CNAV Value Investing Strategy

Coaching
Session
8 Mar 2017
1
AGENDA
1. Top 10 Blue Chip Stocks To Watch In 2017
2. Case Study – Challenger Technologies
3. Portfolio Review
4. CNAV and GPAD Opportunities
2
Banks
3
Banks
4
Banks
5
Banks
6
Banks
Ratio DBS OCBC UOB
PB 1.12 1.11 0.6455
PE 11.412 11.555 18.277
Dividend Yield 3.18% 3.82% 2.30%
Net Profit Margin 36.56% 40.22% 19.92%

Quality of Earning 2.247 NA 1.876
Debt/Equity N.M. N.M. N.M.

Interest Coverage Ratio N.M. N.M. N.M.
7
Banks
8
Banks
Price as of 3rd March 2017
9
Property & Construction
Ratio Capitaland CDL UOL
PB 0.8689 0.9556 0.6455
PE 12.851 13.377 18.277
Dividend Yield 2.77% 0.849% 2.30%

Quality of Earning 2.777 1.844 1.876
Debt/Equity 57.10% 22.90% 25.20%

Interest Coverage Ratio 5.099 8.041 11.88
10
Past 1 year Price Chart
11
Business Model
12
Earning Trend
13
Future Development
14
Relative Valuation
Historical PE Ratio Historical PB ratio
Current 12.851 Current 0.8689
15
Offshore & Marine
Ratio Keppel Corp Sembcorp Ind YZJ Ship Building
PB 1.1195 0.9802 0.8114
PE 16.650 16.247 10.508

Debt/Equity 56.50% 122% Net Cash

16
Offshore & Marine
17
Offshore & Marine
Earning Trend
18
Offshore & Marine
Future Development
• Declining order book, only secured $500m contract in

2016
• Closing 3 Singapore yards in 2017
• Reduce dividend, 3.0% base on $6.64
• Recurring income contributed 42% of the group’s total net
profit for the year
• Focusing on growing stable and recurring income to ride
out down cycles
19
Offshore & Marine
Relative Valuation
Historical Dividend Yield Historical PB ratio
Current 5.82% Current 0.8758
20
Offshore & Marine
21
Offshore & Marine
Business Model
22
Offshore & Marine
Earning Trend
23
Offshore & Marine
Earning Trend
24
Offshore & Marine
Future Development
25
Offshore & Marine
Relative Valuation
Historical PE ratio Historical PB ratio
26
Commercial REIT
Ratio CapitaCom Trust Suntec REIT Keppel REIT
PB 0.8758 0.8012 0.7166
PE 17.739 17.77 13.596

Debt/Equity 46.80% 57.10% 46.40%

27
Commercial REIT
28
Commercial REIT
Business Model
29
Commercial REIT
Earning Trend
30
Commercial REIT
Future Development
31
Commercial REIT
Relative Valuation
32
Commercial REIT
33
Commercial REIT
Business Model
34
Commercial REIT
Earning Trend
35
Commercial REIT
Future Development
36
Commercial REIT
Future Development
37
Commercial REIT
Relative Valuation
38
SATS
39
SATS
Business Model
40
SATS
Earning Trend
41
SATS
Future Development
• Expected increase in volume at Changi Airport

• Accelerate the harnessing of technology to improve
productivity, seek new opportunities beyond Singapore
and develop new ventures outside aviation
42
SATS
Relative Valuation
43
Q&M
44
Q&M
Business Model
45
Q&M
Earning Trend
46
Q&M
Future Development
• On going expansion through acquisition in Singapore,

China and Malaysia
• Proposed spin-off of subsidiary on the Catalist Board of
SGX
• Conducting a strategic review of its business, and has
appointed Religare Capital Markets Corporate Finance to
help with the task. The group said that the independent
review of options available for its business is in line with its
commitment to enhance shareholder value.
47
Q&M
Relative Valuation
48
ST Engineering
49
ST Engineering
Business Model
50
ST Engineering
Earning Trend
51
ST Engineering
Future Development
• Expected all sectors to be comparable or higher than FY

