Wednesday, 3 October 2018

5 Things To Know About Phillip SING Income ETF

There is a new kid on the block for the local ETF scene - the Phillip SING Income ETF (Phillip SING). Hot from the oven, it was launched by Phillip Capital on 1 Oct Monday.

I will share some pertinent points worth noting about this ETF, to aid you in your decision whether to subscribe for it.

The index
Phillip SING tracks the Morningstar Singapore Yield Focus Index (The Index) that comprises a basket of stocks selected using Morningstar's proprietary quality income strategy and factors. The 30 stocks were identified based on a composite score derived from following factors:

  • Quality - quantitative moat score
  • Financial Health - distance to default score
  • Dividend - trailing 12 month dividend yield
I attended an insider briefing for Phillip in-house remisiers and learnt that since 2005, The Index has attained annualised return of 9.6%, comprising capital gain of 5.2% and dividend returns of 4.4%.

More details can be found under Fund Info in this website.

Smart Beta ETF
Phillip SING is a Smart Beta ETF. Contrary to traditional Market Cap Weighed ETF, it employs rules based selection criteria to construct the index portfolio. The rules are centred around the concept of factor investing, where certain company characteristics or attributes are shown to give higher returns or lower risks.

As mentioned earlier, the factors pertaining to this ETF are quality, financial health and dividend yield.

While selection of companies is done using rules based approach, the management of ETF is still done passively that brings about greater transparency and lower cost.

Comparison with STI ETF
Phillip SING grants access to 30 high quality Singapore listed stocks with stable income, some shares would inevitably coincide with components of STI ETF. It makes interesting case to compare the key attributes of both ETFs.

With STI ETF, the 3 local banks take up about 41% of the total portfolio. For Phillip SING, the 3 banks would constitute 23.9%. It is worth noting that The Index caps individual company weightage at 10% of the total pie. This further prevents over concentration in any particular company, a plus point in my opinion.

Source: Phillip SING Income ETF brochure

Looking at industry representation, the top two sectors of Phillip Sing are financials and REIT respectively with 31% and 24% weightage. As for STI ETF, the top two sectors are financials and industrials with 58.3% and 15.3% each. This suggests that Phillip SING has a more balanced sector representation.
Source: SPDR STI ETF website and Phillip SING Income ETF website

Lastly, the gross dividend yield for Phillip SING is estimated to be around 5% with semi annual distribution. Accounting for expenses and costs, its dividend yield should be around mid 4%. In contrast, the annual distribution yield of STI ETF as of 1 Oct is 3.43%, according to its website. Phillip SING seems to have better yield.

Who is this ETF for
Clearly, Phillip SING is suitable for investors who are seeking a viable alternative to STI ETF, due to the latter's heavy concentration in banks and a rather low dividend yield. Furthermore, if The Index past return of 5.2% capital gain is anything to go by, it clearly is more superior than STI ETF returns of 4.08% in the past 10 years, without dividends.

I would think the Phillip SING is also suitable for investors who want hassle free investment to 30 high quality stocks with good income in one instruments. Looking at the ETF make-up, there are some interesting companies there with fairly good yield and stable growth prospects such as Sheng Siong, Raffles Medical and Mapletree Commercial Trust.

Application Details
The initial offer period is from 9am 1 Oct to 5pm 16 Oct. The issue price is $1 per unit, with expected listing date on 29 Oct.

Do note that this is unlike IPO where you need to ballot for the share, you will be allocated the full quantity that you applied for. Minimum subscription quantity is 1,000 units of $1,000.

Subscription fees will be commission of 0.1% or min $10, and a transfer fee of $10 (subject to GST).

Open a Phillip trading account online using this link. After that, fill in an application form, and ensure that sufficient funds are in your account before the cut off date. Simple as that.

Do contact me if you have any queries.

Meanwhile. Do you find it difficult analysing financial statements? Not sure where to start reading annual reports? Do sign up for this seminar where I will break down the financial statements, higlight key segments in annual report that deserve attention, and explain how can one analyse and extract important financial ratios quickly.

Monday, 1 October 2018

Helping You to Start Financial Statement Analysis

Not knowing how to start Fundamental Analysis (FA), in particular reading financial statements, is a common pain point among retail investors. It is especially true for novice, with quite some experienced investors facing the same problem too.

Most of us know the importance of FA and studying financial statements, but most do not have the knowledge and know-how to start. Quarterly earnings statements and annual report are thick documents, inundated with figures, charts, diagram and texts. It can be quite daunting to digest all these info to arrive at a fair opinion on the company. Indeed a headache for many retail investors.

The problem is worsened by availability of information, sometimes too much, with numerous fund houses, analysts, news channels, investment experts sharing their take on a same set of results.  Depending on perspectives and base of comparison, a growth of 30% this quarter is bad; but when compared against sector growth rate of 10%, it could actually be outstanding. Which point of view should an investor take then? Who to believe?

