest at 33%.
• ROE - Fm 2003, OCBC and UOB has ROE of 9-10% while DBS is closer to an average of 9%. DBS big difference in 2003 of 6.88% and 12.23% in 2004 is likely due to conservative accounting treatment in 2003, resulting in write-backs in 2004 (Same large diff is seen in EPS and Margin).

Other Criteria

• DIV - All 3 banks have been paying consistent dividends which are increasing over the years. OCBC just paid a high special dividend of $1.25 recently.
• EPS - OCBC shows good EPS growth over the last 5 years. The dividend cover is the highest amongst the 3 banks and this could explain the large special dividend in 1H05. Turnover was declining fm 2001-03 but coupled with EPS growth, it could mean that OCBC had become better at getting good quality business. EPS in 1Q05 is very much similar for all 3 banks with DBS the highest, followed by UOB and OCBC.

Non-Financial Criteria

1. Simple and Understandable - The business of banking is complex but if you just look on the surface, it's simple for the investors to understand ie. loans and deposits.
2. Consistent Operating History - ROE moves within a 1-2% range over the 5 years, except for DBS big difference between 2003 and 2004. Margin improved by 12% for OCBC and 7% for UOB in 2003 while that of DBS went up by 13% in 2004. Turnover and EPS for all 3 banks showed good improvements fm 2004 onwards.
3. Favourable Long Term Prospect - Prospect remains good for all 3 local banks although with the opening of the banking industry to foreign banks, it'll become more competitive. Still, they have a long head start in the local mkt and it'll take a while before we see any major impact by the foreign banks. Longer term growth will have to come from their overseas expansion. Here, DBS takes the lead (but may be the reason for their low margin), with UOB (suffering losses in Phillipines) next and OCBC being the least aggressive so far.

Conclusion - In my opinion, all the banks meet the sub-set of criteria set out, although their growth for the last 5 years had not been very significant (only UOB shows a higher turnover in 2004 vs 2001). DBS, with it's links to the government has been the most aggressive so far in overseas expansion. Both DBS and OCBC have also moved towards the direction of having experienced professionals at the top hierarchy running the bank while UOB is still very much a Wee-family controlled and managed concern. That is not to say is not well run but in the mid term, there may be uncertainties when the baton is passed to the next generation. UOB and OCBC also have non-bank holdings which they need to divest by next year (MAS regulation) and shareholders may benefit from such divestment exercises.

My Action - To decide which bank to invest in. Currently, more in favour of OCBC as it's the smallest and may have better growth in the short term (or being acquired). It also looks better managed when you look at their finacials but that could be due to it being the least aggressive in their overseas expansion (and not suffering the write-offs due to the poor regional economies the past few years). The current rights issue will result in 20% more shares if all are exercised and result in lowering furture EPS and ROE. Dividend per share may also suffer.

There's also the coming 1-for-1 stock split which will make it the most 'affordable' bank stock to small retail investors. Note that in theory, any split or bonus issue does not change the fundamentals of the co. and should not affect the share price. But, observe the impact of SPH price after it did a 1-for-5 split a few months back (even though you could have bought SPH100 before the split!).

Report fm JPMorgan dated 7-Jul here
They recommended a BUY for DBS and not OCBC or UOB

Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D

The figures fm the fllwg table are extracted fm the periodical SHARES Investment (Issue 254),

SPH	2001	2002	2003	2004	1H05
Margin (%)	41.59	39.56	48.89	61.87	71.73
ROE (%)	15.85	13.71	16.85	36.93	--
DIV (S$)	0.70	1.00	1.30	0.4125	0.0875
EPS (S$)	0.931	0.840	1.035	0.349	0.203
Turnover (S$M)	1030	903.5	897.8	970.1	500.3

Note : Stock Split 1-for-5 in 2004, thus lower DIV per share

Buffett's criteria for managerial excellence - Margin and ROE are consistent and looks good for the past 4 years. The figures in 2004 shows a big jump but this is due to the disposal of their stakes in Belgacom and Starhub, which contributed to a larger profit. It'd be better if we can compare Margin and ROE with other cos. in the same biz but, SPH is the only listed co. in SGX in the newspaper publishing industry and that is not possible. Future Homework - To compare with similar cos. in other countries eg. New Straits Time in M'sia.

