Astrea VI mispriced?

 

(Screenshot from FSMOne. This is the only place I can find that publishes the YTM calculations for SGX bonds - small caveat is that these are clean prices - fortunately, the accrued interest is very low Astrea VI just went XI and FPLSP just starting trading).

Today was the first day of trading for the new Frasers 4.49% retail bonds. Even though I was a satisfied holder of Fraser's previous 3.65% bonds, I did not subscribe to the 4.49%. I didn't subscribe because I didn't find the interest rate attractive. I think the default risk is pretty low so I would buy some if I needed somewhere to park extra cash and if the YTM was higher than Astrea VI.

This brings me to Astrea VI. I bought more at $0.95 today. At that price and YTM of 4.5%, it is far more attractive than Frasers 4.49%. For that matter, it's also more attractive than Astrea VII.

However, its possible that FSMOne is calculating YTM from the 2031 date with step-up interest rather than the first call date on 2026 (its more likely that the bond will be fully redeemed in 2026).

Astrea VI has:

• Lower default risk - due to its reserves account being built up.
• Shorter maturity date - corporate bonds with longer durations should have higher yields to compensate investors.
• An A+ (sf) rating from Fitch/S&P

So it is strange that as Astrea VI was sold down today, investors were bidding up the Frasers 4.49% bond. 

Furthermore, the Astrea VI semi-annual report was published yesterday with the good news that there would be a bonus 0.5% redemption premium and that an additional US$17m was added to the reserve account (over and above the scheduled US$51.5m)

So even if the YTM is overstated, I think that Astrea VI is investment grade and a good place to park some of my funds, together with SSB and T-Bills.

6-mth T-bill 3.32%

 I applied for $30k of T-bills for the first time using internet banking. Unlike SSB each T-bill application is free of charge.  The yield is announced after the auction and was 3.32% which is a whole lot higher than fixed deposits. Yet the news reports long queues at bank branches to place 2.6-2.7% fixed deposits.

I used OCBC internet banking to apply and I have to say that their system is really good. I got notified by SMS and e-mail really quickly.

Looking at the bond portion of my portfolio, I have 2 SSBs with less than 2.5% interest. For now, it makes sense to redeem them and redeploy the funds into T-bills. I've redeemed one of them and will redeem the other next month.

Strategy: Sep 2022

 Using IWDA's price as a proxy for MSCI World (i.e. IWDA tracks MSCI World), my strategy was to enter as it dropped below $75 and to average down at $72 and then at $70.

I began at $74.85 last week and now $71.99 today. I also bought VWRD today at $98.88. Given the lack of panic, I am optimistic for a 'higher low' and that IWDA will hold at $70.

In the meantime, I am in buying mode and will continue to buy this week as valuations are more reasonable at these levels.

Singapore Stocks I am still buying

 

    

While there is a lot of focus on the US market as well as fairly strong opinions on the internet about how bad the Singapore stock market is, I am nevertheless accumulating two local stocks that derive some of their income from overseas: Comfort Delgro and Ascott Residence Trust. Some geographical diversification of their incomes makes the stocks more attractive than counters that solely derive their income from Singapore.

They are currently in my Medium-sized holdings part of my Portfolio, but I have no issues accumulating more till they are upgraded to "Large."

There may be some negativity due to COVID on the transport and accommodation sectors but that might mean that this is the best time to buy if you believe that these businesses will recover to their pre-pandemic levels.

The management quality of these two companies appears decent enough for me to believe that they will be able to position their business for the post-pandemic recovery. For example, ART's divestment and acquisition strategy suggests that they are repositioning the Trust with a certain vision of the future.

While inflation is certainly a problem, I expect that ART will be able to raise prices to cover its costs. Comfort Delgro operates in perhaps a more 'sensitive' area especially where public transport is concerned but there are mechanisms in place for price increases and this issue is nothing new.

Earnings Per Share

In terms of Earnings per share, ART has actually recovered to pre-pandemic levels:

2019:  9.04

2020: (7.69)

2021:  9.36

As for Comfort Delgro, their EPS certainly looks bad, but it is a case of "No Way Back" or is a recovery in sight? Furthermore, what is the EPS baked into the current price and is the market underestimating CDG? In which case, we can expect price surprises to the upside.

In contrast, Grab is still bleeding badly, as Business Times reported in August 2022:

 "Strong ride-hailing recovery narrowed the net loss for South-east Asian tech giant Grab to US$547 million for the second quarter ended June, compared to the year-ago loss of US$768 million."

Dividends Collected: August 2022

 

STI paid its dividend this month