Investment Moats

How to Help Your Kid Transition to Emerging Adulthood Better

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One of the bigger problems that I have growing up was in the conflict with my dad.

You can attribute that to partly adolescent insolence and immaturity but there were a lot of cases that he mistook that I refused to carry out some chore because I was lazy.

Some times I was lazy, but a lot of times… I really do not know how to do that thing!

Like how to wash the clothes when the washing machine is just stting there for me to use? The reason why I procastinate to do it, or refuse to do it was because… the washing machine does not come with a user manual.

I do not know how to use it.

The problem is I did not tell him I do not know how to do it, and he assumed that I know.

This could very well be resolved by showing me how to do it.

The tough part of transiting from being a poly kid and a junior college kid to becoming a young adult is that people expect that after school you become a young adult and are fully equipped with all you need to know about being a successful young adult.

I came across this podcast that resonated with me and I wrote about it over at Providend. You can read 3 Areas to Help Your Youth Ease into Adulthood More Successfully here.

I like the article because it comes from not a researcher, but someone who have been helping parents who have a frustrating time with their kids.

He identify 3 main areas parents can better communicate or do to help their kids ease into adulthood better.

The 3 areas he shared that parents can help work their kids on are:

  1. Be more responsible by asking them to do the mundane, administrative things well. Provide instructions to them
  2. Be more of a consultant rather than a supervisor. Your kid is already 17 years old. You cannot use the style of parenting more suitable for a child
  3. Be more relevant. They are leaving a structured world for a very unstructured world. You need to make them see that in the past, you have struggled as well and it is not special to struggle when you are transiting to adulthood.

For those of us who are young adults, you can read it and see if you identify with some of the problems Mark McConville shared.

For those readers with kids and struggling with them, let me know if this is of any help.

Read Areas to Help Your Youth Ease into Adulthood More Successfully at Providend Here

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Which Singapore REIT will Survive and Thrive Better During this Challenging Period?

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DBS has a pretty good report out which shows some of the “stress-test” they put the REITs listed in Singapore through.

For those serious in investing in REITs, this is a good blueprint how you can assess the defensiveness of REITs in times of stress.

This kind of assessment is very quantitative and should not be the only way you assess the REIT’s defensiveness. You have to layer the qualitative aspect as well.

Let me share some of the main takeaways.

The Metrics that DBS uses to Measure Whether Each Singapore REITs Will Survive Better

Firstly, we have to be clear what they mean when they measure the survivability of the REITs.

I do not get a clear statement from the report but after reviewing the report, a REIT survives better by coming through this testy period in a much better condition than before they enter it.

  1. They have enough cash flows after paying all the necessary expenses so that they do not need an additional external capital injection
  2. When their assets are re-valued downwards, their overall debt to the asset is still within the MAS gearing limit (now it is at 50%)
  3. The lower amount of debt that needs refinancing in the short term
  4. Able to sustain the dividends better
  5. Most importantly, investors have less risk that they will need to inject equity capital by way of rights issue into the REIT, to shore up capital when no one wants to loan them money they really need

These are more fundamental measures and less about the stock price. However, stock price tends to reflect over time the health of the REIT.

Key Metrics Show the Singapore REIT Sector is in a Better Shape Than the Previous Downturn

The Singapore REIT Sector Health

DBS compares current REIT sector industry metrics against the 4 years before and after the Great Financial Crisis (GFC) from 2007 to 2010.

DBS noticed that during the GFC:

  1. Interest coverage ratio remain stable at greater than 4.0 times
  2. There are more stress on the balance sheet
  3. Asset valuation decline by 2% to 15%
  4. Office sector was the most hard hit

Currently, the overall sector is in a much better position:

  1. The gearing level was similar to 2007
  2. Interest rate today is much lower
  3. REIT sector enter this challenging period with a lower portfolio encumbrance (this means that the amount of debt secured against their properties is lesser. That means they have more properties unsecured to collatorised during refinancing shoudl they need it. Financing companies find you less risky if the debt is secured with properties. In the event the REIT defaults, they can possess the property)
  4. With the recent changes to the MAS leverage limits from 45% to 50%, this provides greater flexibility for the REIT to manage their capital structure in times of financial stress

Personally, when I reviewed DBS’s data, it does not give me the idea that current situation is much different from the previous years they compared against.

