Sunday, June 26, 2011

Popular Holdings and its dividends

Popular Holdings announced their full year results on Friday, after trading hours. Its share price closed at $0.16.

Headlines from the business times:"Popular's Q4 net earnings down 74% at $2.2m"
Headlines from the straits times:"Popular's net profit falls to $23.8 million"

What is your feeling when you read the two headlines above? Please comment.

Let us do a bit of calculation here. This is my personal analysis. It does not represent anybody, not even the company.

Only after reading the news in straits times, I found one very important sentence: "The group sold another five units last month." I have been to the actual unit and  each unite were selling at the minimum price of $3+ million. Therefore, the first quarter results should be good news.

After reading the headlines in the business times, I believe novice investors will definitely panic and sell their shares soon. I will definitely stockpile more if the price goes lower.

If you have read further, earnings per share fell to 2.83 cents from 4.53 cents a year ago. This is definitely misleading. The total shares in FY2011 is about 841 million shares while there are only about 691 million shares in FY2010. It looked like the earnings per share has dropped by 37.5% but in actual fact, the earnings has only dropped 23.9% when we look at the profit after tax.

Assuming that you are holding 1 million shares. Your shares actually profited $28,300. If you have bought popular shares at $0.15 per share during recession, then your percentage profit is actually 18.8%. In total the group is giving out 1 cent of dividend per share, in which you will receive $10,000 for FY2011. That is a good 6.7% dividend yield from your investment.

If you have been more diligent, you will see that Popular has been profiting 9 out of 10 years and each year the dividend is really high. You can click on the link that I have provided on the right hand side of this blog, to see the summary that I have compiled.

One more thing to look at. Although profit has dropped but the net asset value is increased by another 5.7% from 21.45 cents to 22.68 cents. Friday's closing price of 16 cents is actually a discount of 29.5%.

This post is only my personal view on the stock. Whether it's a good stock to own, it still depends on your own judgement.

Cheers and happy investing.

Disclosure: I own Popular Holdings shares at time of post.

Thursday, June 23, 2011

The one rule that many property investors may overlook

Monetary Authority of Singapore (MAS) proposes to the bank for a standard fact sheet for home loans. This includes how lenders will be affected when interest rates rise. There is one more the item that property buyers overlooked. What actually happens when the value of a home decline? A lender is supposed to top up the difference between the outstanding bank loan and the latest valuation of the house.

Here's an example.
An investor bought a house at $1 million. For the next few years, if the property value remains or goes up, both the banks and investors will be happy. What if the property value drops?

This investor took an 80% loan with a bank ($800,000). After a few years, a major crisis like the one in 2008/2009 surfaces (we never know when it will happen). The value of the house is not about $700,000 as there are more supplies and less demands. The investor's outstanding loan with the bank is $780,000. The investor is expected to pay the difference of $80,000 to the bank.

This payment is easily overlooked as people always think that property prices will just keep going up and will not come down.

1. Before buying any property, we must make sure that we have sufficient funds before making the commitment to buy.
2. Always buy properties at a discount of your valuation. This will protect you from having to pay the difference when there is a decline in the property value.
3. The best time to buy a property is during the 'perfect storm'. That is,
    a. when interest rates go up.
    b. when there is another crisis.
    c. when supply is more than demand.

Have fun investing.


Wednesday, June 15, 2011

Enterprising Investor vs Defensive Investor

I was talking to my brother this morning regarding property investment. I realised that both of us are two different types of investors. I remembered reading Benjamin Graham's "The Intelligent Investor". In it, he mentioned the two types of investors, the defensive investor and the enterprising investor.

I am an Enterprising investor while he is a Defensive investor. How did I find out?

My brother bought his current 3-bedroom with PES unit at less than $700,000 five years ago. At current market price, he can sell it for $1.2 million. There is a development, going to TOP soon near his area. A seller was asking $1.2 million for a mid-high floor 4-bedroom unit. Therefore, I suggested that he sells his current one to upgrade to the 4-bedroom unit and at the same time cash out the profit. His only reply was, "Live within your means. I would have to take up more loan if I were to buy now." He was contented with his current lifestyle. He will only start investing when he has saved enough for a second property. This is an example of a defensive investor.

What will you do if you were him? To sell and change to the 4-bedroom unit or to stay put in the current one and save enough to buy a second property?