Other Criteria - I have added DIV as I like to have a good dividend yield and it looks pretty good. EPS is also there to check if the co. is paying too much of their earnings as dividends. SPH paid more dividends in '02 and '03 than their earnings but this could be due to their clearing of Section 44 Credits (allows for tax-free div) before it expires next year(?).

Non-Financial Criteria

1. Simple and Understandable - The business of SPH, based on turnover are Newspaper and Magazines (86.6%), Broadcasting and Multimedia (4.7%) and Property (8.7%). Thus, the majority of their business are easy for an investor to understand as it's got something to do with our daily lives and very visible to us.
2. Consistent Operating History - Looking at their financial statements, SPH shows a consistent operating history, without any wild fluctuations.
3. Favourable Long Term Prospect - With little competition in their core business of Newspaper and Broadcasting (esp. after the merger with MediaWorks), prospect over the long term is still very favourable to SPH. There's however very little growth potential unless they venture overseas or expand into other synergistic business locally.

Conclusion - Overall, SPH meets most of the criteria (my selected sub-set) set out by Warren Buffett. There's also the added attraction of good dividend yield. The only negative is their lack of growth. This is evident if you look at their turnover over the past 5 years which peaked at S$1Bil in '01 and has been in the range of S$800M-S$900M+ since. That is possibly also the reason why SPH pays out the bulk of their earnings as dividends ie. they have no better use for the monies to expand their business.

SPH will likely be able to sustain their earnings and pay out good dividends. However, it is doubtful that SPH share price will rise very fast unless they shows better growth potential. Any potential surge in share price will likely be due to their divestment of non-core business (eg. properties). SPH have however recently acquired some stakes in publishing cos. in Thailand, so let's see what the impact is over the next few Quarters. Currently, it looks more like a cash cow being slowly milked till it's dry :D

My Action - To continue to accumulate SPH on price weakness. I am already vested in SPH, which forms 25% of my porftfolio of local stocks. My last purchase is $4.38 in May and target next purchase at $4.28. SPH recently hit a low of $4.22 before recovering to close at $4.36 on 24-Jun. This could be due to mid-year window dressing by fund mgrs. Go here for chart for reference if you believe in Technical Analysis (TA) in timing your purchase.

Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D

Introduction
Not happy with your Fixed Deposit Rate of 1.5% (need $50k just to get this rate)? Unwilling to take the risk for POTENTIAL higher returns in various kinds of schemes that the banks are always trying to push to you? Treasury Bills (T-Bills) issued by the Singapore Government may be the choice for you. Current 3-mths T-Bills are giving a yield of ~2%. You get better rates than FD, min. investment amt is ONLY $1000, short 3-mth tenure (you can also sell in the open mkt before 3-mth) and it's virtually risk-free as it's guaranteed by the govt, therefore capital protection :)

SGS
All SGS, whether T-Bills or Government Bonds, are sold in lots of $1,000. T-Bills have a tenure of either 3 months or 1 year, never pay coupons (similar to interest rate), and are always sold at a discount. Government bonds are sold with maturities of 1, 2, 5, 7, 10 and 15 years. They always pay coupons, and may be issued at a discount, at par or even at a premium.

Where, When and How To Buy
You can buy SGS from any of the local banks. There are no admin or custodian fees involved. Banks earn NOTHING (they are legally REQUIRED to process your orders as it's one of the requirements to be a Primary Dealer) when you buy SGS at issue ie. when the Singapore Government first sells the SGS. The banks do earn from a spread when they buy and sell existing SGS on the open market. When you buy at issue there is no accumulated interest to be paid, nor any transaction fee. Since the Singapore Government regularly issues SGS, there's little reason to buy on the open market and pay commissions.