If we are in a bad shape back then, the data does show that we are in a bad shape now. Vice-versa.

The only takeaway is that this may be reflective of the overall health of the larger REITs. These larger REITs will shape the table above. It seems to tell me things are not so different for the larger REITs compared to back then.

DBS’s Framework for Stress Testing the REITs

DBS decided to put our REITs through some stress tests.

These are their parameters:

The criteria of evaluation in this Singapore REIT's stress test
The criteria of evaluation in this Singapore REIT’s stress test

DBS look at

  1. potential asset devaluations on gearing level
  2. lower cash flow on interest coverage ratios (ICR)
  3. whether a REIT will breach DBS’s more conservative leverage threshold of 40% after their property devalues 15%
  4. trading below revised NAV (assuming that the REIT needs to be re-capitalized with a rights issue)

And the results is below:

So the more green ticks each REIT have, the better they will emerge oiut of this.

We can see some with 4 to 6 ticks:

  1. SPH REIT (6)
  2. Capitaland Mall Trust (5)
  3. Lendlease Global (4)
  4. Mapletree Commercial Trust (4)
  5. Ascott REIT (5)
  6. Ascendas India Trust (5)
  7. Mapletree Industrial (5)
  8. Keppel DC (5)
  9. Prime REIT (6)

Then there are some REITs that have 1 tick or less:

  1. Suntec REIT (1)
  2. ARA LOGOS (1)
  3. ESR REIT (1)
  4. EC World (1)
  5. Manulife US REIT (1)

1. Which Singapore REIT have a More Conservative Capital Structure?

A lower gearing limit:

  1. Gives financial flexibility to tap debt capital markets if needed
  2. Cost of funds is cheaper
  3. Ability to leverage up to acquire distressed assets

2. The Interest Coverage Ratio Test

The interest coverage ratio test is one that I appreciate less because…. I omit a situation where a REIT, with a diversified tenant base… can suddenly have no income…

DBS stress test the REITs by cutting the REIT’s EBIT by 50% and 75%. What DBS got is a “cash-backed ICR”

They assume that every quarter of delay in collections will lower the EBIT by 25% . In the even of a 6-month and 9-month delay, this will reduce the EBIT by 50% (unlikely) and 75% (highly unlikely).

In this higher stressed scenario, the ICR range is reduced to 1.1 times to 7.9 times. With a 9-month delay, some ICR can go below 1 times.

This stress test is good, but in reality it is very broad stroke. Some type of REITs such as office should be less affected such that their EBIT broadly falls by 50% and 75%.

So you do have to be a bit qualitiative about it.

Out of the troubled hospitality and retail REITs, SPH REIT and Lendlease looked particular strong despite this very stressful test.

3. Which Singapore REIT is More Sensitivity to Decline in Valuations

While the REIT managers did not give clear indications, history tells us that it is likely the REITs will face a decline in valuations.

DBS tested the REITs gearing levels to a 5%, 10% and 15% drop in valuations.

All S-REITs did not breach the 50% gearing limit set by MAS. However, if we use DBS’s more conservative 45% threshold the following REIT would touch the limit first:

  1. OUE Commercial
  2. Suntec
  3. Far East Hospitality REIT
  4. ARA LOGOS
  5. ESR REIT
  6. Mapletree Logistic Trust
  7. Soilbuild Business
  8. EC World

4. Which Singapore REIT can Sustain the Dividends with the Help of Short-Term Debt?

DBS stress test the REITs ability to sustain the dividends by temporary take on debt. This would corelate to the REIT’s individual debt levels and gearing limits:

The Singapore REITs could maintain the dividends, but some of the REITs will break a 40% gearing level.

5. Which Singapore REIT Trades Below NAV Even After Potential Decline in Value?

Since DBS stress-tested the Singapore REITs with lower valuation, they also presented the data in terms of attractiveness in terms of valuations.

One of the risk in investing is to use historical data and come to a conclusion that this stock is cheap. The right way to do is to do what DBS did, which is assume a discount in value that may happen and see which one still look attractive:

Those that are highlighted in green are the REITs that, after a decline in portfolio value, still has a net asset value (NAV) per unit higher than current REIT unit price. This indicates even after both price decline and NAV decline, the REIT looks attractive.