2016 other than Marine Sector
• $11.6b order book; about $3.7b to be delivered in FY2017
(end 2015: $11.7b)
52
ST Engineering
Relative Valuation
53
Q&A
louis@drwealth.com
54
CASE STUDY
Challenger
(SGX:573)
55
Outline of Analysis
•Answer two questions:
–Is the dividend sustainable?
• Balance sheet strength
–Is there an opportunity for growth? If so, what
are there?
•What is the risk?
•Conclusion / others
56
Consistency and Sustainability
57
Stock Metrics
• Gross Profitability Ratio: 43%
• Dividend Yield: 5.5%
• Mkt Cap. $166 M
• P/B 2
• P/E 9
• +++
• Debt to Equity 46%
• Payout ratio 0.5
58
Operating Segments - IT
products and services
25 Superstores, 16 mini stores and 1 select stores
59
Operating Segments - Electronic
signage services
• supply and installation of electronic signages
and provision of electronic signage services.
60
Operating Segments - Telephonic call
centre and data management services
• telephonic call centre, data management

services and direct marketing services
61
Operating Segments Performance
62
2 Key GPAD Metrics
1. Gross Profitability Ratio

– Gross profit / total assets
2. Dividend Yield
63
Gross Profitability Ratio =
Gross Profits / Total Assets
$'000 Dec-15 Dec-14 Dec-13 Dec-12 Dec-11
Gross Profit 45,440 45,475 43,623 39,077 37,770
Total Assets 111,639 115,222 109,942 90,261 95,876
GPA 40% 39% 39% 43% 39%
64
Total Assets
[$42M] Interest earning balances
ranged between 0.30% and 1.65%
[$38M] I.T products
[$8.7M] Investment in
technology companies and bonds
65
Dividends vs Free Cash Flow vs
Earnings
66
67
Cash and Dividends payout
$'000 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Cash and
cash 42,094 42,946 52,621 41,653 52,273
equivalents
Dividends 7,940 8,630 8,630 9,148 9,3201
68
Growth Potential
ASEAN Retail
Sector – SGX &
Frost & Sullivan
69
Growth Potential
70
Online retail / Total Retail Sales
71
Growth in E-commerce sales
72
Projected Growth in ASEAN
Retail - SGX
73
Growth Prospect – Hachi.Tech
• Launched in
April 2016.
• Complementry
with their
network of
physical retail
stores in
Singapore.
• Expend beyond
I.T gadgets
74
Growth Prospect – Hachi.Tech
"We are looking to cross the 50 per cent
mark from online sales revenue within
five years. The company aims to generate a
cumulative S$500 million from online over
the next five years. “ – BT 2016
75
Competitors
76
Competitors
• “Amazon plans to enter Southeast Asia
with Singapore launch in Q1 2017” --
TechCrunch
77
78
Challenger Strategies
• Challenge Ventures – Investment arm investing
in digital platforms complementary to Challenger
Technologies’ core businesses.
– Hachi.sg – lifestyle I.T gadgets online
marketplace
– Andios Pte Ltd – Smartphone online
marketplace
– inCall Systems - Marketing solutions
• Challenger’s ValueClub (half a million members)

