City Index/IG Markets CFD , Asset Allocation, Forex-Money Changers?

Went out with friends a few days ago and hence decided to go open a City Index CFD account, since it was only 2 MRT Stops away. Deposited a small sum, and the lady that assisted me was very warm. Good customer service. Sat down and discussed how to use CFD, what financing is, when margin calls will occur etc for over 40 minutes. The account just got opened today, and I will maybe try a little CFD's next week, since commissions for SGX counters are $10 flat.

Also went to IG Markets to create a CFD account (2 buildings away). The lady there was very brusque. Even though she was quite pretty. hahaha. However I just received an email stating that

Dear Mr XXX,

Thank you for applying for an account with IG Markets. After assessing your application, we regret to inform you that your application has been rejected.

We seek your kind understanding on this matter as CFDs are highly leveraged products and not suitable for everyone.

Thank you."

Ok then. 

I also went to change for Sterling Pounds at the Arcade, right next to Raffles place MRT, with the suggestion of createwealth8888 and anonymous (thanks!). So many money changers there! Their rates are very good, I wonder how they earn at all. I changed at £1=SGD 2.014, and the mid market rate on that day was £1=SGD2.006. Which means they earn about a 0.7% commission thru the spread. 

For those playing forex (not me), I wonder how's the spread like, since the forex firms earn thru spreads too. If the spread is wider than the money changers, why don't people just buy physical cash and change it? 

Just a thought. The spread's probably smaller than the money changers. 

As I on the bus home after tuition today, I thought of my asset allocation. Just a few tender months ago, my assets were 100% Cash with trusty POSB and OCBC. 

Now, the asset allocation is as such: 

Blue Chip Stocks:

 20.67%

Dividend Stocks: 

24.9%

Penny Stocks: 

7.5%

I think this is a pretty good allocation...Might be putting some more cash into penny stocks though... specifically Silverlake(which I have done some FA for, might or might not post it up), where you can read the FA for it at Wealth Buch's blog: http://wealthbuch.blogspot.com/2010/12/silverlake-axis-part-1.html

Cash:

34.9% Singapore Dollars, 12% British Pound (Dollar Cost Averaging in preparation for uni)

Of Singapore Dollars:

 17.1% is for speculation ( Roughly 5% of my total liquid net worth)

82.9% in Bank rotting at 0.125% at POSB, 0.3% at citibank and 0.7% at phillip MMF (Poems account holders should know).

Of British Pound:

100% in drawer rotting.

Digressing: In a previous post, Wealth Buch mentioned I could try Forex FD, but I'd like to mention here that the forex rates for "cash" is poor.

"cash" is in inverted commas because:

1.) They don't allow you to deposit cash.

2.) They change your Singapore dollars at the bank cash rate, which is super lousy. (Just look at the money section of ST- Under Forex rates; that's what UOB and the local banks charge.)

3.) When your "cash" FD expires, you have to change back to SGD at their cash rate.

4.) You can't withdraw your "cash" in physical money. You got to TT your "cash" to your foreign bank account.

5.) Other than NZ/Aus, the interest rates are so damn lousy, you can't even cover your spread loss!

*End of Digress*

Oops, I think that marks the end of the post too.

Please Comment :)

Happy new year!

Hope it'll be a prosperous and fulfilling year for all!

ST Engineering Fundamental Analysis

ST Engineering is an (what else) engineering company that has dealings in Aerospace technology, Electronics, Land Systems and Marine. It is an STI component stock and considered a blue chip, defensive stock. Let's look at it's fundamentals.



Please note that my FA is not as detailed as other bloggers. Also, my opinions do not constitute financial advice.


