I'm really glad that the price for Starhub has traded rangebound, just as I had predicted (and hoped!).
Just also wanted to share another area of my investments, that of foreign exchange. I never had luck with foreign exchange; I had 1000 HKD that I kept from my previous trip exchanged at a rate of 1S$:4.5HKD and am sitting on paper losses today.
However around the middle of this year, I was very bullish on the Australian dollar (AUD) as I was confident the Reserve Bank of Australia would raise rates. I bought in at about 1AUD:1.24S$, and interest was pretty decent at an average of 4% p.a.
Unfortunately just a few weeks after I made this trade, the exchange rate fell to 1AUD:1.18S$, and I panicked. I had contemplated buying more to get an average rate of say 1.21 but I did not (which of course I regret on hindsight). In fact I had almost liquidated the holdings at a loss.
Thankfully for me, I held on and only just squared the trade at a rate of 1AUD:1.28S$. Overall the trade presented me with returns of 6% (3.5% on currency gain; 2.5% on interest) or almost 12% on an annualised basis! Nice gains of a few hundred dollars and I'm pleased =) Of course if it were a few thousand dollars it would have been nice, but let's not be greedy.
Analysis on AUD
Overall, I'm still confident of the AUD; and I was proved right as the AUD strengthened to the point where it has now breached parity with the USD.
However what I had considered but downplayed is the relativity of the exchange rate. Sure enough, the AUD strengthened against the USD, but so did SGD (my home and base currency). I had thought the SGD would not appreciate that much, nonetheless as Singapore uses its exchange rate as its monetary policy tool, the MAS decided to increase the slope of the NEER band to rein in import-led inflation. Therefore, for me to have made better returns on the trade, it means the AUD has to rise much faster than the SGD. While it had for the past few months, I wasn't sure if it would continue and I decided that it's time to take profit.
I made the trade in the form of a fixed deposit, so am glad to have made profits overall. The returns are calculated net of the bank's bid-ask spread. Of course if the rate of relative increase in the AUD had been much lower, I could jolly well have been hit with a loss. Overall, I felt that this investment was too risky and decided to call it a day.
But I still like the AUD because it has high interest rates - and for some reason AUD seems to go against interest rate and purchasing power parity which makes it seem like a free lunch somewhat - and it is a way for me to get exposure to the booming commodities sector. So if exchange rates favor the odds again, I'll be back into the trade.
Thoughts on Portfolio
Made a few trades this week and had wanted to do more stock analysis, but haven't had the time, so will do so later. But recently I've been reading up more and trying to learn more so I've had many investment ideas.
On my portfolio, I may not be able to hit net worth of $288K by end of this year, which I had initially thought was possible. I realised quite a bit of losses on my fund investments (and Fundsupermart platform fees did not help!). But I always remind myself that I started small (my average income for the first three years of work was under $50K p.a., including 13th month AWS) and I spend around half of it or more as my annual insurance premiums alone constitute $4K every year. If anyone remembers my earlier post - done after my financial planning in mid-2008, my target net worth at end-2010 is $200K. This has now been surpassed thanks to a strong recovery in Asia and to increases in employment income. I also spend my spare time (and some nights) running a small side business. So I am now ahead of the original schedule by just under 2 years, and with inflation rising at 3% p.a. I'd much rather be a millionaire at a younger age of 30 or 35 instead of the original 38. This hopefully would place me much ahead of my peers and allow me to choose the jobs that I want to do - no, I won't stop but I want a choice - and to roam the world as and when I please while I'm still healthy. Perhaps it is now time to relook at the cash flows and financial plan all over again :)
Friday, November 26, 2010
Sunday, November 21, 2010
Analysis on Starhub - Q3 2010 results
Starhub is one of the best perfomers in my portfolio, and I continue to like the counter. I bought the counter again last Friday as it was down around 4% from the week's high but my belief is the long-term uptrend is still intact.
