26
May
2015
My watch list in 2015 May
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27 FEBRUARY 2014
The healthcare operator’s latest full-year results for 2013 were all about its expansion plans in the years ahead. Raffles Medical would be spending around $430 million to purchase and develop two pieces of real estate that it had recently purchased.
One plot of land, located just beside its flagship Raffles Hospital at North Bridge Road, Singapore, would be used to expand the premises of the existing hospital. Elsewhere, a 3-storey office building in the Holland Village area in Singapore would be redeveloped into a 5-storey commercial building with medical clinics, retail shops, restaurants and a car park.
But while the company wants to find new paths to growth, its latest results weren’t too shabby either as annual revenue improved by 9.4 percent to $341 million with profits growing by 49.1 percent to $85.3 million.
The growth in profits helped fuel the company’s 11 percent increase in annual dividend to $0.05 per share. That also marks the fifth consecutive year where the company has managed to grow its dividend.
Source: S&P Capital IQ; Raffles Medical Group’s Earnings Release
Shares of the healthcare operator are going for $3.31 apiece, representing a trailing PE ratio of 22 and a historical dividend yield of 1.5 percent.
Analysts' updates on Sheng Siong Group LTD as at 04/05/2015
Sheng Shiong Group (SSG) just recently announced that they experienced strong growth in its latest quarter. Analysts from the street continued having high expectations towards the supermarket chain giant. Despite the current high growth rate, they are still expecting SSG to maintain and even increase its pace of growth in the coming quarters.
Source: Income Statement of Sheng Siong, Bloomberg
Soaring Sales
Source: Financial Highlights of 1Q15, Sheng Siong Group
Notably in the financial results, revenue for the quarter grew by 4.6 percent Year-on-Year (YoY) and a higher profit margin of 24.4 percent. This led to a 12.2 percent YoY increase in net profit to $14.4 million.
Revenue growth was contributed by both sales from new stores and same-stores’ growth. 1.7 percent of the 4.6 percent of the revenue growth was attributed to the opening of new stores in Penjuru and Tampines while the remaining 2.9 percent was from higher comparable same-store sales.
Implementations by the management to cut cost had a gradual effect (quarterly) on the company’s profit margin. This effect can be clearly seen when comparing YoY profit margins of 1Q15 with 1Q14. The higher profit margin is mainly contributed by the lowered input cost from bulk handling of goods and extra rental income from tenants living at Block 506 Tampines Central.
Both of these factors among others are the main reasons for the strong growth in net profit.
Sheng Siong’s FY15 Outlook
Outlook for SSG is forecasted to be positive as three new stores are expected to open in the coming quarter. SSG expects the stores in Bukit Panjang and Punggol to commence operations by early May 2015 while the Pasir Ris store is expected to commence operation by June 2015.
Future increase in same-store sales and lower profit margin might be a potential upside to SSG.
Analysts’ Thoughts
The strong results produced by SSG affirmed the predictions from the street in regards to the strong performance by the group. They expect the new stores to be main drivers of sales growth for the group in the next two to three years.
Analysts from OCBC Research reiterated their “Buy” call and increase the target price to$0.92.
Not all REITs are equal, and I like this one a lot
Parkway Life REIT ("Plife): one of my favourite REIT. I got to know of this when I just "joined" the investment community and read it on Dividend Warrior blog. He is one of my greatest inspiration. :)
Now, let's have some fun dealing with some FAQs.
"REITs are going to suffer from the impending interest rate hike"
a) Gearing 35.2%, additional headroom of $298.8M to hit the cap.
b) Lowest all in cost of debt of 1.4% (that's insanely low).
What PLife is doing is to have all of their loans be variable rates (thus the low cost of debt) to have the upfront interest-savings now.
I feel this is also a wise move as the FED is unlikely to have interest rates hiked to the normal levels anytime in the short to mid-term.
Having the loans swapped to fixed rates (at about 3%) now is not going to benefit Plife much when they're currently saving 1.6% of interests. Plife will only "lose out" if their floating rates exceeds 3% by a large margin. (because that will have to be "offset" against their current accumulated interest savings)
c) Interest rate hike have mostly been priced into REITs.
d) When will the FED finally raise interest rates? It was delayed from Q4 2014 to Q1 2015 and now Q2 2015?
Even when they do, Yellen has said that it will be done at a gradual and slow pace - I'm not going to expect interest rates rise to 3-4% in a short period of time.
"Stagnant performance"
69% of their portfolio is CPI-linked. (inflation protected)
93% of their portfolio has downside protection.
"No Margin of safety - trading 1.4x Book value"
The healthcare industry is defensive in nature and typically is trading at a premium to its book value as a result.
PLife has 67% of its revenue from Singapore and 32% from Japan
Singapore is poised to be medical hub. DBS has projected that medical tourism will grow by 8% through 2018.
Japan - the "king" of ageing population. Demands for nursing homes and hospitals will always be high in this country.
Worried about forex risk (Japan Yen)?
Japan's results are hedged for the next few years, shielding the REIT against any forex volatility.
"Low div yield (4.9%) compared to the average 6%"
Well, it is a defensive REIT in the first place, and thus its future earnings are more predictable and its DPU are more sustainable.
If you're a long term investor of Plife (which we all should be investing for long term), look at this chart below.
IF you had bought Plife in 2008 at $1.09 (with a 6% yield) and held on to it to 2014, your current yield would be10.5% (with a capital gain of >100%)
That's the power of holding good businesses for a long term.
"Singapore Saving Bonds will put downward pressure to REITs"
In the short term, yes, the market will react to that by selling off REITs.
However, with quality-REITs like Plife, earnings will grow, NAV will grow.
DPU (hopefully) will eventually grow.
I always believe that "in the long run, the market will behave like a voting machine" and I still do.
There are some REITs capable of having capital gains, and not merely dividend yielding instruments.
"Is this the right time to buy Plife?"
There is no definite answers for these type of questions. But if you want to avoid buying Plife at a "high price", see the chart below.
Plife has been trading at a tight range for the past 12 months.