The first time you buy SGS through the bank, you'll need to open a custodian account (a form to fill) with the bank. To buy new issues, you need to fill in another form to bid. Either bid (for competitive bids) something close to the going rate or pick the "non-competitive bid" which guarantees a successful application. If you bid, the difference is usually only 0.05% at most, and you risk being unsuccessful.

3-month T-bills are issued every Monday and bids must be submitted before 12noon. Check the SGS website for details.

My Experience
I just bought mine at a OCBC neighbourhood branch (heard from others that DBS will likely refer you to apply at their Shenton Way HQ). Applications closes on Mondays at 12noon and in my case, 20-Jun. Monies will be deducted from my bank acct on 23-Jun (I pre-signed all the forms when I went to the bank on a Sat.) The tenure of the T-Bill is fm 23-Jun to 22-Sep. Yield is at 1.96137363% (yes, the decimal points are for real) for the non-competitive bid, meaning, it's sold at a discount of 99.511 ie. for $1000 worth of T-Bills, you pay $995.11 and you'll get back $1000 at maturity.

Bond Ladder Concept
In the context of the SGS issued by MAS, which have durations of 1, 2, 5, 7 and 10 years (not counting the 15 year SGS), a bond ladder can be set up in the fllwg manner,

In Year 1, for every $10,000, you buy at issue (= no fees):

one 10-year bond;
one 7-year bond;
one 5-year bond;
three 2-year bonds; and
four 1-year bonds

In Year 2, the four 1-year bonds mature. Reinvest the proceeds into:

one 10-year bond;
one 7-year bond;
one 5-year bond; and
one 2-year bond

Since all the other unmatured bonds have aged one year, the portfolio now appears thus:

one 10-year bond;
one 9-year bond;
one 7-year bond;
one 6-year bond;
one 5-year bond;
one 4-year bond;
one 2-year bond; and
three 1-year bonds

In Year 3, the three 1-year bonds mature. Reinvest these proceeds into:

one 10-year bond;
one 7-year bond; and
one 2-year bond

The portfolio will now contain:

one 10-year bond;
one 9-year bond;
one 8-year bond;
one 7-year bond;
one 6-year bond;
one 5-year bond;
one 4-year bond;
one 3-year bond;
one 2-year bond; and
one 1-year bond.

In only the 3rd year of operation, you have a 10-year bond ladder. The average interest rate will of course be lower than the actual 10-year rate, but it will climb every year as the 1-year bond matures and you reinvest it into a 10-year bond, until the 10th year, when all the bonds are in fact 10-year bonds maturing in consecutive years.

Given the already low returns of bonds, this strategy is helpful as it avoids having to pay commissions at any point in time, because you always buy at issue rather than on the open market. It's simple, cheap and effective.


Credit : Much of the above information is gleaned fm WallStraits Buffett Forum

Warren Buffett
One of Warren Buffett's investment strategy is to look at simplicity itself :

"Choose a few stocks that are likely to produce above-average returns over the long haul, concentrate the bulk of your investments in those stocks and have a fortitude to hold steady during any short-term gyrations".

Buffett believes that rationality rules in all matters, including, first, how you identify an outstanding company. He applies three non-financial criteria:

1. It is simple and understandable
2. It has a consistent operating history
3. It has favorable long-term prospects

Buffett watches indicators that specifically relate to managerial excellence. He looks at:

