Monday, October 17, 2016

My In-depth Analysis of Fraser Centrepoint Limited

Influenced by B’s post, I went into the in-depth analysis of Fraser Centrepoint Limited.

Actually, this stock has been on my watchlist for ages. But I decided to postpone it as I was busy at work and also busy with promoting the Dividend Scorecard as well as my sharing sessions.

Nevertheless, after my in-depth analysis, I made the purchase of Fraser Centrepoint Limited.

The reason of my in-action previously was that I am unable to find the answer to this question -

“Why choose Fraser Centrepoint Ltd over the other listed firms which are in the same industry?”

The 2nd question I had on my mind is that -

“Why not choose a REIT if you want a high dividend yield?”

I found the answer pretty quickly to the 2nd question:

In my opinion, REITs is mainly purchased for the dividend yield. But for a REIT to grow, it may need to do a rights issue, which may dilute my shares in future. This is something I am not keen on. Furthermore, some REITs tend to become a dumping ground for its Sponsors. Thus, how can I be assured of my returns in future?

Some of the bloggers had also stated REITs are very dependable on how the REIT managers perform. But this can only be access via past REIT performance, which I know nuts about.



At the end of the day, I am not an expert on REIT Investing and I am still learning.

To answer the 1st question, I took about 1 week to do up an in-depth analysis of Fraser Centrepoint Ltd and its major competitors.

Basically, I did an Enhanced Triple S Scorecard with Dividend Scorecard Portion on each of the listed firm and the summary of the information as per below:
Summary of my findings and Enhanced Triple S Scorecard with Dividend Scorecard Portion
I will have deem all the listed firms above as Blue Chips (CapitaLand Ltd, Fraser Centrepoint Ltd, UIC Ltd, OUE Ltd and Far East Orchard Ltd) and Blue Chips generally do not fare well for my scorecards. Thus, all of them failed both my scorecards.


(Just to clarify - Those cells highlighted in yellow are the ones that perform the best among its peers, while those cells in green are the ones that perform the worse.)

1. CapitaLand Ltd

CapitaLand Ltd is the most established firm against the competitors listed in the table. Thus, it is the most expensive and has the highest market cap.

I will ignore this stock as I do not believe that there is much value in this stock. 

The X factor I am looking for is a stock that intend to become "the next CapitaLand Ltd" and not CapitaLand itself.

2. Fraser Centrepoint Ltd

The stock seem to be very over leveraged and has a negative Price to Free Cash Flow Ratio.

However, I believe that it is overleveraged because it is only listed for a short period (Oct 2014) and the company intends to grow its portfolio. Note that this period is of low interest rate.

Similarly, as the stock intends to grow its portfolio, it makes negative free cash flow from 2011 to 2014. However, in 2015, it managed to turnaround and has started to make positive free cash flow.

The stock also performed the best among its peers, by having the lowest figure, for the last 12 months trailing price to sales ratio and the last 12 months price to earning ratio.

It did fairly well in paying dividend for the last 2 years (2014 & 2015) and getting a reasonable figure for Dividend Yield to PB (better than all of the peers, except OUE Ltd).

In addition, this stock is a sponsor to 4 REITs. If there is really a need, the company will have a better chance to recycle its assets by selling them to these REITs.

Finally, it is also fairly close to its 52 weeks low share price. Do note that $1.470 seems to be its all time low share price as well.

This stock continued to stay on the watchlist.

3. UIC Ltd

I remembered someone had told me not to buy UIC Ltd due to its links with UOB (It's parent company is UOL). They stated that this stock does not treat its minority shareholders well. This is emphasized in its dividend yield for the last 2 years.

Without analyzing the other figures, I decided to ignore this stock.

4. OUE Ltd

This stock seems to be performing relatively well. It has about 20% of margin of safety when you compared its NAV against its share price.

Its dividend yield for the last 2 years has also been relatively high (as compared to its peers) and scored the best for Dividend Yield to PB ratio.

Other than it being quite highly leveraged, it also scores well in other aspects.

This stock is added to my watchlist.