1.) History of Consistently increasing sales, earnings and cash flow

SALES: ST Engg's sales have consistently increased from 2003 to present, with 2 exceptions in 3Q09 (-2% YOY) and 2Q04 ( -5%). Mid 2000s saw it's revenue increase at an impressive rate, with certain quarters hitting 20+%, but we all know that that's unsustainable. Sales Growth has tapered off to roughly 5% YOY the past 3 years. It has to be noted that  ST Engg's revenue didn't decrease during the market crash in 2007-2008. I will touch more on that later. COGS (cost of general sales) increases roughly in line with the percentage increase with sales, so marginal cost is still less, or roughly at, marginal revenue. (A level econs: MC<=MR) This is good because as sales increase, marginal costs tend to be higher (i.e. more inefficient), however, ST Engg's management has found ways to improve productivity or lower unit cost.


Profit: Earnings took a hit during 2008 and 2009, with earnings less in 2009 than 2008 (hmm...) . However 2003-2007 saw earnings increase steadily at about a 5-7% clip.

Cash Flow: Cash flow has decreased this year. In 2009, ST Engineering's Cash flow was increasing, however, for the 9M 2010, it has decreased. Not a very good sign.

2.) Good competitive advantage
Competitive Advantage:
-HUGE economies of scale. I'm sure the unit cost of producing 100,000 SAR 21 or 100 FH 2000 is lower than if you produced 1 SAR 21 and 1 FH 2000.
-Monopoly. Since ST Engg is govt. linked, many of ah gong's contracts go to ST Engg.
-High Barriers to Entry. Defense is an extremely capital intensive field, as can be seen by HUGE outlays in purchase of PPE every year by ST Engg.Not only is ST engg capital intensive (it sure is capital intensive if you've to build FH 2000's and SAR 21's, inter alia), it also has some intellectual property. e.g. SAR 21 is patented.
-Brand name. ST Engg has a reputation as a efficient and reliable defense contractor. It has garnered many defense contracts from the Royal Air Force, British Army, US army etc
-Expertise in it's field. ST engg was set up as Chartered Industries of Singapore and it has grown from strength to strength since its inception in 1967.



3.) Future growth drivers
-The sun never sets for the defense industry.
-Looming tensions in North Asia, SEA as a growth driver...
-Ah Gong is always on the lookout to improve the 3G SAF's capabilities...
-Biggest customer is SAF, SAF's per annum budget is 11 billion, SAF likes to purchase new things...
-Outsourcing of alot of things to ST from SAF...offhand I can remember...Maintenance of live ranges to ST, Army logistics to ST Synthesis, auditing to ST Synthesis, maintenance of munitions...etc etc


In conclusion...future growth drivers able to sustain ST's modest growth rate.

5.) ROE above average
ROE is 23.0% according to 3Q financial Statement. Very high, means they're getting a good return on shareholder's money...
Return on Sales is at 9.4%...Not exactly very high but comparable to high capex industries...



Capex required is very high to sustain current earnings...After all this is a very capital intensive industry

6.) Senior management staff are holding, buying the stock
Ah Gong owns 52%. 'Nuff said.

7.) Debt Level
Debt Level for ST Engineering is very high. Amount repayable within 1 year is SGD 341,802,000 and long term debt is SGD 989,441,000. eye popping right? considering earnings for the 9 months in 2010 were only SGD 356,766,000. But high debt level may indicate that ST engineering is leveraging on low interest rates to expand it's operation...Just like how your housing loan payment per month is 5k but you manage to let out that house for 4.5k per month...and after 10 years you get a "free" house... paying only $500 a month...


Anyway high debt level is to be expected for a capital intensive company like ST engg.
When to Buy:
1.) Undervalued
Px less than intrinsic value
I will not be calculating the intrinsic value for this stock. It's Cash flow has varied too much the past few years for me to sketch an accurate picture.

P/NAV: 6.79 (!)
NAV: $0.4976
PE Ratio: 23 (!)
PEG: 23/5= 4.6 (!)

Needless to say, way too expensive at current prices.

2.) Stock price in consolidation phase/ uptrend
Uptrend

My conclusion:
Company with solid fundamentals, backed by ah gong, huge economic moat, thriving industry, moderate dividend yield(~4.0%).

