Joe Granville recently predicted DOW to drop by 4000pts. Today I came across contrarian investor David Dreman saying stocks have never been so cheap since 1982

So now we have one that offers a technical take and now David Dreman offers a fundamental take

1. People currently do not want to be in the market because they think this depression like scenario will continue
2. Stocks are very very cheap
3. Low PE, Low PTB and High Yield tend to outperform the markets
4. Great food, tobacco companies can go out of favor in secular bear which provides a great buying opportunity
5. His new matrix discussed in the book
   1. Diversification important have ever been
   2. Small caps will out performed and do better
   3. Psychological – The more we like something the more we are willing to pay and up to 100 times earnings
6. Lessons from 2008 bear
   1. If there is a loss don’t buy
   2. Financial stocks are difficult to evaluate

Starhub announced their full year 2011 financial results. Overall, my take is that they got back to pre-iphone competition level of operations. I would not say it is spectacular but rather, the reasons operation wise, why we like Starhub is finally back.

Here are some of my takeaways:

1. Profitability
1. Gross profit 4th quarter grew by 15.3%. Considering the handset subsidies costs over the past 2 years, its good to see that growth is maintained.
2. Gross profit full year grew by 16.3%. Considering past 2 years of competitive landscape, its good to finally see growth overall instead of profit drawdowns year on year.
2. Business Segments
1. 4th quarter mobile revenue grew by 3.1% and full year mobile revenue grew by 3.1%. A note that mobile revenue is the biggest contributor to the top line.
2. 4th quarter Pay TV revenue grew by 7.5% while full year Pay TV fell by 4.9%. This is the only segment that shows negative growth owing to the loss of BPL. Here is where competition is intense and we do not yet have visibility how the new IDA rules on cross carrying of content will do to Starhub’s Pay TV.
3. 4th quarter and full year broadband grew by 2.7% and 2.4% respectively.
4. Fixed network grew by 1.5% overall.
5. We are seeing a 5% fall in pre-paid mobile revenue versus a 5% rise in post-paid mobile revenue. The ratio of pre-paid to post-paid revenue is 1:3.88.
6. Post-paid ARPU was S$76 for the quarter versus S$73 last year. Higher ARPU was due to higher subscription revenue from increasing mix of “SmartSurf” plans, which is their 3G voice and data plans.
7. In terms of voice calls to data usage, there is a 9% reduction in voice calls and a 16% rise in overall data usage, reflecting a shift towards data. This trend looks set to continue and had it not for the bundled plans, it will be difficult for the telecom to explain to end user why they still pay S$44 for a voice+data plan.
8. Post-paid churn have increased to 1.2% versus 1.1% last year. This is somewhat of a small concern as although it is relatively small, would indicate that given the release of the same set of iPhones and Android phones, consumers would prefer competitors more than Starhub.
9. Pay TV ARPU was lower year on year. However, churn remain constant. This shows that to retain customers, the margins are affected to offer more competitive packages.
10. Broadband ARPU was lower year on year as well.
11. Fixed Network Services was the surprise where they grew Data & Internet by 1% and Voice services 4% for the year. Data accounted for 5 times that of Voice.The higher take up was attributed to increase take-up for NBN services by retail service providers.
12. The higher voice services revenue was attributed to higher subscription of local voice services and increased interconnect revenue but offset by lower IDD revenue.
3. Business Costs
1. We are seeing a 22.8% rise on cost of equipment sold due to higher subsidies of smart devices. Particularly significant is the 68% rise in cost of equipment for the 4th quarter which looks to indicate that more smart devices are sold and greater subsidies are required. This will only get worse when LTE gets deployed next year and more subsidies are required to make people switch to LTE compliant handsets.
2. We are seeing a 6.8% rise in Staff costs and 8.5% rise in Marketing and Promotion costs versus a drastic reduction in Operating Lease, Repair and Maintenance and other expenses. Probably my gripe here is that costs are rising much faster than the added revenue.
4. Cash Flow Analysis
1. Operating Cash Flow was significantly lower due to higher inventories and receivables for the quarter. This come as a surprise but perhaps is an operation decision to hold more stocks.We will need to observe future operating cash flow for tell tale signs of stress in operational cash generation.
2. I was surprise by the high capital expenditure of 116 mil in 4th quarter versus the previous three quarters which add up to almost 120 mil. Last year this time the capex is also very high in the 4th quarter. Capex remains 10% of operating revenue inline with company full year guidance.
3. We were expecting much lower capex so this was against my very own estimates. It looks to follow the management capex guidelines of not more than 11% of operating revenue
4. Free cash flow was S$450 mil versus S$400 mil full year. This is greatly attributed to increase in operating cash flow due to higher depreciation and lower capital expenditure.
5. Dividend payout remains at S$343 mil for $0.20 dividend payout. This is higher than net profit but well within the free cash flow levels
6. Capital expenditure was S$246 mil versus S$277 mil of depreciation, showing a consistent replenishment of assets, thus Starhub do not run the risk of erosion of NAV.
7. Net debt repayment was S$143 mil versus S$90 mil last year. This shows management’s commitment to reduce debts
5. Debt Analysis
1. Net debt was S$483 mil versus S$568 mil last year. Management looks to continue to use excess free cash flow to pay down debts
2. Net debt to assets is at 31% which is at a comfortable level
3. Net debt to EBITDA is at 0.69 which is at a very healthy level, far lower than the 1.1 level management is targeting.
4. With a free cash flow of S$450 mil it also means that by not paying any dividends, Starhub can theoretically pay off their debts in 1.07 years.
6. Growth outlook for 2012
1. There will be a continued shift from voice to data
2. Content cost will remain high despite the new cross carry guidelines
3. Take up for NBN is set to continue but currently hampered by operational issues which are pending resolution with various parties.
4. Revenue growth is forecasted to grow in the low single digit range.
5. EBITDA margin as a percentage of service revenue is set to remain at 30%
6. Capex guidance is expected not to exceed 11% of operating revenue
7. Dividend payout to remain at 20 cents