– leverage on existing loyal customers base
79
Loo Leong Thye
• Free float only 21%. Loo Leong Thye is the
founder and CEO who owns
• 54.01% holding (inc deemed interest)
• $1.15 M pay
80
Risks & Conclusion
• Unlikely to be a dominant player in the online E-
commence space for Hachi.Tech.
– Physical store will still be a dominant source of
revenue
• Susceptible to retail market as they do not own
their store i.e the closure of Challenger’s
superstore at Funan in Jun 2016 (appx. 20%
revenue loss) is a good example.
• Low free float of 21%
• Strong balance sheet and cash based business to
sustain dividends payout (5% div. Yield)
81
CNAV and
GPAD Updates
82
GP Hotels (SGX:P9J)
• Voluntary cash offer at $0.365 by JK Global
Capital Pte. Ltd
• Condition:
– Not less than 90 per cent
– May revise to more than 50 per cent
• Rationale:
– 14.1% premium to prevailing share price
– Low trading activity
– Unlikely to raise capital with rights issue
– Cost of listing
– Management flexibility as a private company
83
GP Hotels (SGX:P9J)
• Owns and operates Fragrance Hotel and
Parc Sovereign
• Has been aggressively buying Australian
land
• Plans to build the tallest hotel in Perth
(249.5 meters with 62 levels complete in
2020)
• Sister company, Fragrance, is also buying
and developing properties aggressively
84
GP Hotels (SGX:P9J)
• Dr Koh Wee Meng
• #26 richest man in
Singapore with $1.09 Billion
• Latest ownership level as of
3 Mar 2017 is 73.13%
• Book Value = $0.69
• Offer = $0.365
• 47% discount!
85
Kingboard Copper (SGX:K14)
• Unconditional cash offer $0.40
• NAV per share $0.68
• Intention to delist
• Sold because of EY’s report which we
prefer to err on the safe side of potential
charges on violating exchange rules or Act
– Made 24% instead of 112% gain
86
Kingboard Copper (SGX:K14)
Trading above offer price of $0.40
87
Avi-Tech (SGX:BKY)
• Burn-in chips (stress test chips to weed out
those which will fail) -> High reliability
• Growth drivers -> automotive, cloud
• Founder is CEO and his son is the COO
88
Avi-Tech (SGX:BKY)
$10m. Desktop valuation
done was $23m. (NAV to
increase to to $0.33)
~130,000 sqft
89
Avi-Tech (SGX:BKY)
MapleTree Industrial Trust
90
Avi-Tech (SGX:BKY)
91
New Watchlist
92
Esthetics Int (BURSA:5081)
93
94
95
• Main assets in properties
and cash (2.4% div yield)
• Top 3 properties
– Paya Lebar Square #09-27 to
#09-31 (RM37m)
– HQ at Shah Alam, Selangor
(RM26m)
– 22 Hung To Road, Kwun
Tong, Kowloon, Hong Kong
(RM20m)
96
Executive Chairman
CEO
ED
97
Man Yue Tech (HKSE:894)
98
• Produce capacitors
• Falling revenues and losses
• Positive change – production
of the ESS products for green
energy
99
• Diverse assets
90-150 days credit. No
Land & building for concentrated
own use and customers and have
investment properties credit risk insurance
Capacitors & Plant & Equipment

raw materials
100
• Chairlady Kee Chor Lin co-founded with
her late husband, Chan Ho Sing
• Their son, Chan Yu Ching, Eugene, is the
current MD
• Family owns 56%
101
GPAD Quintile Range
G Rank GPA D Rank Div Yield
G5 more than 22.3% D5 more than 3.9%
G4 10.6% – 22.3% D4 2.0% – 3.9%
G3 5.5% -10.5% D3 0.0% – 1.9%

G2 1.9% – 5.4% D2 0.0%
G1 less than 1.9% D1 0.0%
As of 28 Feb 2017
102
Gross Profits Calculation
INCOME STATEMENT
Revenue
- Cost of Goods Sold
= Gross Profit
Not all companies report

COGS and Gross Profits
Financial data providers

have different calculations
Cost of Goods exclude Cost of Goods include

Depreciation Depreciation
103
TalkMed
1 for 1 Bonus shares without capitalisation of retained earnings
Revenue up 2%, earnings up 5%
Dividend yield 3% (share price of $1.49)
104
QAF
I eat this every day Declined 10% in a day
Possible reason due to the sale of its 20% shareholding interest in Gardenia
Bakeries (KL) Sdn Bhd (‘GBKL’) to comply with the Malaysian governmental
regulatory condition. Revenue declined and a one-off gain.
105
Tat Seng Packaging (SGX:T12)
Price jumped up +10% before we could invest
Correlated event is the additional 1c dividends declared
106
107
SALES
Singapore China
16%
84%
108
• Hanwell (SGX:DM0) has
63.95% stake (acquired in
2005)
– Formerly known as PSC
• Dr Allan Yap is Executive
Chairman of both Tat Seng
and Hanwell
– Board comprises similar
directors
• Tat Seng contributed more
than half of Hanwell’s
revenue
109
Hanwell’s substantial shareholders
Executive Chairman
Di Yi Jia founder
110
CSE Global (SGX:544)
111
112
• Latest 31 Dec 2016 results
• GPA = 30%
• Div = 2.75c (same as 2015) ~5.5% yield
• Strong results despite weak segment
113
114
Deputy chairman
Fund managers
Fidelity Funds
Free float = 63%
115
TTJ (SGX:K1Q)
116
TTJ (SGX:K1Q)
117
TTJ (SGX:K1Q)
• Leading steel structure provider and
started dormitory business
118
TTJ (SGX:K1Q)
• Past projects
119
TTJ (SGX:K1Q)
Potential Projects
• Transportation projects
– Thomson-East Coast MRT Line and Changi Depot, Cross Island
MRT Line, Jurong Region MRT Line, Eastern Region MRT Line and
the Singapore-KL high speed rail
• Infrastructure projects
– water reclamation and sewerage projects under the Public
Utilities Board;
– Furniture Hub at Sungei Kadut, Multi-User Industrial
Development at Defu South, and the new National Cancer
Centre
• Industrial plants and private sector
– second LNG terminal, Phase-3 expansion of the Jurong water
reclamation plant, and the expansion of various plants in Jurong
Island
– Mixed Development at Funan Centre
120
TTJ (SGX:K1Q)
• Free float only 15%. Teo Hock Chwee is the
founder and MD who owns 85%
• Makes delisting easy
• $3m pay
121
Portfolio Performance
Portfolio STI ETF KLCI ETF