5. Far East Orchard Ltd

This stock actually performed quite well in terms of balance sheet strength. It has a 14% margin of safety when you compared its NAV against its stock price. Furthermore, its current asset are rather liquid and its debt to equity is only at around 16%.

However, the stock fares poorly in terms of declaring dividend for the last 2 years and the stock is not a direct sponsor towards the REIT that it seems to have links to.

Thus, I decided to ignore this stock.

So why was Fraser Centrepoint Ltd chosen in the end?

Fraser Centrepoint Ltd was chosen (as compared to OUE Ltd) is because;

- I believe, for Blue Chips, Price to Earning and Dividend Yield plays a larger part in determining future share price. Thus, since Fraser Centrepoint Ltd has the lowest Price to Earning Ratio as well as a decent dividend yield last year, it is chosen over OUE Ltd;

- Sponsor of 4 REITs as compared to Sponsor of 2 REITs;

- Current Price is very close to 52 weeks low and also historically low;

- In terms of ultimate shareholder, I prefer Thai Beverage over Lippo Mall.

In conclusion, I believe Fraser Centrepoint Ltd has a higher chance to grow to become "the next CapitaLand Ltd" over the other 3 listed firm.

Current Price: $1.485 as of 17 Oct 2016.

Please do your own due diligence before you invest in this stock.

Do note the author is vested in this stock/company at $1.490 

For those who are interested to understand and find out more about the calculations shown above based on the Enhanced Triple S Scorecard with the Dividend Scorecard Portion, you can come for the 4th Sharing Session with T.U.B! If you are interested to attend, do not hesitate to contact me directly.

For those who intend to try the Enhanced Triple S Scorecard first before attending the sharing session, you can contact me directly as well

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7 comments:

  1. Hi TUB

    Thanks for the mention.

    It's great seeing you analyzing this company. I saw a valuebuddy forumer commenting on the debt ratio and comparing it to noble. I think its pretty absurd because fcl obviously has a pretty decent coverage ratio and is very comfortable paying off the interests even in rising interest rate environment. I dont think noble is by any means a close comparison so I am baffled why he thinks it that way.

    On the OUE, i have to pointed out that they do invest in lots of loss making funds from the proceeds they have from the properties. The Riady family is well known to be shrewd and unlikely will take the company private.

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    Replies
    1. Hi B,

      Thank you for commenting!

      Haha.. I already replied him. Anyway its a risk I took on when I enter into this purchase. There are various ways for FCL to raise cash and rights issue is definitely a NO-NO for them with the price currently so low. I guess I am safe then.

      As for OUE, I don't really like them. Read about the Lippo Mall scandal online and decided against them.

      But as usual, if OUE continues to fall, why not?

      Regards,
      TUB

      Delete
  2. 1.47 is not the lowest price. Checked the historical chart. The lowest is 1.40 register a 2 to 3 years ago.

    ReplyDelete
    Replies
    1. Hi Anonymous,

      I may have make a mistake here. But I knew there was a period after it was listed that was very low.

      Anyway, 1.47 is not far from it. I guess its fine.

      Thanks for pointing out my mistake.

      Regards,
      TUB

      Delete
  3. Hi TUB,

    "However, the stock fares poorly in terms of declaring dividend for the last 2 years"

    Hi, would you mind elaborating more on this comment on FEO? It has been consistently declared 6cts yearly div for the past 4 years and on track to declare another 6cts this year.

    Desmond

    ReplyDelete
    Replies
    1. Hi Desmond,

      Thanks for pointing out the mistake. If the dividend yield is much higher, there is a positivity it is much better and can be on my watchlist.

      Regards,
      TUB

      Delete
    2. Hi Desmond,

      I realised why my scorecard reflected a lousy dividend yield for Far East Orchard Ltd. This is due to most of the stockholders receiving them as shares. Thus, the cashflow statement did not provide indicate the actual payout.

      However, if there are scrip dividend, this meant that it will dilute the share holdings. Thus, I see this negatively - which is reflected in the "low dividend yield".

      My mistake here is not explaining it probably, which I will explain in the next few posts.

      Regards,
      TUB

      Delete