On a NAV basis, DBS believes that many REITs are trading at an implied 15% decline in portfolio valuation.

Capitaland Mall, Starhill, and Lendlease are trading at a greater than implied 15% decline in portfolio valuation.

6. Singapore REIT Re-capitalization Risks When Property Value Declines

When the REIT portfolio decline in value, the gearing level increases.

Some REIT might potentially need to raise capital via rights issues, placements.

This will dilute and reduce your dividends because you are not buying properties with this capital but the number of shareholders increases to share the same pot of rental earnings.

DBS stress test this by simulating:

  1. the REIT does an equity fund raising if gearing goes above 40%
  2. the rights issue is priced at a 25% discount to current trading price

The REIT highlighted in green are the REITs that after a 15% decline in portfolio value, they did a necessary rights issue, and their NAV per unit is still higher than current share price.

Based on DBS’s assumptions, 50% of Singapore REITs in their coverage will not require any equity fund raising even if property valuations fall by 10%.

If property valuations drop by 15%, those that need to recapitalize will see their NAV per unit drop by 23% to 34%.

10 of them are trading at prices that are even below the revised NAV. They are mainly in the retail and hospitality sector.

The table above shows the potential effects of the equity raising dilution on dividend yield. With the rights issue, the DPU should be diluted.

However, even after that decline scenario, some REITs are still trading with a dividend yield that is higher than their 10-year historial average yield.

Those are highlighted in green.

On average, the dilution on DPU Yield is about 1% – 2%.

The Singapore REITs that potentially will experience the largest declines in DPU Yields are:

  1. ARA LOGOS (1.3% decline)
  2. ESR REIT (1.3% decline)
  3. Soilbuild Business (1.1% decline)

For some, even after this decline, the REIT is still traded at attractive yield.

Last Word

I feel that DBS tried its best to provide some rational negative operation assumptions.

They did a lot of hard work there and we got to thank them for that.

In this whole exercise DBS is trying to help us assess, based on current price, what are some of the scary stuff that may have been priced in.

It is to help us see in the spectrum of very undervalued to very overvalued, where each REIT is right now.

However, I believe the markets and fundamentals are rather fluid here as well. When the property value actually goes down, the share price might react very negatively, forward pricing in a potential rights issue.

If it looks attractive today, when the event happens, it might look even more attractive.

Of course, if these valuation declines do not happen, then you missed the boat.

Some investors will look towards this for attractive mis-pricing. Others will use this as a way to assess their Singapore REIT on the risk spectrum better.

Let me know which REIT caught your eye or some realization you have after this review.

I have a FREE REIT Training Center. The link is below.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Citic Telecom (1883) – A Tiny Dominant 7.3% Dividend Yielder

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In 2018, I spotted a telecom operator that has in excess of a 10% free cash flow yield. So I took a look at it.

Till today, I could not increase my conviction in this stock due to the limited information that I could uncover about the business.

It is not a very sexy business and I think in recent years, not many folks would touch it due to the challenges in the industry.

My posture has always been to let the company’s result tell me if I was wrong, or that I was cautiously right. The world is different today, but the share price is not too far off from where I first pick it up

A Brief Introduction to Citic Telecom

Citic Telecom (stock code: 1883) was established in 1997 and listed on the Hong Kong Stock Exchange in 2007.

The company provides a whole assortment of telecommunications service mainly to the people in Macau and coming into Macau.

Citic Telecom owns 99% of Companhia de Telecomunicacoes de Macau, S.A.R.L. (“CTM”). Before 2013, Citic Telecom owns only 20% of CTM. In 2013, Citic Telecom purchase the other 79% of CTM that it does not own from a wholly owned subsidiary of Cable & Wireless Communications and Portugal Telecom.

The purchase consideration was US$1.16 billion or equivalent of HK$9 billion then.

Macau Post, an entity controlled by the Macau Government, owns the remaining 1% equity in CTM.

  1. CTM held a 41% market share in the Macau mobile market. This was down from 43% in 2018.
  2. CTM held a 42% market share in the Macau 4G market. This was down from 46% in 2018.
  3. CTM held a 97% market share in Macau’s broadband services with a broadband penetration rate greater than 91% at end 2019

A substantial shareholder of Citic Telecom is Citic Group. Citic Group, a large state-owned enterprise in China owns 58% of Citic Telecom.