2013 -8.2% +10.2% +8.5%
2014 +35.1% +5.3% -4.3%
2015 +0.0% -13.2% -14.9%
2016 +8.4% -0.3% -1.8%
2017 +3.5% +5.4% -1.8%
CAGR +11.6% -0.2% -5.8% As of 28 Feb 2017
122
Strategy Weightage
123
Geography Weightage
124
Potential Portfolio Changes
• Rebalancing mode
– GP Hotels (sell when mandatory acquisition kicks
in)
– PM Data (waiting for dividend amount before
deciding)
– Hong Fok (hold till hotel contribute revenue)
– Hongkong Land (looking to sell because of 3y
time stop with no catalyst in sight)
– PEC (sell if hit NAV)
– Earnings season -> Check for cut loss criteria
• Buy potentials shown in Watchlist
125
Upcoming Events
• 13 Mar – Joint
Webinar with
Truewealth Publishing
• 22 Mar – Your
Complete Guide to
Factor-Based
Investing Book Review
Webinar
• 30 Mar – App launch
126

CNAV Value Investing Strategy

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Coaching

Net Profit Margin 36.56% 40.22% 19.92%

Debt/Equity N.M. N.M. N.M.

Price as of 3rd March 2017

Net Profit Margin 22.66% 16.395% 19.92%

Debt/Equity 57.10% 22.90% 25.20%

Historical PE Ratio Historical PB ratio

Current 12.851 Current 0.8689

Net Profit Margin 11.58% 4.50% 11.61%

Debt/Equity 56.50% 122% Net Cash

• Declining order book, only secured $500m contract in

Historical Dividend Yield Historical PB ratio

Current 5.82% Current 0.8758

Historical PE ratio Historical PB ratio

Current 10.508 Current 0.8114

Net Profit Margin 87.29% 75.03% 155.16%

Debt/Equity 46.80% 57.10% 46.40%

Historical Dividend Yield Historical PB ratio

Current 5.82% Current 0.8758

Historical Dividend Yield Historical PB ratio

Current 6.16% Current 0.7166

• Expected increase in volume at Changi Airport

Historical PE ratio Historical PB ratio

Current 25.26 Current 3.61

• On going expansion through acquisition in Singapore,

Historical PE ratio Historical PB ratio

Current 19.84 Current 4.90

• Expected all sectors to be comparable or higher than FY

Historical PE ratio Historical PB ratio

Current 19.84 Current 4.90

25 Superstores, 16 mini stores and 1 select stores

• telephonic call centre, data management

1. Gross Profitability Ratio

Gross Profit 45,440 45,475 43,623 39,077 37,770

Total Assets 111,639 115,222 109,942 90,261 95,876

GPA 40% 39% 39% 43% 39%

[$38M] I.T products

Dividends 7,940 8,630 8,630 9,148 9,3201

• Challenger’s ValueClub (half a million members)

Capacitors & Plant & Equipment

G4 10.6% – 22.3% D4 2.0% – 3.9%

G3 5.5% -10.5% D3 0.0% – 1.9%

G1 less than 1.9% D1 0.0%

Not all companies report

Financial data providers

Cost of Goods exclude Cost of Goods include

Hanwell’s substantial shareholders

Free float = 63%

Portfolio STI ETF KLCI ETF

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