On 21st April 2020, Singapore announced the extension of “Circuit Breaker” measures [1]. After the announcement, we did a quick poll on our Telegram group.
21st April 2020
On 29th April 2020, for the fun of it, we did another poll. I bought more CapitaMall Trust at $1.70 after the announcement. As always, there are still risks involved. Shoppers might not return, huge unemployment figures, etc.
29th April 2020
Thanks for the reminder from some of you that bought on the April lows, which is the lowest price for REITs in general during this period. (Forgot to include it as an option in the poll 😅.) Great job!! Well done to those who caught the March lows too!! For those who sian (regret) about a missed opportunity, fret not. Seldom do markets go up in one straight line. Moving forward, there will still be opportunities to accumulate at a cheap price.
The recent low of CapitaMall Trust is on 3rd April 2020, the day PM first announced the “circuit breaker” [2] (i.e. when fear is most present). Do note that CapitaMall Trust is selling close to its 10 years low. Cheap deals are usually when fear is most present, and sometimes when news is at extreme pessimism. Nobody can predict the market, the key is to buy in tranche, buy when fear is most present.
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." – Warren Buffett
Recently, we observed clear signs that the daily new cases in Singapore has lessened. Means to say that the circuit breaker measures are working. On 2nd May 2020, a total of 447 new COVID-19 cases were reported. Of the new cases, only 6 were local [5]. Singapore is also gradually easing circuit breaker measures. Some selected food retail outlets, hairdressers will open from 12th May 2020 onwards [6]. Things are starting to look better for malls.
[8]
Stocks that did not fall in the last trade war
Trump has recently floated the idea of imposing new tariffs onto China [9], potentially sparking the continuation of the trade war. From the last trade war, I noticed a few companies that were resistant to prices falling and perhaps, having some modest gains back in 2018 & 2019. These are public transport companies, toll companies and certain REITs. Comparing a Chinese expressway toll company (Yuexiu Transport Infrastructure Ltd) and a REIT (CapitaMall Trust) to SSE (Shanghai Stock Exchange) Composite Index, we can see SSE Composite Index fell from 2018 to 2019 but the other 2 made some gains.
Hence, my strategy is to focus on these stocks and buy less of trade war sensitive stocks. Subsequently, to swap back to the latter when trade tensions arise (i.e. when trade sensitive stocks are cheap). However, given the dynamic nature of the stock market, do note that there is no guarantee the stock market will play out like it did previously.
One toll company I bought recently is Yuexiu Transport Infrastructure Ltd (HKEX:1052).
Yuexiu Transport had gone up more than 13% in about 1 week from my purchase. This is due to China resuming expressway toll charges [11].
One reason I like this stock is that the business is easy to understand and also rides on the rising trend of China’s middle class. Unlike Singapore, cars are not expensive in China. As the middle class grows, more would buy cars regardless of it being electric or petrol driven. This equates to higher volume of toll fees. Furthermore, the company gives a yearly dividend of approximately 7% at the current price and it is giving its partial dividend soon! Do check its dividend history here [12].
Yuexiu Transport comes with strong financials, attractive revenue growth, positive operating cashflow over the years and a super high operating margin of 63.5%. The average expressways lease is about 19 years. Although the total debt to equity stands at 173.62% [13], the company has some big supporters. The largest shareholder is Guangzhou State-Owned Assets Supervision & Admin (Chinese government). Some other notable shareholder includes Blackrock, Vanguard, JP Morgan [14].
Besides Yuexiu Transport, I kind of like Shenzhen Expressway (HKEX:0548) and have bought it too. Similar to Yuexiu Transport, they have a high profit margin, growing revenue and healthy financials. The main difference is that the dividends of Shenzhen Expressway is slightly lower but it also comes with a lower Total Debt to Equity ratio. You can check the historical dividends here [16].
Shenzhen Expressway has recently reported RMB$133 million loss in the first quarter [17]. This, I believe is due to the implementation of a toll-free policy during Lunar New Year amid COVID-19. However, based on their annual net profit of RMB$2.49 billion in 2019 [18], the RMB$133 million loss is just approximately 5% of their total annual net profit. Seems acceptable considering the cheap price now.
What I will do next
As mentioned in my previous article “Oil at 21 Yrs Low || SARS vs COVID-19”, the market seemed to be slightly overly optimistic with S&P forward PE ratio going back closely to pre-COVID-19 high. Subsequently, on 1st May 2020, S&P tanked 2.81%. As other stock markets follow closely to US, chances are the coming week might be a bloodshed week. This present an opportunity to accumulate more shares. In my opinion, US stocks are still very much expensive. If I buy, I will focus on stocks outside of US.
Moving forward, I will be looking to buy more of toll companies and REITs such as Mapletree Commercial Trust (SGX: N2IU). Do note that even after the circuit breaker is over, social distancing rules might still be in place. Shoppers might not return to pre-COVID-19 high. Hence, I am overweight on toll companies more than on REITs.
That being said, it is difficult to grasp the price movement of stocks. As long as the stocks you are holding are rock solid companies, I am 100% sure that the share prices will appreciate over time and COVID-19 presents an opportunity to buy great companies at a discount. The suggested approach is to buy in multiple tranches.
Will end off with this: Many things have changed over time but mainly these 2 things have stayed intact: 1. We do occasionally suffer sell offs 2. The market continues to break record highs
Disclaimer: Just sharing from experience as I have put my own money into the stock market over the period of 17 years. I am not a Chartered Financial Analyst (CFA) Charterholder and do not have any finance-related qualifications.
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Reference Links:
1. https://www.gov.sg/article/circuit-breaker-extension-and-tighter-measures-what-you-need-to-know
2. https://www.gov.sg/article/pm-lee-hsien-loong-on-the-covid-19-situation-in-singapore-3-apr
3. Google Finance
4. https://sg.finance.yahoo.com/quote/c38u.si/
5. https://www.channelnewsasia.com/news/singapore/covid19-coronavirus-447-new-cases-moh-update-may-2-12696136
6. https://www.channelnewsasia.com/news/singapore/covid19-some-businesses-to-resume-from-may-5-12696134
7. https://www.worldometers.info/coronavirus/country/singapore/
8. https://www.timeout.com/singapore/news/the-best-memes-to-come-out-from-the-circuit-breaker-period-so-far-042120
9. https://www.cnbc.com/2020/05/01/trump-threatens-new-tariffs-on-china-in-retaliation-for-coronavirus.html
10. https://finance.yahoo.com/quote/1052.HK/chart?p=1052.HK
11. https://www.shine.cn/news/metro/2004307322/
12. http://aastocks.com/en/stocks/analysis/company-fundamental/dividend-history?symbol=01052
13. https://www.investing.com/equities/yuexiutranspor-financial-summary
14. https://www.marketscreener.com/YUEXIU-TRANSPORT-INFRASTR-6170807/company/
15. https://www.investing.com/equities/yuexiutranspor-financial-summary
16. http://www.aastocks.com/en/stocks/analysis/company-fundamental/dividend-history?symbol=00548
17. http://www.aastocks.com/en/stocks/analysis/stock-aafn-con/00548/NOW.1011549/all
18. http://www.aastocks.com/en/stocks/analysis/company-fundamental/profit-loss?symbol=00548
19. https://www.valuewalk.com/2017/07/sp-500-total-return-index-without-contributions-1926-2017/