Conclusion

I was somewhat disappointed that there isn’t much mentioned of their plans to differentiate from the competition. I written recently the future trend of telecoms in Singapore (read here) and it would be paramount that with a LTE and NBN pipe, Starhub provides the best content to shift subscribers or provide the best QOS.

Else they will end up in this endless lowest switching cost game.

My forecast of higher dividends looks set to miss since free cash flow is forecasted to be lower than S$450 mil this year and  capital expenditure will not significantly reduce.

Still you ask yourself whether you are contented with a currently yield of 7% for a service utility that people will continue to use for the foreseeable future.

Disclosure:Vested

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Always love to here Barry Ritholtz talk commentary because he teaches you to focus on what you should do when market goes up and down for a longer term basis.

In this video you would see a keen study of

• how past secular bear markets are formed
• what are the kind of downside risks we are looking at
• how much are we risking
• evaluating the pain you can take
• protecting with dividend growers that benefits from both scenario
• no talk about the economy and politics which are most of the time not the most important thing to look at for price movements

ST Marine’s president spoke on the importance of having both ship repair and ship building in one facility:

The ship repair generates recurring revenue, and often at better margins. But in ship repair, you need fast turnaround time, which is not just dependent on they workforce but also on the ability to get spare parts quickly. And because a lot of work has to be outsourced, it is important that a location should have other workshops or yards in existence. Few countries around the world check all these boxes.

[Drizzt is invested indirectly in ST Marine]

So I was reading The EDGE and in this article profiling ST Marine, it raised an interesting point:

“Recently, ST Engineering began building on its engineering capabilities to develop an environmental engineering business – similar to the ones that Keppel and Sembcorp Industries have.”

What I find it strange is that why does 3 Temasek-linked companies need to fight for the same pie?

Perhaps that is where Singapore’s ONLY capabilities lie. They can only do these kind of engineering work.

Perhaps this pie is big enough and lucrative enough to be gobbled up by all and still earn supernormal profits.

Perhaps they are given a mandate to pursue this by the government.

Another interesting thought:

How come Keppel and Sembcorp ended up being at the fore front of rig building? Why is it the shipyards in Korea, Greece and China are unable to do what we do?

Here are this week’s reads

Money Management, Portfolio Management

• 5 Traits of highly successful sales people (Inc.)
• The advantages of day trading (ppearlman)
• 20 Common Sense Investing Rules (Reformed Broker)

Technical Analysis, Cycles and Sentiments

• 5 Indicators that shows it may be a Risk On market (Ivanhoff)

Dividend Investing

• Should you pay out dividends or retain cash? How does it affect ROE? (Frankly Speaking)
• The case against using simple matrix such as dividend yield and buybacks (Aleph)

Personal Finance, Budgeting

• The megatrend seem to indicate fee based independent advisors over brokerage (WSJ)
• How an investor will rationalize his cancer treatment alternatives (Asset Builder)