1. Return on equity ( not earnings per share )
2. Profit margins ( which must be high )

Other criteria not covered above are,

1. Debt/Equity Ratio - Has the company avoided excess debt? A high level of debt compared to equity can result in volatile earnings and large interest expenses.
2. How long has the company been public? - Buffett typically considers only companies that have been around for at least 10 years.
3. Do the company's products rely on a commodity? - Buffett tends to shy away (but not always) from companies whose products are indistinguishable from those of competitors, and those that rely solely on a commodity such as oil and gas. If the company does not offer anything different than another firm within the same industry, Buffett sees little that sets the company apart. Any characteristic that is hard to replicate is what Buffett calls a company's economic moat, or competitive advantage. The wider the moat, the tougher it is for a competitor to gain market share.
4. Is the stock selling at a 25% discount to its real value? - To check this, an investor must determine the intrinsic value of a company by analyzing a number of business fundamentals, including earnings, revenues and assets. And a company's intrinsic value is usually higher (and more complicated) than its liquidation value - what a company would be worth if it were broken up and sold today. The liquidation value doesn't include intangibles such as the value of a brand name, which is not directly stated on the financial statements. Once Buffett determines the intrinsic value of the company as a whole, he compares it to its current market capitalization - the current total worth (price). If his measurement of intrinsic value is at least 25% higher than the company's market capitalization, Buffett sees the company as one that has value.

Source : Investopedia

High Dividends

Stocks that pay high dividends have historically delivered higher returns than the rest of the market, and stocks that increase dividends see their stock prices go up. On the other hand, stocks that pay high dividends grow earnings far more slowly (thus delivering less in price appreciation) and are often unable to sustain dividends in the long term. Therefore, a savvy investor will always consider growth potential and payout sustainability in addition to simply looking at current dividend yields when building a stock portfolio.

Source : WallStraits

Comments : Now for the difficult part, EXECUTION :)

Warning : Do not follow what I do blindly. Each of us has a different risk profile at different stages of life and has different amount of money which we are willing to commit for investments. You'll have to find and fine-tune your own investment strategies. I will not be responsible for any profits or losses you may incur.

My Portfolio

The table below shows price data of some of the stocks I am monitoring,

Stocks	This Wk	Last Wk	Last Mth	Last 3Mth	Last 1Yr	Tgt Buy	Tgt Sell	Ave Cost	Portfolio (Cost)
SPH	4.30-4.38	4.30-4.36	4.22-4.56	4.22-4.90	4.22-4.90	4.28	4.48	4.38	20.96%
SingTel	2.61-2.67	2.61-2.65	2.56-2.67	2.33-2.67	2.33-2.83	2.48	No	No	0%
Suntec	1.08-1.10	1.07-1.09	1.07-1.10	1.03-1.15	1.03-1.32	1.05	1.20	1.185	17.40%
GTC	0.26-0.305	0.26-0.265	0.255-0.305	0.20-0.305	0.20-0.305	0.25	0.31	0.275	11.69%
Metro	0.76-0.83	0.755-0.80	0.70-0.83	0.575-0.83	0.455-0.83	0.70	No	No	0%
Thomson Med	0.22-0.225	0.215-0.24	0.215-0.24	0.21-0.24	0.165-0.24	0.21	0.28	0.187	16.79%
K1 Ventures	0.33-0.34	0.325	0.32-0.34	0.31-0.37	0.245-0.37	0.315	0.365	0.356	4.13%
SP AusNet	1.62-1.64	1.63-1.65	1.62-1.66	1.62-1.66	1.62-1.66	1.58	1.70	1.687	11.73%
PBankF	6.35-6.50	6.35-6.40	6.10-6.40	6.10-6.95	6.10-8.15	6.30	6.95	6.82	17.30%

Last Updated : 6-Jan-06

Note : The data will be updated only when I am free, likely every quarter

Stocks Selection

Most of my stocks will have strong fundamentals, using the methods described by Warren Buffett to select. I will also look for stocks with good dividend yield or High discount to NAV. My current portfolio comprises of the fllwg stocks,

• Good Dividend Yield - SPH, PBankF, SPAusNet
• REIT - Suntec
• High Discount to NAV with Low Debts - K1 (but latest Q result shows NTA is much lower than NAV)
• Potential Growth - Thomson Medical, GTC

For REIT, the yield is now 4.4-5.8% vs risk-free rate of abt 3+%. The gap is now 1-2.5% and I'd reduced my REIT hldgs.

