The articles in the blog are intended for informational purposes only, with the aim of encouraging thoughtful discussions. The articles should not be relied upon as financial advice. Please read the important disclaimer at the bottom of the page before proceeding.

Recent Transactions

Portfolio as of 15 Jan 2021.

Bought Valuetronics at $0.595 in late December. There has recent trend of privatisations of contract manufacturers, including Sunningdale, Hi-P and CEI Ltd, and I think that the sector deserves more attention. At the moment, I do not think Valuetronics represents an immediate takeover target, as insiders only own c.25% of the outstanding shares, as compared to Hi-P, where the insiders owned 83.% of the company when they made the privatisation offer. However, with a high net cash balance, strong track record of profitability, expansion plans in Vietnam and an improving macro situation with Biden expected to de-escalate US-China trade tensions, I believe that it may still represent an attractive company which may draw the interest of private equity firms, as the case with Sunningdale where the insiders partnered with PE fund Novo Tellus to privatise the company.

I have previously written about Valuetronics in a post here: 

Averaged down on Alibaba at 215 USD after the stock tanked by nearly 20% in a day after Chinese authorities announced new anti-monopoly rules against the tech giants. Average price stands at 236 USD. I still remain bullish on the long term prospects of Alibaba and the Chinese economy.

Partially exited Capitaland Integrated Commercial Trust at 2.15, and looking to divest my remaining stake before they announce their FY results this Thursday. My rationale for initiating a position was to ride on the positive news around the confirmation of the merger, and with the strong run up recently, have decided to take profit. 

The main reason is because I still have concerns over its gearing ratio and valuations of assets. Real estate valuations are often a lagging indicator, as I have written previously in this post: http://alpacainvestments.blogspot.com/2020/11/cict-should-there-be-concerns-over.html. I expect valuations of CICT's assets to fall further, with prime retail (Plaza Singapura, Raffles City) and office properties to take a bigger hit, while suburban malls expected to be more resilient, but still see their asset values decline. For some context, SPH Reit's valuation for Paragon fell by 4% from Oct 19 to Oct 20, with the reported valuation declining from 2.74b to 2.64b. Its suburban assets fared better, with Clementi Mall's valuation declining by about 2.2% from 597m to 584m during the same period. These reasons lead me to believe that the valuations of CICT's assets would decline when they report their asset values as of 31 Dec 2020. With gearing already at 39.9% as per their Q3 results, any further decline in asset values would probably push its gearing ratio to the 41-42% range, which would reduce its debt headroom. While MAS has increased the leverage limit for REITs to 50% from 45% in response to the fallout from Covid-19, this is only temporary and the leverage limit would be reduced back to 45% from 1 Jan 2022 onwards.

Additionally, the above extract from MAS' consultation paper in May 2020 indicates that MAS is concerned that retail investors are not sufficiently aware of the implications of higher leverage (higher gearing). Too often, retail investors are overly focused on the yield and yield accretive acquisitions, but less concerned about the lease decay of the leasehold properties or the gearing ratios, as I have written in prior articles. 


These should be equally crucial metrics that we look at when evaluating Reits. When asset valuations fall, and gearing ratio shoots up, it can be disastrous for investors, as seen from the case of First Reit. Of course, I am not expecting a similar situation for CICT. I still believe that reits play an important role in my portfolio, and I would prefer to look at other commercial reits with lower gearing ratios such as MCT or LendLease.

Lastly, as a word of caution, equity markets have rallied strongly over the past few months, and amidst euphoria, I think that it would be good to think about what could possibly go wrong and position ourselves accordingly. I came across this article by GMO, which I think was a pretty good read:

Stay safe!

Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.

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