Consider placing this defensive stock in portfolio; Profit/Earnings/Cash flow does not decrease much during bad economic times, but on the flipside do not increase much during good economic times either.
However at current price is somewhat expensive, so wait for a pullback before entering, if interested.

Disclaimer: I'm vested in this stock.

Money Changers in Singapore?

As some of you who've read my previous posts, I'm going to England for medical school.
The British Pound has fallen off a cliff and has dropped yet again, the mid point rate being 1GBP=2.00 SGD.
I highly doubt it'll drop further, in fact, I believe the GBP will strengthen before I leave in September 2011, which is why I'd like to take the opportunity and change for pounds at opportune times like now, little by little before I leave.

I'd probably change £500 2-3 times before I leave, first time being next week?


That being said, changing GBP with POSB/Citi (the 2 banks I've an account with) doesn't give me very good rates. POSB is at 2.04 and Citi at 2.05 for demand draft/TT, even worse for cash. I saw the website for one of the money changers and they were advertising at £1= S$2.03.

Wondering if anyone knows a better exchange rate?

In a seperate note, I bought a pair of shoes and a shirt from www.asos.com, a British online retailer who has free international shipping. I paid SGD 2.12 for GBP 1, just last week!! sigh.....

Anyway, Merry Christmas and a Happy New Year to all!

Berkshire Hathaway's 15 Biggest Holdings

One of the most fabled Investors in our time, Warren Buffett, owns these companies' stock.

15.) Costco Wholesale

Holding Value: $283.27 million
Shares: 4,333,363
Stake in Company: 1%

14.) Nike
Holding Value: $297.34 million
Shares: 3,642,929
Stake in Company: 0.76%

13.) M&T Bank

Holding Value: $430.8 million
Shares: 5,363,821
Stake in Company: 4.5%

12.) Washington Post

Holding Value: $666.1 million
Shares: 1,727,765
Stake in Company: 18.85%

11.) Moody's
Holding Value: $786.53 million
Shares: 28,415,250*
Stake in Company: 13.14% 

10.) US Bancorp

Holding Value: $1.72 billion
Shares: 69,039,426
Stake in Company: 3.6%

9.) ConocoPhillips

Holding Value: $1.77 billion
Shares: 29,109,637*
Stake in Company: 1.93%

8.) Wesco Financial Corporation

Holding Value: $2.09 billion
Shares: 5,703,087
Stake in Company: 80.1%

7.) Walmart

Holding Value: $2.14 billion
Shares: 39,037,142
Stake in Company: 1.07%

6.) Johnson and Johnson
Holding Value: $2.71 billion
Shares: 41,319,563*
Stake in Company: 1.55%

5.) Kraft Foods

Holding Value: $3.22 billion
Shares: 105,214,584
Stake in Company: 6.03%

4.) Procter and Gamble
Holding Value: $5.64 billion
Shares: 76,76,036*
Stake in Company: 2.71%

3.) American Express Company

Holding Value: $6.42 billion
Shares: 151,610,700
Stake in Company: 12.59%

2.) Wells Fargo
Holding Value: $8.22 billion
Shares: 320,609,212*
Stake in Company: 6.41%

1.) Coca-Cola

Holding Value: $12.59 billion
Shares: 200,000,000
Stake in Company: 8.61%

Bought First REIT and Dapai

As per my post on Dapai, I mentioned I was not too keen on Dapai's business but was impressed at it's financials. Hence I took a small position on Dapai, with 6 lots @ $0.185. We'll see what happens when it releases it's 4Q 2010 results in Jan 2011.

I also vested myself into First REIT @0.700, giving myself a 9.00% dividend yield for 2011, using the 6.4c per unit guideline from the manager.

I will be setting aside a small amount, probably $1k to try CFD's out. IG Markets has a promotion whereby people new to CFD's will be able to pay only $3 in commission their first 2 weeks playing CFD, then $7.50 the next 2 weeks, then $15  the next 2 weeks. After that will be normal $25. (City Index charges $10 only ....)