It is thus important to depend on ourselves - our best teacher. Learn proper FA and financial statement analysis and form our own opinions. Check out the numbers, compile the ratios and indicators from the root source of information: company annual report and financial statements. Info from various sources are useful references, but the most important thing is to make our own judgement call.

But where, and how, do we start digesting annual report and financial statements? The fact is, it need not be too difficult. While financial statement is expressed in accounting, we do not need to have in depth accounting knowledge. What we need is the ability to make sense of numbers to form sound opinions. And this can be done by focusing on relevant segments, extracting key numbers, and knowing just enough to make a decision.

A simple analogy is that 99% of drivers do not have knowledge of automobile engineering and mechanics, yet are able to drive a car. Its the same for investing. Put in some effort to pick up the important knowledge, and most can start analysing stocks confidently.

So my next seminar is titled 'How to Read Financial Statements and Annual Report' and it aims to do just that: help retail investors analyse statements and annual report quickly to form a fair opinion about companies.  Content includes:

  • Breaking down the 3 financial statements
  • Interpret company operational efficiency and financial health
  • Compile key financial ratios for peer comparison
  • Read Annual Report Quickly by zooming into 4 key segments

This is not a preview, introduction or sales talk. It is a no-fluff, content-packed session, where I share exactly the same ways I conduct FA with you. Attendees will walk away with the know-how to analyse a company's fundamentals and conduct due diligence in other relevant areas.

You will also get some tools and my self-developed check list which will come in handy in your analysis. Light refreshments will be provided.

If you find it difficult to do a first cut FA on any companies, this session is for you. Any old birds who want to pick up ways to analyse financial statements, this session is for you too.

I am certain that the seminar content, knowledge shared, plus the tools and check list, will benefit attendees. And you will find reading financial statements much easier after the session.

Take action now! Sign up here.

Tuesday, 25 September 2018

Airports of Thailand A Good Investment?

I was reading news online and saw this piece on the expansion of Bangkok Airport to have a second terminal. The airport's operator, Airports of Thailand (AOT) piqued my curiosity. Here's what I found out about the company.

Disclaimer: I do not hold AOT shares.

AOT runs 6 international airports in Thailand - Suvarnabhumi, Don mueang, Chiang Mai, Phuket, Hatyai and Chiang Rai. These are the gateway airports that serve major cities with regular international flights.

AOT airports. Source: AOT 9mth FY18 earnings presentation
Its revenue are split into aeronautical and non-aeronautical segment. The former includes landing and parking charges paid by airlines, departure passenger service charges and aircraft service charges for use of boarding bridges. The latter includes office and state property rents for using airports spaces, ground and passenger handling services, and concession paid for various commercial activities in the airports. In FY2017, 56% of the revenue came from aeronautical source while 44% came from non-aeronautical.

AOT is 70% owned by Ministry of Finance, which essentially make it a government-owned company. It is the second largest company on the benchmark index of Stock Exchange Thailand - the SET 50, with a market cap of 946 billion baht, roughly equivalent to S$39 billion.

A Relatively Resilient Business Model
Similar to airlines, AOT's fortune hinges on the growing tourism pie as both are important player and infrastructure owner of the aviation and tourism market. However, they occupy different segment of the value chain. AOT, arguably, has a more defensive business model. Unlike airlines, AOT faces little competition in its industry, being the only player that operates and manages the major international airports in Thailand. It is also immuned from the rise of fuel costs.

On the other hand, the numerous airlines ranging from full-service to budget carriers, are competing against each other for passenger and freight dollars. And if they were to ride on the booming tourism in Asia, chances are most of the international passengers would land on one of these gateway airports. So long as they land, park, disembark passengers and take in new passengers, revenue will keep rolling in for AOT. It is similar to a toll road business.

Thailand Tourism Sector is Booming
We all know that Thailand is a major tourists magnet in this part of the world. It is like a backyard garden for Singaporeans who often hop onto budget airlines for a cheap flight to Bangkok 2.5 hours away. In fact, Thailand tourism is not just booming, it has been booming for quite a while.

According to this website, in 2017, 35.4 million tourists visited Thailand, a big increase from 10.8 million in 2002, which is a CAGR of 8.19%. In 2018, Q1 tourists figure is already showing a 16% increase y-o-y.

And this has directly translated to increased passenger and aircraft movement, as seen from chart below extracted from AOT's 9M FY2018 earnings presentation.

Source: AOT 9mth FY18 earnings presentation
I believe this is a mega trend that is set to rise further with the proliferation of low cost carriers, rising middle class, and a general wealth growth of the society in this part of the world. And this gives AOT a growing market with long growth runway - tourism growth, more passenger and aircraft movement, more revenue.