The Macau Telecom Market

Macau boasts a sophisticated, independently regulated communications market. Liberalization has now fully opened the telecoms market.

Demand for telecom services is significantly driven by the millions of visitors that visit Macau every year. 87% of visitors classified as residents of mainland China or Hong Kong.

Macau’s mobile market is very competitive. There are four mobile network operators (CTM, Hutchison 3, SmarTone, and China Telecom Macau) and a mobile virtual network operator (MVNO) offering services.

Mobile penetration is in excess of 200% due to multiple SIM card ownership as well as sales of SIM cards to visitors.

Macau have a population of 650,000.

Citic Telecom’s Business

Like most telecom operators, Citic Telecom’s revenue is derived mainly from

  1. Mobile sales and services.  Sale of handsets and providing 4G and in the future 5G mobile services. This is their main bread and butter.
  2. Internet services. This would be broadband services.
  3. International telecommunications services. Voice services, SMS, and their “DataMall” services.
  4. Enterprise solutions. Citic Telecom through its subsidiaries provides info-communications and technology services (ICT). Customers are mainly global MNC. This business spans more than Macau but includes Europe, Russia, China (those countries along the One Belt one road), South East Asia. Services include Cloud computing, VPN services, Datacenter services, systems integration.
  5. Fixed-line services. This is the declining phone line business. While they own a monopoly on this, it has been declining and will decline over time.

The unfortunate thing with Citic Telecom is that they would only provide breakdown of their revenues by segment. In this way we have no idea how well each segment is doing.

The Challenges for Telecom to Diversify Away from Traditional Profit Sources

We do know that overwhelmingly the mobile services and internet services enjoy the best EBITDA margins of around 20-30%. The enterprise solutions segment should command around 10 to 15% margins.

The one thing I realize as I read a few annual reports of telecom companies is that they will describe the great potential of their various segments.

However, at the end of the day, majority of what drove profits is the mobile and broadband business.

The rest of the enterprise, advertising, internet content, data center segments often are either still losing money or a small portion relative to the mobile and broadband business.

This is also where telecoms struggle with as they have become more like commoditized utilities. We subscribe to one provider but we are so fickle that when another provider lowers their price, we switch over.

With greater number of players, this will reduce a very high EBITDA margins down. Since the mobile and broadband EBITDA margins are so much higher than the rest of the new segments a telecom operator is trying to develop, telecom operators’ results live and die by the mobile and broadband segment.

However, despite what I mention, the telecom operators have no choice but to explore these new segments.

The main reason is that; they already have the infrastructure. By developing new users around the technology infrastructure, they encourage greater use, and may be able to charge enterprise clients, SME at better rates.

5G brings a lot of promise (and also lots of CAPEX) but at this point, it is just potential.

Citic Telecom’s Segmental Revenue

Citic Telecom Segmental Revenue

While Citic Telecom is adding mobile subscribers, revenue did not seem to move much. Fixed line services is on a declined.

The surprise was the boost in international telecommunication service in the past 2 years due to SMS and voice. I wonder whether that will continue.

Mobile Subscriber Growth

While there can be more mobile penetration over time, it does not mean it translate to revenue. This is because ARPU tends to go down over time as well.

Here are some of the latest Citic Telecom subscriber numbers we have:

  1. 2019 Postpaid Subscribers: 350,000
  2. 2019 Prepaid Subscribers: 796,000
  3. 2019 Broadband Subscribers: 193,000

Here is the growth of Macau prepaid sim cards over the past 10 years:

Probably not the most up to date but better than nothing. Citic telecom probably have slightly less than 50% share of this.

The compounded growth is 12% a year.

Here is the growth of Macau mobile subscribers over the past 10 years:

I think I would trust Citic Telecom when they tell me that by 2019 their market share would be 41%.

The compounded growth was 7% a year for the past 10 years.

Given this kind of consistent subscriber growth, and that Citic was able to capture enough market share, it cannot be revenue stay stagnant for so long. The only explanation is that in terms of the operating dynamics, it is unfavourably deflationary.

A2P SMS

What have been driving this have been A2P SMS Business. A2P stands for app to person.

There seem to be an increase in the pace of global expansion of major PRC internet companies and with that a growing demand for authentication SMS from financial institutions.

