I've been quite busy lately, as I'm in the midst of having my examinations, so I've not been able to write much.

For November, these are the transactions I made, as well as some updates on the companies that I'm holding:

I bought SingTel at $3.67 last week, which makes SingTel my third largest position. SingTel's special dividend of 3.0 cents from the proceeds of the NetLink Trust IPO was deemed to be underwhelming by the market, hence its share price declined after it announced its third quarter results. I believe that paying out only 3.0 cents may not necessarily be a bad thing, especially if the company is able to invest the remaining cash in better opportunities. SingTel's Amobee had also turned EBITDA positive, which is a welcomed development. 

I previosuly wrote about SingTel's dividends here: Are SingTel's Dividends Sustainable? 

My reason for buying SingTel was because my cash holdings took up quite a high proportion of my portfolio, ever since I sold half of my DBS shares early this year. I felt that $3.67 was a reasonable price to pay, as it represents an ex-dividend price of $3.58. This allows me to receive a relatively decent yield of 4.8%, based on its full-year ordinary dividends of 17.5 cents. Much better to put my spare cash to work rather than leaving them idling in the bank.

I applied for the IPO of RE&S Holdings, but was unable to be allocated any shares. I felt that it would have been a good bet as F&B companies here generally trade at rather high valuations.

I'm still looking to divest my SGX position, as trading volumes in our local market did not rise as much as I had expected. I'm currently still holding on to it, as I'm unable to find better opportunities, and I'm getting a yield of 4% on my cost. Earlier this month, SGX re-introduced a one hour lunch break from 12 to 1 pm daily, but it has not really affected the trading volume.

SATS, which has been on my watchlist for quite some time, surged up in the past month, after reporting better than expected earnings. Its valuations remain elevated, but I like how it has been leveraging on technology to increase efficiency, resulting in cost savings and higher profit margins. When Terminal 4 becomes fully operational, it should add to SATS' earnings.

As I continue to re-balance my portfolio, some companies that I'm interested in include ComfortDelGro, ST Engineering, MCT, Capitaland and GuoccoLand. I'm also looking at Raffles Medical and QAF, which have both also performed poorly recently. I'll do a write up on these companies after my examinations have ended.

Here's my updated portfolio as of 25 November 2017: My Portfolio 

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At some point in our lives, we may have consumed the Gardenia brand of bread for breakfast, as it is a familiar household name. However, QAF Limited may sound a little more unfamiliar to us. I didn't know about the link between these two names, until I began researching on QAF Limited. 

Gardenia bread is actually produced by QAF Limited, a company whose operating segments include bakeries, primary production and trading & logistics. I had previously written about QAF Limited in May this year.

3rd Quarter Performance

QAF's third quarter results were rather disappointing, with net profit falling by 62%. Even though revenue was flat at $212.4 million, increases in operating expenses resulted in the drastic fall in net profit. Total costs and expenses increased by only 6%, from $192.1 million to $203.9 million. But because of QAF's low net profit margin of 3.52% compared to 9.12% last year, net profit fell by 62%. 

In their Q3 earnings report, QAF did not provide a breakdown of the earnings before interest and taxation (EBIT). Therefore, I had to use figures from Q2. QAF's EBIT for its various segments are shown in the table below.

Source: QAF's financial reports

From 1H 2017's results, it is clear that both the bakery and primary production segments are facing headwinds. After the deconsolidation of GBKL, QAF's bakery segment had reported lower EBIT for both 2016 and 2017. Do note that the 1H EBIT figures for the bakery segment do not include joint venture profits from GBKL. Joint venture profits from GBKL were $0.5 million and $2.6 million for 2Q and 3Q 2017 respectively. 

For the past few years, QAF's earnings growth were mainly driven by the higher selling prices for its primary production segment. This quarter, the lower selling prices for Rivalea was the main reason for the decline in earnings. In Q3, profit before tax for Rivalea fell from $10.0 million to $0.7 million from a year earlier.


QAF has a dominant position in the bakery segment across Southeast Asia. Their Gardenia brand of bread is a consumer staple, and sales are likely to be stable, regardless of the prevailing economic conditions. QAF has also invested in new production facilities, which would increase their efficiency and reduce issues with production.