Expanding Capacity to Cope with Demand
AOT is expanding its airports' capacity to cope with the rising aviation demand. Phuket's old terminal has just been upgraded and commenced operation in June. Suvarnabhumi Airport's second terminal project, with Don Mueang, Chiang Mai and Chiang Rai Airports' re-development plan have also been approved. According to this news, high speed rail will also be constructed to better connect the three major airports nearby Bangkok to spur further growth (third airport being U Tapao Pattaya managed by Thai military).

According to AOT's management review of its 9m results, the government has plan to promote secondary cities tourism to reduce high tourist density in primary cities which AOT currently operate in. Following this strategy, there is plan for AOT to take over the management and operation of 4 regional airports currently run by Dept of Airports - Udon Thani, Sakon Nakhon, Chumphon and Tak, further expanding the revenue stream of AOT.

Good Financial Performance
AOT's financial performance has been growing in tandem with the expanding tourism industry. A look back at its Profit and Loss over past 8 years would show that its revenue and earnings have been increasing steadily, from THB24.03 billion in 2010 to THB54.9 billion in 2017. This is a 12.5% CAGR.


Profit Attributable to Shareholder expanded from THB1.41 billion to THB23.7 billion, an even more impressive 49.6% CAGR. It is also commendable that Net Margin has been maintained at around 40% in the past few years.

If we look closer to 9m FY2018 results, revenue and earnings are still growing at a healthy rate: 11.4% and 17.9%.
AOT 9mth FY18 earnings presentation

Next is to check for cash flow, gearing over this period, and the ROE. All figures extracted from

-Net Operating Cash Flow FY13 to FY17: THB18.6B, 17.1B, 23.3B, 28.9B, 25.9B
-Debt to Assets Ratio FY13 to FY17: 0.27, 0.22, 0.20, 0.18, 0.13
-ROE FY13 to FY17: 17.8%, 12.5%, 17.2%, 16.1%, 15.7%

Seems that while AOT is growing its revenue and earnings, profit is backed by actual cash flow seen from the constantly rising ops cash flow figure. It has been able to maintain a high ROE of above 12% past 5 years. And high ROE is achieved with low debts. Rather commendable.

Risks and Weaknesses
All seems good so far. What are the risk factors then?

The biggest risk is clearly a slowdown in tourism sector, resulting in reduced passengers and aircraft movement. As we know, tourism growth can be cyclical and affected by many macro factors, such as economic slowdown, political instability (political demonstrations in 2013/2014), natural disasters (2004 tsunami), outbreak of disease (SARS in 2003). The chart on yearly tourists arrival above shows that tourist number indeed slowed down immediately after the events in brackets above.

Similarly, there was a decrease in passenger and aircraft movement in 2009 and 2014. But they managed to recover quite soon after and resume the long term up trend.


Another risk is its expansion plans such as the upgrading of airports, addition of new terminals and taking over of new airports get put off. Growth will then constrained by the limit in airport capacity. While AOT can probably increase fees per passenger or aircraft landing, this will not be well received in the short run, and its effect on top line growth will certainly be less than an increase in capacity.

One weakness that caught my eye is AOT's rather low dividend yield. For a company as big as AOT with a toll-road-like business nature that is almost monopolistic and government-regulated, its dividend is surprisingly low. For 2016, dividend of THB6.83 equals to about 1% yield based on current price of THB66.5; For 2017, THB8.6, a measly 1.3% yield. Payout ratio in 2017 stood at around 0.59, which is fair in my opinion. Perhaps the low yield is due to the high share price?

Which brings me to my last point. Going by the low dividend yield, AOT seems to be valued richly by market. PE, based on current price and FY17 EPS of THB1.45, is 45.8. The trailing 12 mth PE, even with an increased earnings in 9mth 2018, is also very high at 40 times.

For AOT to justify such high valuation, its earnings has to grow at at least 30% next few years. Definitely a tall order based on 9m 2018 and past 8 years earnings growth rate.

If we compare AOT's valuation to other listed airport operators such as Beijing Airport (Trailing PE 11.5) and Malaysia Airport Holdings (Trailing PE 26.8), AOT stand out for its high valuation. Should we ascribe a trailing PE of 26.8 to AOT, based on Malaysia Airport Holdings, AOT's price would be THB44.75, 33% lower than now.

So after reading this brief analysis article on AOT, would you be interested to buy its shares? My opinion is that this is worth including into my watch list for sure. However I am hesitant due to the high valuation. Further research needs to be done.

This is the sort of initial assessment that I conduct for any interesting company. A more detailed analysis on financial statements, annual report and valuation would follows. Would you like to learn how I perform in-depth study of company fundamentals using this model? 

If yes, do sign up for my next seminar on 'How to Analyse Financial Statement and Annual Report' here!

5 Things To Know About Phillip SING Income ETF

There is a new kid on the block for the local ETF scene - the Phillip SING Income ETF (Phillip SING). Hot from the oven, it was launched by ...