Cory Diary : Intelligence comes with responsibility

The Saga of Hyflux has been burning for quite some period of time. As usual when something like such in trouble, investor community especially retirees will be affected. Unlike HPH Tr, Sabana Reit, Noble or S-Chips, listed Hyflux do produces Power other than Water to the Public both tied to basic essentials for our Island State survivals.

However every time when I hear someone vested in Hyflux Preference Shares or Stocks they have the mentality that Ah Gong will not let it fails and that due to it's necessity, the investment will not go wrong. And this is where most investors could precisely get it wrong. Being essential does not mean it can't go bust as a listed company.

When I Invest in Hyflux Preference shares previously, I do stress out that it can go bust. In the end, I decided to cut loss to de-risk myself from it. Fortunately, manage to do it with really minimal impact of kopi size money. And this has been my strategy consistently. For historical view, I have avoided big or limited impacts from Sabana, Hyflux PS, Design Studio, Ouhua, Koda, MTQ, MunSiong, QAF, Starhub, SoilbuildBiz Reit, and the lists go on. Most successfully with just a few 5 digits losses.

How does all this got to do with my Diary you may say ?

Here's the article from BT.

https://www.businesstimes.com.sg/energy-commodities/power-generation-sector-crushed-by-massive-overcapacity

Not surprisingly, people starts questioning why our electricity prices did not comes down over the years ? And then we hear anti-government rhetoric starting out. Firstly of all we need to understand that this is written by journalist and with all well intention, could never be able to consider every angle of public opinions. They are humans not robots. And is up to the maturity of the public to derive their own perspective after reading it which we will surprise ourselves too that being highly educated, investment savvy and professionally experienced, we could get into wrong conclusion. And that's the power of media.

Here's the table of USEP prices.

If we care to look into the detail, the peak is even higher at 263. Interesting 2005 and 2018 are at the lower ends generally. This is across 13 years ! So trying to derive from BT reporting and link it to why we are not paying lower price is not that straight forward. The general average is around 140 so who is paying for them when the prices are high in 2007, 2009 to 2013 ? And if we consider inflation and cost to manage the overall, how will this works out ? 

I would expect prices to go higher with inflation but it doesn't ! One thing for sure there is some mechanism and buffering in-place to keep them as stable as possible but don't kid ourselves in that if the suppliers have not face stiff competitions, our electrical prices would not have rocketed to the moon. Hyflux probably has done a huge national service but I am not sure everyone appreciate Olivia works. In national level perspective, is certainly safer to be on over supply to lower our living cost. 

Before I sign off. Intelligence comes with responsibility. Not to throw oil into fire. Investors in Hyflux suffers enough so don't aggravated their suffering longer. Teach them to realize their mistake and how to invest better would certainly help. Be a part of the change.

Cory

2019-0216

Cory Diary : Recent Trade Actions 20170726

STI has been almighty this year. And i start reviewing my portfolio for more stringent safety.
The changes are on my personal trades and those that I can remember offhand. Please DYODD.



HYFLUX 6% PCS

With the run-up this year on this Pref shares and the profit guidance just announced, I decided to clear my little holding I have for 10% returns this year. Net for this counter is slightly negative. The catalyst possibly the sale of Singapore Plant but I decided not to wait.


NetLink NBN Tr

I have expanded my holding in this counter. My take is that annualized yield is reasonable and good cash flow (FCF) should be good for coming quarters. The ducts have long service life and cables probably good for long term. Therefore the depreciation of asset is more for accounting and no impact to FCF. The risk of technology is there but I think is low. Monopoly in retail market is a good plus and the recurring income is nice. Returns of more than 5.x% is good enough.

Cory
20170726

Cory Diary : Hyflux 6% PerCapSec Part 2

Just as I have written recently on Hyflux 6% PerCapSec (corrected term), they decided to play punk. Thanks to Swiber ! We have a lesson learned. Will the macro stock market get worst ? I think it can, considering poor Singapore economic performance. But fixed returns are kind of "Protected under Lehman definition haha " provided the firm continues to be alive.

Before you read, I like to warn again. For those who see the world in "Black" and "White", please ignore me ... err I mean my article as is a lot of Estimation, Guess work and Intuition.  This mean you need to grow up to own your decision. I have to own mine often. :)


Below Par

Hyflux 6% PerCapSec price dropped to 0.946 (Below Par). Below Par happens to Oxley and Aspial bonds too. Thus, likely market sentiment. And this happens when retailers did not do their home work. This also tell me there maybe opportunity created by the fearful.