Here's another example of a defensive investor. A ex-colleague of mine bought a new condo to move in and will be renting out her HDB flat. Her family has been staying in the HDB flat for more than 15 years. She bought the condo after she made sure that she has enough to service this current home as she has already fully paid her HDB flat.

As for me, I am an enterprising investor. I have downgraded twice, first from an EC to HDB 4 room resale flat, bought an investment condo and rented it out during the financial crisis, sold it off a year later, after the recession is over. I bought a terrace house with the intention to stay, but the profit made is too tempting to hold on to it. So this is the second time. I downgraded from a terrace to a condo. In the process, I have cashed out a handsome amount of profit and of course my outstanding loan is a few times higher than my brother's. His current outstanding loan may be at around $200,000 while mine is about $1 million.

So what kind of an investor are you? Have a word or two in the comments please.


Sunday, June 12, 2011

Is asset enhancement really useful?

Asset enhancement happens when the value of your asset increases in value. However, it is not considered an enhancement unless you cash out the value of your property.

Here's an example. An old couple bought a 4 room HDB flat (98 sqm) in town area for $27,000 in 1980, when they were 40 years old. They have been staying there till now. The value of the flat is now at about $420,000. The value of the property has increased over 31 years. The couple is now in their 70s.

If they continue to stay in the flat, they will not enjoy the cash that is locked in the property.

If they are to sell it at $420,000, there a a few points to take note.
1. They are already in their 70s, no bank will want to approve their loan application.
2. Their combined CPF account will have only about $30,000. This is because they have spent every single cent in the CPF ordinary account on this flat, they were from a low income family.
3. They cannot buy a brand new flat from HDB within 30 months.
4. They have to pay levy to HDB if they downgrade to a smaller flat, which must be bought from the resale market (more expensive).

Hence, if they are to sell their HDB flat now, a same 4 room resale flat costs about the same price, and without ample CPF monies in the ordinary account, they still have to come up with cash to buy the house, as no bank will want to give them a loan, due to their ages. Therefore, in the end, they are left with little or no moeny at all.

Where is the asset enhancement in this case?

Monday, June 6, 2011

How much should a new 4-room HDB flat be selling at now?

If you have read my book, I have mentioned that the selling price of a new 4-room HDB flat was sold at $27,000 thirty years ago. If we were to use the inflation rate of 5% per annum for the past 30 years, a new 4-room HDB should be priced at around $116,700.

Recently, when I was having a casual conversation with a taxi driver regarding the overpriced new HDB flats. He shared that a main contractor (his passenger) confirmed that the cost of building a HDB unit is close to $100,000. Adding in the administrative costs to sell the flat, I feel that my calculation of the above selling price is reasonable.

HDB should relook at their mission. Their mission is to provide affordable housing for young and old Singaporeans. Why is a 4-room HDB flat selling close to $250,000? That is double the price it should be selling at. How many young couples can really afford this kind of price?

A suggestion is to stop building new flats in the mature estate. If the couple wants to stay close to their parents, either buy from the resale market (pay a higher price) or their parents sell their current place and the two families buy two new flats (at a lower price) in the new estates like seng kang or punggol. The parents need not wait for 30 months to buy the new flats. This is just a suggestion. It is still up to HDB to change their policies.

Feel free to comment on this post.


Sunday, June 5, 2011

How much is reasonable for a property now?

Everyone has been talking about sky rocket prices in properties. How do we know what is a reasonable price for a property?

I have came up with a way to calculate it. We will still use my favourite formula to do it.

Future Value = Present Value x (1 + Rate of Inflation/100)^n.

We'll take it that inflation rate is at 4.5% for the past 10 years.
A mid-floor 3 Bedroom unit in Lilydale was sold by developers at $430,000 in 2001.
Using the formula above,

Value in 2011 = 430,000 x (1 + /100)^10
                      = 430,000 x (1.045)^10
                      = $667,777

This number is used as a guide for me when I do purchase a property. A mid-floor 3 bedroom unit in Yishun is about $668,000 to me. Currently units in lilydale are selling at around $720,000 to $770,000. This is considered over valued for me. Therefore any nearby development especially the ones in Sembawang, are way above the value. Each 3 bedroom unit was sold at asking price of $1 million! That's really daylight roberry.

The value above can only be an estimate to the condominiums of the same area. We cannot use the above value to compare with properties in the central and central core region. We have to use the price of a condo, 10-years ago, in the area to calculate our personal valuation.

Happy investing.