General Trends, Individual Stocks

• Explanation what is LTE-Advance (Gigaom)
• Why banks and telecoms must merge (strategy+business)
• The economics of iPublishing (Atlantic)
• How France’s “Free” cell phones disrupted the market (Fast Company)
• Why Kodak went bankrupt (MarketWatch)

Don’t miss the best articles of Investment Moats (iMoat) sponsored by TradeStation

First REIT this evening announced their 4th quarter and full year 2011 results. Here are some take-aways

1. Net property income is climbing gradually: 13.0 mil > 13.1 > 13.47 > 13.77
2. Rental Income climbed in all regions, not just in Indonesia but also for their Singapore and Korea properties
3. Larger distribution this quarter similar to that of 3rd quarter, as part of the sale of Adam Road property. Total distribution investors will enjoy is 1.93 cents.
4. This years distribution is 7.01 cents. At 77 cents that is 9.01% yield this year.
5. Assets continue to increase in fair value.
6. Debt to property is 16%
7. Net Debt to Asset is only 9%
8. Indonesian property values have been rising compare against Singapore properties which are not doing that well.
9. Korea Hospital is freehold. Based on rental yield it seems the yield is only 4.9% which is rather low. Freehold is great but I don’t remember the property yield to be this low.
10. First REIT have first rights of refusal to Lippo Karawaci’s hospital pipeline. On top of this there is a slew of government measures aimed at making healthcare more affordable to Singaporeans. All these presents opportunity to First REIT
11. NAV of 80.5 cents > current share price of 77 cents

Excluding the special dividends from the sale of Adam Road, the distribution did not grow much. I wonder whether that will be a trend. There are rental escalation build into it so we would have expected more.

Then again I may be over analyzing since they sold Adam Road and added a Korea Hospital yet was able to maintain the rental distribution.

Will be expecting much dividends as this is currently my largest holding.

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Now the crazy thing about Apple is that it started off the quarter as a megacap, juggling position with Exxon Mobil as the largest stock in the world by market capitalization. The amazing thing is that its growth rate may still be able to accelerate.

The recent initiatives to move into textbooks on iBook shows that they are building a platform ecosystems that transcends technology into a way of life.

The obnoxious thing is that it’s a closed ecosystem that Google does not want it to be.

As one tech commentator Gina Trapani says, “I prefer Google’s values over their products, and Apple’s products over their values. When either are compromised, we should worry”

Here are some crazy things about Apple

Crazy Growth Rate

- (splatf)

Basically the quarter was enhance greatly by a climbed in iPhone 4S. It vindicates the last poor quarter that people are really waiting for iPhone 5.

-(ReadWriteWeb)

More growth figures. For a megacap that is a crazy growth rate. The game has changed really, they are building an ecosystem that is mixing and meshing and giving you the iLifestyle that will just keep feeding itself! Its closed but it works!

Crazy amount of cash!

Now we know that tech companies based on intellectual properties have lots of cash. Oracle, Microsoft, Cisco have shit loads of it.

- (asymco)

Well, Apple added 38 billion out of their total 97 billion last year! How much is 97 billion? Enough to buy 474 of the S&P500 companies! Only 52 other stocks worldwide cannot be bought by that cash holding!

Conclusion

What I would really like to tap your brains is given this closed and integrated platform/network/ecosystem that feeds itself, how can the rest stop it?

This is probably the most bearish call I heard in a long time. For someone that experience to go against the market I hope he is right because he sees this rally ending soon and we may get to validate his call very soon

Its Chinese New Year I wish to firstly wish all my readers Gong Xi Fa Chai, Shen Ti Jian Kang, Shi Shi Xun Li!

This year is the year of the dragon. Typically this seems like a good thing since Dragon usually symbolizes prosperity and wealth. Not so. Judging by most accounts, this earth dragon year will be very challenging.

For those born in the year of the monkey this is an average year, and best not to invest in the stock market (!!!)

The worse thing is that health would be bad this year for most.

During Chinese New Year, we usually went house visiting and it’s a time to catch up with friends and family that you seldom meet.

I heard some really good experience, I heard some bad ones.

Most of all being frugal has a lot of upside. One of my uncle got retired in his 40s and have been living frugally for 20 years and was able to make ends meet. My other uncle did well in his career, owns a semi-detached yet remain very sound and frugal in his every day living. It pains me to find out another of my uncle struggling to stop working at an age of 60+ because they are still needing money day to day.

Living a minimalistic, de-cluttered lifestyle and having a frugal mindset about how you plan and spend money can not just enable your money to work better for you, makes you focus on what really matters and most of all give you confidence in life.