Bought into Starhub when it was in the low $2s, and with dividend of 5 cents a quarter, or 20 cents a year, dividend yield was as high as 9% per annum! A lot of people have expressed skepticism that Starhub is unable to sustain dividends at that level; however if they were to cut dividends it would still be at least 16 cents per year (previous dividends were 18 cents a year) and at current prices it is still a respectable 6% every year, much higher than the inflation rate.
The stock would go ex-dividend on 23 Nov, which means I will get my 5 cents a share for the new lots that I purchased; of course the stock may drop below the price of the dividend (i.e. by more than 5 cents per share due to general weak market sentiment), and if so I may look to adding to my holdings by buying more shares (I guess I have to thank Fundsupermart for this, for making me realise my losses in my fund investments so as to make money in stocks!).
Is dividends of 20 cents a year sustainable for Starhub?
This is anybody's guess, but we can make an educated guess here by referring to the financial statements. The share capital for Starhub is 1.724 million ordinary shares.
So you ask - for 3Q 2010, Starhub earned only 4.76 cents (diluted) per share, how come they are able to pay out 5 cents per share to shareholders? Are they borrowing to pay us - if so, this is dangerous. Now this is where there is a difference between accounting earnings and cash earnings - the biggest non-cash expense is depreciation and if I add back to earnings, the cash earnings now become 85 cents per share. The quarterly depreciation is approx. $65 million, while dividends is $86 million, so the depreciation expense is able to pay off about 75% of the dividends.
Another thing you should look at is shareholder's equity - or net assets - which at S$53.6 million (around $31/share) is rather low. Compare this against its net current liabilities position of $499 million - over 9 times its equity position! What this means is if its trade creditors ask for money immediately, or if the banks do not rollover the loans upon maturity, Starhub may run into cashflow issues. The mitigating factor is that the operating cash flows are sufficient to cover off the cash flows required for financing activities (which includes repayment of loans and payment of dividends) so cash flow management seems alright for now.
Analysis of Revenue Drivers
Not sure if anyone realises, but Starhub's 3Q 2010 results were better than expected. Operating revenue has increased 3% y-o-y due to higher service revenue driven by its Mobile business. There is an 8% y-o-y increase in Mobile service revenues which is largely due to higher subscription revenue from post-paid mobile services, perhaps due to the introduction of iPhones to its customers (where people upgrade their plans - I did too!) - and this is in my opinion the bread and butter of telecommunications business so it is fairly stable.
And as widely expected, Pay TV recorded a 8% lower renuve y-o-y due to a reduction in the Sports package subscription price from $25/month to $12/month as they try to retain customers after they lost the EPL broadcasting rights. The good thing is, Mobile contributes to 54% of total service revenue while Pay TV contributes 17% so overall the entire company is better off.
Revenues are of course only one aspect of earnings, and we should look at operating expenses as well. There is a whopping 57% increase for the 9 months to 2010 y-o-y for cost of equipment sold, and total cost of sales increased by 17%. This is due largely to the subsidy they provided on the iPhones and other smartphones. Is this a concern? Well, the results are translated into higher service revenues for Mobile, and overall would expect there to be margin recovery in 2011, so while increases in expenses are not ideal, this should be monitored by looking at the profitability in subsequent quarters. Again this could be an accounting peculiarity where the expenses (e.g. cost of iPhones) are recorded in the quarter, but revenues are only going to be recognised slowly over the term of the contract (e.g. a two-year mobile service contract).
Therefore I think Starhub is still on track to pay 5 cents per quarter for at least the next 2-3 quarters ahead. It also offers one of the fastest payment of dividends from ex-dividend date, and you will see the dividends in your account by 8-9 Dec, just in time for your Christmas shopping!
Conclusion
Expect Starhub to outperform, at least perform in line with the broader market. The closing price on 19 Nov is 61.8% of the Fibonacci line (from the peak of $2.82) and expect the price range to be around $2.64-2.67 ex-dividend. If it falls back to $2.50-$2.60 believe there is a buying opportunity; alternatively if it shoots up to $3, I may look to offload some of the lots to take profit. Uptrend based on moving averages look intact; so this could happen just before year-end. :)
Bought into Starhub when it was in the low $2s, and with dividend of 5 cents a quarter, or 20 cents a year, dividend yield was as high as 9% per annum! A lot of people have expressed skepticism that Starhub is unable to sustain dividends at that level; however if they were to cut dividends it would still be at least 16 cents per year (previous dividends were 18 cents a year) and at current prices it is still a respectable 6% every year, much higher than the inflation rate.