When to Buy / Sell

I don't really know anything about TA (technical analysis) but I'll still look at the price movement and relate the dips and peaks to any market news. I'll buy if I find the price has dropped and there has been no change in the fundamentals or if the market has over-reacted to bad news. Similarly, I'll sell if the price has gone up too much in relation to any good news, especially those of a speculative or long term nature.

Typically, my first buy will be meant for long term hold. With this "beach-head", subsequent buys are for shorter term; I'll even contra if the opportunity arises. But, I'm also prepared to be "stucked" with the subsequent buys as I'd done my homework and am happy with the fundamentals. I may do up to 4-5 buys esp. if the price drops. Similarly, I sell in stages, so the Target Sell Price may even be lower than my highest buy price.

As I'd done my studies and concluded the stocks to be fundamentally sound, I don't worry too much that I'll be throwing good money after bad money. Instead, I like to think I'm buying on weakness and selling on strength. So, unless the fundamentals have changed, I'll continue to hold on to those stocks.

Accounting Recognition

In the short term, my buys are recognised as individual transactions. At the end of the year, all buys of the same stock will be combined, the average price computed and thence recognised as a single transaction. Not GAAP, I think :D

Other Stocks

The above portfolio does not include stocks which were bought long ago when I used to buy many of my stocks based on others' recommendations and also apply for just any IPOs. All are underwater now and some are to me 'junk'. I classify them as,

1. Question Mark- Raffles Medical, Transview, CH Offshore, Stamford Land
2. Junk - AFP, Goldtron, IPC, ITG, MediaStream, Acma

Over the next few weeks, I'll spend time to study those in the 'Question Mark' category so that I can make a decision whether to dispose or add to my portfolio. The ones in the 'Junk' category, I'll continue to hold it as a reminder to me of my early follies. Hopefully, I'll not be adding any more of my stocks to this category :D

The other day, I received an interesting and simple email fm my Philips broker regarding Warren Buffetts Investment Strategy. That simple strategy statement kind of woke me up to the fact that even tho' I had been practising a similar strategy, I'd not been structured enough. Although I do my research and read up on all the news on any particular stock before I make any investment decision, the data may be scattered all over the place. Over time, I tend to forget some of the info I've read or I can't even locate the info at all. This is where I think a blog comes in useful.

In this blog, you will not see a lot of new posts, but rather, I'll be continuously changing the contents of the posts to reflect current market data. To start off, I'll be re-evaluating my current holdings to look into the fundamentals using the methods described by Warren Buffett. Along the way, I'll restructure my portfolio to focus on different categories of stocks, such as High Dividend Yield, REITs, Potential Growth, etc. This is expected to be a dynamic process.

I don't really expect to find any local listed co. that'll meet all the criteria listed by Warren Buffett. Even Warren Buffett can't find any new cos. to invest in US (which is a much larger mkt) to add to his list of investments. Thus, meeting most of the criteria would suffice and our definition of 'good' may be way below his definition :D

You can read about Warren Buffett's methodology here.

I also participate in 2 other blogs,

1. Bullrun - A team blog with David and TC. We post the latest news and comments on stocks/IPOs that are of interest to us. Some analysts' stocks recommendations are also posted here.
2. Talkstock - The first blog that I started but has now been relegated to postings of my stocks transactions and weekly summary.

Comments are most welcome as it helps us to see things from a different perspective, but do keep it related to the posts :D

Caution : As I'm not a trained professional in this area of expertise, you'll only see a simple and amatuerish effort at stocks analysis. This blog is meant more as a basis for my own investment decisions. Do not rely on my figures blindly and please do your own detailed homework before you make any decision.