Wolf Money(portfolio update end Jan 2022) long post !
Lone Wolf Fund(LWF)
Portfolio as at end of January
2.) Cash
Test case
3.) GRAB Holdings (excluded from LWF)- Test case for new/big tech investing
Commentary
Happy Lunar New Year to everyone celebrating this joyous occasion. I wish everyone a prosperous and healthy year of the Tiger.
STI managed to find it’s mojo in the month of Jan. The 4 percent gain made in Jan is probably one of the best I could remember taking into context the substantial fall in US market. STI index masterclass performance would had made any school disciplinary master proud. STI deservingly enjoying their day in the sun for once. Give that man A Tiger!
Lone Wolf Fund did well due to Keppel Corp exceptional performance. Finally the laggard of STI had woken. The stock is up close to 10 percent for the month. The speed of the uptrend would have made Speedy Gonzales and Steve Mc Queen look second best. For once in many years, the company did met and exceeded market expectations. Keppel profit came in at 1B which is a marked improvement from last year washout. I am cautiously optimistic the company could maintain earning at the current level for the next two years or so. The company had sanctioned a 500m share buy back program which in my view act as a backstop in a volatile market. Final dividend of 21c was declared. Full year dividend came in at 33c. Dividend yield is just slightly shy of 6 percent, making Keppel Corporation one of the highest yielding STI component stocks.
My praise goes to the IR team at Keppel Corporation. Communication was much better this time round. Press release was excellent and straight to the point. It had a good headline, a good body and a great ending with room for imagination.
Keppel will be embarking on more asset sales. The sale Keppel O&M and Logistics are gaining traction. Agreement of the sales are likely to come on or before the end of 1Q 2022 in the words of management. Many years ago I did a rough calculation on Keppel Logistics business with warehouses included. I estimate it is worth close to 500m previously. The logistics business including the warehouses is probably worth more now probably in the neighbourhood of 500m-1b. They should have no problem getting a good price for Logistics arm given warehousing and movement of goods are in great demand. Keppel O&M business i reckon might be worth around 1.5B-1.7B around 1x book depending on the price of oil and demand for oil rigs. The stranded rigs are worth an estimated 3.5b-4b. If a deal on the rigs with Temasek is concluded. The structure will involved Keppel getting some cash, a stake in the Rig Co and some credit notes. I placed the ratio at 20 : 20 : 60 of the deal size. Credit notes can be redeemed once the stranded rigs are sold progressively. Overall Keppel will do well in the coming year but I will be keeping a close watch on the Chinese property market which contributed a substantial portion of their earning, so far management had indicated tier 1 cities were unaffected by the lack of demand.
The one thing that bothered me is the conglomerate discount Keppel Corp share is trading. One strange thing about conglomerate discount, it doesn’t matter whether the company is doing well or not, analysts just slap a 10 to 15 percent discount on the fair value of company for no apparent reason. The 500m share buy back is a good start to narrow that discount. I would take it further by suggesting a break up of Keppel into different business units either to be sold or distributed to shareholders. What is Lone Wolf talking? He must be crazy. Hold your horses, let me explain. Conglomerate is an old and out of fashion way to structure a company. Once upon a time it was fashionable to be in every pie of business where the company can make money. In the modern times, investors are demanding company to have a core focus. Gone are the day Jack of all trade is a good thing. Master of none is the consensus describing conglomerate now. General Electric is the latest to split the company into 3 businesses. Johnson & Johnson is another. If I am Keppel board, I will purpose selling M1 to SingTel in exchange for SingTel shares. If we base on 2B valuation for M1(which M1 was last privatised) that will give Keppel a 5 percent shareholding in SingTel(40b market cap). That 5 percent stake generated 61m in dividend last financial year. The dividend income would had been higher that the 57m earned by M1 in the recent FY. The best part Keppel need not break a sweat to run M1. The telco business had been tough and it continue to be tough, only the biggest company with economic of scale can generated enough profit for capex which cost hundreds of millions. Keppel land contributed to most of Keppel RNAV discount. I would do a similar CapitaLand restructuring to list Keppel Capital, the fund management arm(similar to ARA) at no discount and take the developer business private with the blessing from Temasek. The rest of environmental and renewable energy business to be listed and distributed to shareholders. All been say it does require out of the box thinking by the management. Are they receptive to new idea? Maybe? I don’t know. Management once described Keppel as integrated businesses but unfortunately the investment community still value and see Keppel as a conglomerate. Enough said. I rest my case. The break up value of Keppel Corporation can be worth up to $10 per share.
I can’t end my update without some words of caution. Sorry I had become more of a bearer of bad news, the party bopper making a guest appearance or Jack the Ripper of Whitechapel 😀. The Russia Ukraine situation does required some close monitoring. A full fledged war can be disruptive and destabilising to the financial market. The other major concern I had is the rising interest rate in US. I am forecasting a 50 bases rate hike in March with 3 additional hikes of 25 bases in the year 2022. Under the cloud of rising interest rate, high growth companies with no profit to show are under share price pressure which can be seen by the halving of Grab Holdings share price since the start of their listing on 3 Dec. I learned an important lesson from my initial experience investing in Grab, all that glitters ain’t gold. Ultimately investors want to see profit and return. Grab holdings continue to be my test case for new tech investing. I hope for the best. I do see good potential in Grab digital bank service which they will be rolling out in Singapore soon. There are plenty of opportunities for the company to cross sell financial products. I have no doubt Grab or Sea Holdings will be the 4th largest local banking institution in Singapore within the next 5-10 years just behind the 3 local traditional banks. The new tech does have an edge over traditional banks in term of cost which had legacy cost associating to physical Bank branch and ATMs. It costs approximately 12m to run a bank branch in a given year. The banking sector is going to be very different in the years to come.
Lone Wolf will be taking a break in Feb. Have an enjoyable CNY. God Bless.
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