QAF is still in a net cash position, with $130.8 million in cash and cash equivalents, and total borrowings of $104.7 million. With this strong financial position, QAF has the ability to further expand its production capacity in the region.


Bakery segment faces stiff competition, which has caused QAF to increase its advertising and promotional spending. QAF noted that it had to increase its advertising because of a major competitor entering the Philippines market. Advertising and promotional expenses increased by 81%, or $1.9 million for this quarter.

Declining pork prices in Australia has been detrimental to QAF's profits. According to QAF, Rivalea continues to face an oversupply situation from increased competition, which resulted in lower average selling prices. For the 3rd quarter, profit before tax from QAF's primary production segment fell significantly, from $10.0 million to $0.7 million. This decline was the main reason for QAF's fall in net profit.

According to the Australian Pork Limited's Eyes and Ears report dated 3 November 2017, pork prices have fallen nearly 50% from its peak in January 2016.

Cancellation of Rivalea IPO

When QAF announced that it was cancelling its proposed listing of Rivalea on the Australian Stock Exchange, the market reacted by selling down QAF shares by 3%. I believe that the impact of the cancelled listing should not have a significant impact on QAF's financial position.

Firstly, QAF's justification for listing Rivalea, its primary production business segment, was to enhance shareholder value. However, the proposed IPO price of Rivalea was not at a premium over net asset value, hence the IPO would not have resulted in a significant change in QAF's valuation.

I believe that the purpose of the listing was to capitalise on the rising profits of Rivalea, allowing QAF to divest a portion of its stake at a high.

Rivalea IPO would have allowed QAF to recognise a one off gain, which would have further strengthened QAF's balance sheet. While Rivalea has been QAF's fastest growing segment for the past few years, earnings from Rivalea has been volatile, and reducing its effective stake in Rivalea might have been a positive move.

Future Outlook 

Earnings from the bakery segment were reduced after GBKL was de-consolidated. QAF is still in the process of expanding its bakery production capacity, which would allow it to product more bread. The newer production facilities would also increase efficiency, as the old plant had faced issues with production. 

The oversupplied primary production market in Australia would continue to be a drag on QAF's earnings. While QAF's revenue has remained constant, it would have to keep expenses in check to maintain its profitability.


From a net asset value perspective, I believe that it is unlikely for QAF to fall below its NAV of $0.948, because its dividend yield may provide some support for its share price. QAF has been consistently paying out a dividend of 5 cents annually for the past 5 years, and for FY 2017, it is still on track to meet this dividend payout. QAF's earnings per share for 9M 2017 is 5.2 cents. At its closing price of $1.20 last Friday, its dividend yield stands at 4.17%.

Another point of view might may that QAF could be a potential delisting candidate. A similar company, Auric Pacific, which produces Sunshine bread, was de-listed last year at a valuation of 1.23 times net asset value and a P/E ratio of 28 times last year. I believe this was part of the reason for QAF's surge to its all time high of $1.585 last year.

I would be watching the market's reaction to QAF's results, and ideally, I would want to accumulate QAF shares closer to $1.

Note: At the time of writing, I am not vested in QAF.

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Mapletree Business City, Source: MCT website

I've been looking at Mapletree Commercial Trust (MCT) and Starhill Global REIT recently, so I'll be writing on how these two REITs stack up against each other. Our local REIT sector has performed well this year, with many REITs surpassing their 52-week highs during the past month. Unfortunately, I've largely missed out on this rally. However, I believe that some REITs still present some value, together with a decent dividend yield.

For some background, the first two stocks that I purchased were Ascendas REIT and CapitaMall Trust, back in 2015. When there were fears of imminent interest rate hikes, I sold off these two positions for a small gain. As it turns out, even though interest rates have been raised a few times, our REIT sector has still performed strongly. I'll recommend that you read this very informative article regarding the relationship between REITs and interest rates, by Kyith at InvestmentMoats:

Basically, what the article concludes is that the performance of REITs have little correlation with interest rates. In theory, rising rates would hurt REITs in two ways. Firstly, because of the higher cost of borrowing, REITs incur higher interest expenses, which reduces their distributable income. Since REITs usually take on a significant amount of debt, their finance costs could be substantial. Secondly, rising interest rates increases the risk free rate, and assuming that the risk premium demanded by investors remains constant, the dividend yield of the REITs would have to increase. Correspondingly, the share prices of REITs would have to decrease. Therefore, rising interest rates are seen as a threat towards income stocks.  