With my remaining money, I'm not whether to invest in commodities/oil firms here in Singapore, like GoldenAgri, Indofood Agri, Olam or Mewah, or pump it into the American market with Archer Daniels Midland (a dividend aristocrat), ExxonMobil (another dividend aristocrat) or PetroChina ADR. PetroChina's dividend yield is lower than XOM, However there is a 30% withholding tax levied on all American stock dividends. I'm not sure whether PetroChina is liable for ths 30% Tax. Some other blogger posted about him having a Telefonica ADR and paying only Spain's withholding tax. Hmm...wonder what's China's withholding tax rate for dividends? Shall go find out.


I recently found out that PetroChina is the world's largest company by market capacity and ICBC is the world's largest bank by market cap, without having a significant overseas presence...wow! Huge testament to China's might.

In other news, the Pound Sterling has depreciated again vs. SGD. Great!

Comparison of CFD and Warrants (Part 3 of 3)

In this section I shall compare CFD issuing firms, CityIndex, IG Markets, CMC Markets, Philip CFD and SaxoBank.


Since I'm going to be trading the Singapore Market only, I will only put up comparisons for the Singapore Market, share CFD's.

I will be setting up a CFD Account with IG and CityIndex next week.

(Note: Sorry, I'm not sure why CMC column overflow to the links side...)

	Philip CFD	Saxo	IG Markets	City Index	Kim Eng CFD	CMC Markets
1 Way Commission (Min/%)	$25, 0.2%(STI Component), 0.3% Others	$17, 0.2%	$25, 0.15%	$10 Flat	$30, 0.3%	$15, 0.15%
Finance Charge (±SIBOR)	5% (promo: 3.5%)	Not shown	2.50%	2.50%	5.00%	3.00%
Margin Rates (Blue Chip-STI Component)	10-20%	10-20%	10-20%	10-20%	10-20%	10-20%
Margin Rates (Penny)	Up to 100%, Most penny stocks are 50% or 75%
Minimum Deposit	$3,000.00	$10,000.00	None	$500.00	$3,000.00	$2,000.00
Interest Paid on deposit?	None	None	None	None	None	None
Remarks	From now till 31/12/10, Free 5 calendar days financing (about $5-6 for a $10000 position)		Most Informative Website	Website is the most crappy	Min. Age 21	Min. Age 21

Comparison of CFD and Warrants (Part 2 of 3)

In this second part, I shall discussthe pros and cons of using either structured warrants or CFD's.
If you notice, I said Warrants are close to, but not a zero sum game. This is because DMM's also earn from the bid/offer spread.
Pros	Cons
Unlimited Gains, Limited Losses	At the mercy of Mr. Market and his wife, Mrs. Designated Market Maker (DMM)
No Finance Charges	Market Makers can, and frequently do, manipulate warrant pricing
Traded just like any security	Has an expiry date, and time value decays as expiry looms
No Margin Calls	Lose immediately due to bid/offer spread (which can be high in times of high Volatility)
	Close, but not exactly a zero sum game- i.e. DMM wins, you lose, DMM lose, you win
CFD
Pros	Cons
Generally lower commissions than normal brokerage firms	Unlimited Losses#
Your incentives and Firm's incentives are the same i.e. Not a zero sum game- you win, they win too	Margin Calls if you are underfunded
At the mercy of Mr. Market only	Immediate closing out of open positions if funds are insufficient
	Finance Charges can add up
	Unlikely to have manipulation(or less effective) of the underlying
#Unlimited Losses occur when your stock price drops to a point where you lose more than your capital (e.g. I buy $10000 worth of SIA, my margin deposit is 10%, or $1000, and SIA drops to, say, $6000. I lose $4000 on this position, and since I originally borrowed $9000, I lose my initial $1000 and another $3000 I borrowed from firm.) Easily overcome with a STOP LOSS
Next up will be a comparison between CFD providing firms.