The stock would go ex-dividend on 23 Nov, which means I will get my 5 cents a share for the new lots that I purchased; of course the stock may drop below the price of the dividend (i.e. by more than 5 cents per share due to general weak market sentiment), and if so I may look to adding to my holdings by buying more shares (I guess I have to thank Fundsupermart for this, for making me realise my losses in my fund investments so as to make money in stocks!).
Is dividends of 20 cents a year sustainable for Starhub?
This is anybody's guess, but we can make an educated guess here by referring to the financial statements. The share capital for Starhub is 1.724 million ordinary shares.
So you ask - for 3Q 2010, Starhub earned only 4.76 cents (diluted) per share, how come they are able to pay out 5 cents per share to shareholders? Are they borrowing to pay us - if so, this is dangerous. Now this is where there is a difference between accounting earnings and cash earnings - the biggest non-cash expense is depreciation and if I add back to earnings, the cash earnings now become 85 cents per share. The quarterly depreciation is approx. $65 million, while dividends is $86 million, so the depreciation expense is able to pay off about 75% of the dividends.
Another thing you should look at is shareholder's equity - or net assets - which at S$53.6 million (around $31/share) is rather low. Compare this against its net current liabilities position of $499 million - over 9 times its equity position! What this means is if its trade creditors ask for money immediately, or if the banks do not rollover the loans upon maturity, Starhub may run into cashflow issues. The mitigating factor is that the operating cash flows are sufficient to cover off the cash flows required for financing activities (which includes repayment of loans and payment of dividends) so cash flow management seems alright for now.
Analysis of Revenue Drivers
Not sure if anyone realises, but Starhub's 3Q 2010 results were better than expected. Operating revenue has increased 3% y-o-y due to higher service revenue driven by its Mobile business. There is an 8% y-o-y increase in Mobile service revenues which is largely due to higher subscription revenue from post-paid mobile services, perhaps due to the introduction of iPhones to its customers (where people upgrade their plans - I did too!) - and this is in my opinion the bread and butter of telecommunications business so it is fairly stable.
And as widely expected, Pay TV recorded a 8% lower renuve y-o-y due to a reduction in the Sports package subscription price from $25/month to $12/month as they try to retain customers after they lost the EPL broadcasting rights. The good thing is, Mobile contributes to 54% of total service revenue while Pay TV contributes 17% so overall the entire company is better off.
Revenues are of course only one aspect of earnings, and we should look at operating expenses as well. There is a whopping 57% increase for the 9 months to 2010 y-o-y for cost of equipment sold, and total cost of sales increased by 17%. This is due largely to the subsidy they provided on the iPhones and other smartphones. Is this a concern? Well, the results are translated into higher service revenues for Mobile, and overall would expect there to be margin recovery in 2011, so while increases in expenses are not ideal, this should be monitored by looking at the profitability in subsequent quarters. Again this could be an accounting peculiarity where the expenses (e.g. cost of iPhones) are recorded in the quarter, but revenues are only going to be recognised slowly over the term of the contract (e.g. a two-year mobile service contract).
Therefore I think Starhub is still on track to pay 5 cents per quarter for at least the next 2-3 quarters ahead. It also offers one of the fastest payment of dividends from ex-dividend date, and you will see the dividends in your account by 8-9 Dec, just in time for your Christmas shopping!
Conclusion
Expect Starhub to outperform, at least perform in line with the broader market. The closing price on 19 Nov is 61.8% of the Fibonacci line (from the peak of $2.82) and expect the price range to be around $2.64-2.67 ex-dividend. If it falls back to $2.50-$2.60 believe there is a buying opportunity; alternatively if it shoots up to $3, I may look to offload some of the lots to take profit. Uptrend based on moving averages look intact; so this could happen just before year-end. :)
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