If Hyflux pay up their dividend this Nov on the Hyflux 6% PerCapSec, the return will be 0.03. With two more potential gains to come along with it.

a. Return to parity meaning 0.054 more.
b. Premium of the listed PS which may hit 0.02.

That's a total of 0.054+0.02+0.03 = 0.104 returns or potentially 10.4% within 3 months and a week. Hope I get it right. Greed set in. haha. I think is worth my time to do some investigation and assess the risk again.


Comparison

The problem started with Swiber. So I think maybe i should do a comparison between Hyflux and Swiber information. Please do your sum as I manually key it off quickly from the information I got from the web so there maybe careless error.

When i look at the data as a non-financial reader, I see work being done in Hyflux. I see growth. In-addition Hyflux has a key financial advantage which is Hyflux 6% PerCapSec to support flexibility which Swiber didn't get in time.


Model Strength

Hyflux supports build and Operate. Engineering, Procure and construct. This are analogy to "Printer". The recurring income from membrane sales will be like "Printer cartridges".


Cash Flow

• Operating cash flows after SCA and tax paid included investments into construction of
Qurayyat IWP and TuasOne WTE project.
• Investing cash outflows mainly for investment in PT Oasis Water International, a 50%
joint venture in Indonesia.
• Financing cash inflows mainly from proceeds from issuance of $500 million perpetual
capital securities in May 2016.

What people see is cash flow. But what I see is strong management oversight. I see execution. I see financial supports. I see they have a plan and seems to know what they are doing.


Summary

As previously mentioned Hyflux 6% PerCapSec is a little for the risk we have to pay for to proof their model is successful as we may lose our investment. But why would anyone want to pay more if they can get sufficient subscription. If they have paid higher and screwed their investment returns, is a lose-lose proposition.

As right now, the returns from recent market sentiment is quite attractive.
If I am to bet, I will be on Olivia side. But do I dare ? Once we go in, it can be a slippery slope of no return. This is Investment Risks.


Cory
20160820

Cory Diary : Hyflux Hyflux 6% PerCapSec

Notes on my investigation on Hyflux recently listed (corrected term) Hyflux 6% PerCapSec

Hyflux 6% PerCapSec
The recent Hyflux Hyflux 6% PerCapSec# is listed in SGX. Therefore is similar to buying equity through your brokerage. The returns is like a bond in the sense we get fixed returns. And is distributed to your bank account if you have setup like your dividends. The key difference is Hyflux need not have to pay those dividends if they are in bad situation for example in financial distress which unlike bond will result in default.

Why Hyflux issues Hyflux 6% PerCapSec ?

Here the reasons I believe.

1. Need to roll over their earlier issued PS else higher rate
2. Need larger amount now to continue growing
3. More expensive to obtain loan from bank
4. Fewer restrictions and need for flexibility
5. Technically no default if they fail to distribute
6. Not considered debts
7. SCA Business Model required intensive capital investment and Cash flow support

Investment Rationale - Hyflux 6% PerCapSec
Rate is 6%. The good thing about this Hyflux PS written term is that they are cumulative. This means if they fail to pay me this time, the interest will be accumulated and compounded. In-addition, the company will not be able to distribute dividends to their shareholders. There is also a call date 4 years later else there will be stepped up terms. This will encourage Hyflux to re-call and likely issue new PS as needed.


Key Items in my thoughts

Will the company go bust ? I see no reason why the government will not let it happens. If water supply is critical, they can ensure operation continues while the company restructure. If there is no left over after debts, this will only means existing shareholders and PS holders have nothing in the new company. And this is the risk we need to be prepared for. Other scenario will be the traded share may comes down significantly and not recalled after 4 years. Can there be negotiated hair-cut ?

Cash Flow is the key risk which is why I think Hyflux makes the right decision to go via the PS route to allow them have flexibility in managing their cash flow considering the size and complexity involve. They also need a lot of money to scale and support the current business model to grow quickly.



Their focus on Growing recurring income to build a sustainable business with scale is the right one in my opinion. It has been developing and growing predictable and recurring revenues from O&M services, asset returns and membrane sales. Their technology is proprietary.

From the looks of it, the Business Model long term has a strong case. In fact, the mother share will be interesting too at opportune time. An attractive asset to Temesek to invest in the future.

Overall Hyflux 6% PerCapSec seems safer than I previously thought it will be. There is still risk which I need to be prepared mentioned above and the unknowns. Also to bet on the success of a business, 6% is not a lot of money. But if I am convince the success is high, then the compensation maybe reasonable. I think it should do well but we can never be sure.


Cory
20160612