However, the strength of the economy could offset these negative effects. For example, if economic growth is strong, property prices are rising and increases in dividends are supported by positive rent reversions, then the REIT sector can still perform well despite the rising interest rates. We are probably experiencing this phenomenon now. With this in mind, I'll elaborate on the details of these two REITs.

Both Starhill Global REIT and MapleTree Commercial Trust own a mixture of commercial and retail assets. Some notable properties that MCT owns include VivoCity, Singapore's largest shopping mall, and MapleTree Business City, an integrated commercial hub. For Starhill, we would probably be more familiar with Ngee Ann City and Wisma Atria.

For the past 5 years, MCT has been on an uptrend, due to its rising distribution per unit (DPU), whereas Starhill has largely been trading within a range.

Geographical Diversification 

In this aspect, Starhill's portfolio probably offers more geographical diversification, because it owns properties beyond Singapore. It owns properties across 6 Asia-Pacific cities - Singapore, Kuala Lumpur, Adelaide, Perth, Chengdu and Tokyo. However, a large portion of its assets are still located in Singapore, which accounts for 61% of Starhill's gross revenue. 

Whereas for MCT, its portfolio is restricted to 5 properties located in Singapore's southern region, namely VivoCity, MBC 1, PSA Building, Mapletree Anson and Bank of America Merrill Lynch Harbourfront.

Diversification reduces country specific risks, however, it would also expose us to foreign exchange fluctuations.

Customer Concentration

Starhill's portfolio faces significant tenant concentration risks, because Toshin, which is a wholly owned subsidiary of Takashimaya Company Limited, contributes 20.8% of its gross rental revenue. Toshin occupies all retail areas that Starhill owns in Ngee Ann City. However, this concentration risk is slightly mitigated because Toshin is the master tenant, and sublets its units to other tenants. Toshin's Takashimaya department store's lease is not under Starhill's portfolio.  Currently, Takashimaya pays $8.78 per square foot per month for rental, which is well below the market rate of approximately $19.83 psf. Takashimaya had recently won a lawsuit against its landlord, Ngee Ann Development, who had intended to raise the rental to market rates. (

Starhill charges Toshin around $15 psf for its lease, thus there may be some potential upside for rental rates during the next review in two years time. (

For MCT, its top tenant by gross revenue is Merrill Lynch, which accounts for a mere 3.7% of gross revenue. MCT's top 10 tenants together contribute 25.2% of its gross revenue. In this aspect, MCT's diversified tenant mix lowers the concentration risk from any single tenant.

Capitalisation Rates

The cap rates for Starhill's properties are higher than that of MCT's. Cap rates are calculated by taking the net property income divided by the asset's valuation. Therefore, a cap rate compression does not necessarily mean the asset is earning a lower return, as it could be due to the asset's value appreciating. 

Dividend Track Records

Starhill's dividend record for the past 5 years has been flat, while MCT has consistently increased its DPU since 2012.

Financial Ratios

I've also complied the important financial ratios to compare when we are analysing REITs. Since REITs rely heavily on debt, we should be more cautious especially with the expected December rate hike. 

MCT has a slightly stronger financial position, with a lower average cost of debt and higher interest coverage ratio.

My Verdict

In conclusion, MCT offers more quality assets, but less geographical diversification. At the moment, I'm leaning slightly towards Starhill because I believe that the downside is rather limited, given that it is current trading at a price-to-book ratio of 0.82. Starhill has also been trading range bound for the past few years. 

Furthermore, Starhill also offers a slightly more attractive dividend yield of 6.3% compared to MCT's 5.7%. This probably compensates for the lower quality of its properties. Nonetheless, I would continue to watch MCT, because I like its superior track record of growing its distributable income, and the potential of acquiring MBC ll, another quality asset. I would look to accumulate MCT if it falls below $1.50. 

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Note: As of writing, I do not have positions in MCT or Starhill Global REIT.

Update: It was incorrectly stated earlier that Toshin's master lease includes the Takashimaya department store. This error has been corrected, as Starhill's portfolio does not include Takashimaya.