  1. In 2018, SMS revenue grew 38% or 146 mil.
  2. In 2019, SMS revenue grew 74% or 287 mil.

International Telecoms have been declining and suddenly this turned around.

Amazing.

If you bank with Bank of China in Singapore, you will know how crazy their 2FA SMS can be. Almost every action generates an SMS.

According to a survey done by Ovum and Tata Communications, SMS is the primary mobile specific service that companies use to communicate with customers.

A2P have been gaining momentum for a few reasons:

  1. Consumers prefer their communication to be short and personalized and on their terms
  2. SMS open rates are higher and faster than email open rates. 98% of SMS messages are read versus 20% in email
  3. Increase two factor authentication

Ovum forecasted that by 2022, revenues from app to person SMS will exceed revenues from person to person SMS. This is despite the traffic from A2P to be half that of P2P SMS.

“Unfortunately for most telcos, P2P SMS has become essentially value-less, since they have had to bundle unlimited SMS into mobile tariffs to remain relevant to their customers, an increasing number of whom use chat apps such as WhatsApp, WeChat and Facebook Messenger.

However, telcos can still charge a per-message termination rate for A2P SMS, which means it remains a more valuable source of revenues, since enterprises still value SMS for its global reach, affordability and mature ecosystem. However, chat apps, which Ovum forecasts will have 3.2bn unique monthly active users (MAUs) by 2020, are also connecting enterprises with consumers via their platforms. Telcos and the wider ecosystem are therefore under pressure to protect their A2P revenues, driving them to upgrade from SMS to Rich Communication Services (RCS),” – Ovum

Enterprise Growth

The growth area is definitely in internet services and enterprise. Part of the boost in Enterprise have been acquisitions:

  1. In Oct 2016, they acquired Acclivis Technologies and Solutions Pte Ltd. You might be familiar with it because it used to be a subsidiary of DeClout Limited. It provides comprehensive cloud facilities and owns Pacific Internet in Singapore and Thailand
  2. In Feb 2017, they finalized the acquisition of Amsterdam-based Linx Telecommunications. This includes Linx’s 470 KM submarine fiber network in the Baltic Sea, its network operation centers (NOC) in Moscow and Talinn, Estonia. It also includes a data center in Estonia serving Estonia’s largest internet exchange.
  3. In 2016, Citic Telecom acquired Citic Telecom Tower (CTT) in the data centre cluster in Kwai Chung, Hong Kong. Their intention was to turn this into a high grade data centre with more than 4000 racks. They completed this in late 2018. In 2019, they sold out all the racks and proceed to expand with 500 more racks. This should be completed this year or next year.  

For the past 4 years, the enterprise segment has grown 15% a year. If we assume that the conservative operating margin of 10% a year, this will add 4.5% a year to Citic Telecom’s profit.

However, if I look at Citic Telecom’s profit growth in the past, I am probably either too optimistic in the segment growth or operating margin, or there were administrative overheads.

Review of Competitors

For some reason Macau has got to be the most opaque telecom market to do research.

Out of the 3 competitors, Hutchison 3, Chine Telecom Macau and Smartone, I can only find the results of Smartone.

For such a small city of 650,000 people, they have 4 telecom operators and one MVNO.

This is one of the reason I was pretty cautious on this investment.

Intense competition has sort of kept Citic telecom on their toes. During the time where I remain invested, telecom operators around the world have been struggling due to competition. For some reason, Citic telecom has remained a bright spot among the telecom operators.

Smartone revenue, EBITDA and Profit in Macau

Citic Telecom’s Revenue Growth

Citic Telecom’s revenue have not been great for the past few years since they acquired almost all of CTM’s stake. The most meaningful boost to revenue was from 2017 to 2018.

$1 billion of that came from handset sales, and another large contributor was from… SMS-based services. SMS revenue in that year was up 386 million, which is a 37% increase.

Just when we thought SMS is dead, we did not realize that the demand for greater security have also increase the need for 2FA authentication. One common way is through SMS.

Citic Telecom’s Profit and Cash Flow Trend

Given the revenue profile, it is a little surprising that Citic Telecom’s profit growth has been pretty decent.

Citic Telecom 2013 to 2019 profit and profit growth

For the past 6 years the profit growth averages 5.5% a year. Citic Telecom profit margins have held up pretty OK.

We are not sure what the future may bring, but it is likely the growth will not exceed this range unless 5G surprises me on the upside.

Given how intense competition has been in the telecom space, I would not be surprised if the compounded average growth slows down to 2-3%.

While Citic Telecom’s profit growth looked decent, their free cash flow growth looks much better, especially in 2019.

2019 was boosted by higher depreciation and slightly higher net profit. Free cash flow growth over the past 6 years have been 16% a year.

I should warn readers that my free cash flow is computed by using operating cash flow before working capital. This will give a more consistent free cash flow. However, I am not glossing over working capital.

For the most part, Citic Telecom’s net working capital is quite in control, and I did not detect any signs that it will manifest into a greater issue. (If you would like to learn to differentiate each of the cash flows used in investing, you can read my comprehensive cash flow article here)

I have also listed the dividend paid out each year, relative to net profit. The dividend payout ratio starts off low at 24% and progress upwards closer to 70%.

If you look at the dividend paid out relative to profit or free cash flow, the payout has been rather conservative.

The issue with telecom operators is that they have to sink in greater amount of funds for capital expenditure but they could not earn incremental value from it.

Citic Telecom’s capital expenditure over the years have gone down quite a fair bit. However, Citic Telecom have indicated that once they have the 5G approval they will roll out the deployment of their 5G network in the first half of 2020 (it remains to be seen if Covid-19 will affect this plan).

Macau will be one of the first few cities in the world to have full 5G network technology coverage.

With the roll out in mind, it is likely that the capital expenditure in 2020 could be higher than the average Capex trend of the last few years.

Whatever cash flow that is left over from capital expenditure is mainly channelled to reducing their debts over time. Citic Telecom’s debt to asset have reduced from a less than comfortable 44% to a more comfortable 29%.

The Impact of Hong Kong Protest on Citic Telecom Results

I was also interested to review the full year 2019 results because from the segmental reporting, a large portion of revenue comes from Hong Kong.

The issue is that I am not sure if this was derived by customers in Hong Kong or that it is due to a subsidiary domiciled in Hong Kong.

I have a feeling it is the latter.

In any case, the unrest in the second half of 2019 did not affect Citic Telecom much. This was quite fortunate.

The Potential Impact of Covid-19 on Citic Telecom

Covid-19 is a different challenge altogether. I think I was quite lucky that out of all the stocks I own, I have a fair bit of telecom holdings in 2 of the stocks.

An industry that most investors do not like turn out to be in a better position than a lot of the industries that most investors like.

Telecommunications became very essential now.

However, certain segments of Citic Telecom would be affected by this:

  1. A portion of revenue comes from people visiting Macau. With lock-down restrictions, and very, very low tourism numbers, part of mobile revenue will be affected.
  2. A part of ICT revenues should come from on-going projects. This may be adversely affect when some projects are put on hold.
  3. International telecommunication revenue likely going to be affected as well

Macau depends on tourism. It is likely some of Citic’s main ICT customers are the casino and resort operators.

For this reason, I am not optimistic about their upcoming results.

Some numbers:

  1. 2017 Postpaid (exclude Internet of Things and SIMN) ARPU: HK$206
  2. 2017 Postpaid (Internet of Things and SIMN) ARPU: HK$30
  3. 2017 Prepaid ARPU: HK$11
  4. 2019 Postpaid Subscribers: 350,000
  5. 2019 Prepaid Subscribers: 796,000
  6. 2019 Broadband Subscribers: 193,000

Most likely, the Postpaid revenue is 7 to 8 times that of Prepaid. I think the impact of this is quite controlled. However, I cannot be certain of the aggregate impact.

The graph above shows the 5 year Macau mobile telephone subscriber growth. There was some craze spike from Sep 2019 to Dec 2019 where the number of subscribers went from 2.1 mil to 2.8 mil.

Note that a large amount of these are likely to be pre-paid subscribers.

I suspect that this was due to the unrest in Hong Kong diverting the amount of people there.

In any case, Covid-19 has totally collapse this:

  1. 2020 Feb: 2.44 mil
  2. 2020 Mar: 2.29 mil

I suspect this drove the spike in A2P revenue. For the next 6 months’ result, Citic Telecom probably will reverse that A2P revenue.

Valuation

For a business with recurring cash flow, earnings yield and free cash flow yield seem to be the better way to evaluate whether Citic Telecom is attractive or not.

EV/EBITDA is another one.

Citic Telecom have 3.65 billion shares outstanding. At a share price of $2.89, this puts Citic Telecom’s market capitalization at $10.5 billion.

With a net debt of $4.9 billion, this puts Citic Telecom’s Enterprise value to be at $15.4 billion. Citic Telecom’s 2019 EBITDA is $2.49 billion.

This gives Citic Telecom an enterprise value of 6.2 times. This is pretty attractive.

With a net profit of $1 billion and a free cash flow of $1.5 billion, this gives Citic Telecom earnings yield of 9.5% and free cash flow yield of 14.3%.

Currently, Citic Telecom have not gone ex-div yet. The share price bakes in a $0.15 dividend. If we backed that out, the market capitalization you are buying Citic Telecom at is $10 billion. Likely the valuation will not differ much.

In any case, the risk to this valuation is that things do not return to normal with social spacing. It will affect the number of people visiting Macau. Of course, Citic Telecom have the potential to offset this by the increase demand in their ICT business.

Based on the latest dividend per share of $0.20, this gives Citic Telecom a dividend yield of 7.3% (if we use the ex-div price of $2.74).

Investing in this climate is tough because there are a lot of uncertainty. If you look at Citic Telecom, the valuation does not look expensive, but they are operating in an area where prolong shut downs will definitely affect the business.

We will have to see how this unfolds.

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I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Singapore Savings Bonds SSB June 2020 Issue Yields 1.05% for 10 Year and 0.57% for 1 Year

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Here is a higher yielding, safe way to save your money that you have no idea when you will need to use it, or your emergency fund.

The 10-yr and 1-yr Singapore Savings Bonds Rate since the first issue in Oct 2015

The June 2020’s SSB bonds yield an interest rate of 1.05%/yr for the next 10 years. You can apply through ATM or Internet Banking via the three banks (UOB,OCBC, DBS)

However, if you only hold the SSB bonds for 1 year, with 2 semi-annual payments, your interest rate is 0.57%/yr.

$10,000 will grow to $11,067 in 10 years.

This bond is backed by the Singapore Government and its available to Singaporeans.

A single person can own not more than SG$200,000 worth of Singapore Savings Bonds. You can also use your Supplementary Retirement Scheme (SRS) account to purchase.

You can find out more information about the SSB here.

Note that every month, there will be a new issue you can subscribe to via ATM. The 1 to 10-year yield you will get will differ from this month’s ladder as shown above.

Last month’s bond yields 1.39%/yr for 10 years and 0.96%/yr for 1 year.

Here is the current historical SSB 10 Year Yield Curve with the 1 Year Yield Curve since Oct 2015 when SSB was started (Click on the chart, move over the line to see the actual yield for that month):

The Application and Redemption Schedule

You will apply for the bonds through the month. At the end of the month, you will know how much of the bond you applied was successful.

Here is the schedule for application and redemption if you wish to sell:

Click to see larger schedule

You have 02 to about 25th of the month (technically the 4th day from the last working day of the month) to apply or decide to redeem the SSB that you wish to redeem.

Your bond will be in your CDP on the 1st of the next month. You will see your cash in your bank account linked to your CDP account on the 1st of next month.

How does the Singapore Savings Bonds Compare versus SGS Bonds versus Singapore Treasury Bills?

Singapore savings bonds is like a “unit trust” or a “fund” of SGS Bonds.

But what is the difference between you buying SGS Bonds and its sister the T-Bills directly?

Both the SGS Bonds and T-Bills are also issued by the Government and are AAA rated.

Here is an MAS detailed comparison of the three:

SGS Bonds versus Singapore T-bills versus Singapore Savings Bonds
Click to see bigger comparison table

What is this Singapore Savings Bonds? Read my past write-ups:

  1. This Singapore Savings Bonds: Liquidity, Higher Returns and Government Backing. Dream?
  2. More details of the Singapore Savings Bond. Looks like my Emergency Funds now
  3. Singapore Savings Bonds Max Holding Limit is $200,000 for now. Apply via DBS, OCBC, UOB ATM
  4. Singapore Savings Bonds’ Inflation Protection Abilities
  5. Some instructions on how to apply for the Singapore Savings Bonds

Past Issues of SSB and their Rates:

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works