SMRT - Too Big to Fail. Too Big to Prosper?

SMRT is integral to the lives of many Singaporeans. Without the public train and bus services, Singapore will literally cease to function. As a result, the public's general perception is that SMRT is a company that service the masses (low-middle income families). It is simply too big to fail. It even has Temasek Holdings as its major shareholder. At first glance, SMRT should be a solid blue-chip with strong fundamentals. Unfortunately, in my opinion, that is far from the truth.


I can imagine the following scenario playing out in an informal coffeeshop or hawker centre chit chat session.

Teochew porridge uncle, "Hi DW! Here for some porridge again?"

DW, "Yup. I am a Teochew after all. Please give me extra pork liver in my porridge. Thanks uncle!"

After 5 minutes......

Teochew porridge uncle, "Here you go. Enjoy! By the way, I just read from the papers that SMRT is not making huge profits. In fact, their profits are dropping fast. Made me really happy!"

DW, "Why did that make you happy?"

Teochew porridge uncle, "Because SMRT's aim should NOT be about making profits! They should focus on providing quality service to the commuters. In the past, during Mdm Saw Phaik Hwa's era, SMRT reported handsome profits and cash flow. Transport fares kept rising too. It really made my blood boil! Greedy management!"

DW, "Ok. OK. Calm down uncle. But other government-linked companies such as Singtel, Starhub and DBS are equally, if not more important to the survival of Singapore. Does your blood boil when you see Singtel, Starhub and DBS making profits and rewarding their shareholders too? "

Teochew porridge uncle, "Actually, I am ok with the telcos and banks making profits and prospering."

DW, "Ok........errrrrrmm. No disrespect, but dun you think you are being biased here?"

Teochew porridge uncle, "Dun get me wrong. I am not saying I want SMRT to go bust and collapse. I just want SMRT to function efficiently without making huge profits."

DW, "So, you are saying that SMRT should just earn enough to maintain its fleet of trains and buses, pay the staff, pay the electricity/fuel bills and distribute a little dividends?"

Teochew porridge uncle, "Yes. And they should not even distribute any dividends! No fat bonuses for the management too!"

DW, "Ok......Well, thanks for the porridge. Hey, is that your iPad?"

Teochew porridge uncle, "Yes. My wife and I used it to watch our favourite Taiwanese, Hong Kong and Korean drama serials when there is no customers around. My son helped me set everything up. All I need to do is to press a few buttons. Without the teletext service now, old people like myself have to learn how to surf the net too. My grandchildren have iPads too. I can do video chats with them. I could not believe I exceeded the data usage limit recently, I think I have to upgrade my basic data plan."

DW, "Wow! Even your grandchildren have iPads. You dun mind paying more for a higher-tiered data plan? Why dun you cut down on your drama serials? Can save money."

Teochew porridge uncle, "I dun mind paying more. My wife and I love our drama serials. ^^"

DW, "Alright then. See you again uncle. Bye!"
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SMRT is too big and important to be allowed to prosper without incurring the wrath of the public. In fact, the title of the recently-released report from the Fare Review Committee says it all. "Affordable Fares. Sustainable Public Transport". I can't help but notice the succinct use of the word "Sustainable". That word is as commonly-used as "Productivity" nowadays. So, for those readers who have been asking me whether they should invest in SMRT. My question to you will be "Do you want to invest in a company that is merely sustainable?"

Is Sustainable Good Enough?
Dividend Warrior

DW November 2013 Singapore Dividend Portfolio Update

No.	Stock	Lots	Average Price	% of Portfolio
1	AIMS AMP REIT	25	$1.236	16.04%
2	Starhub	10	$2.467	12.81%
3	Singtel	7	$2.983	10.84%
4	SPH	5	$3.756	9.75%
5	Frasers Centrepoint Trust	10	$1.70	8.82%
6	M1	7	$3.33	8.77%
7	Capitamall Trust	7	$1.689	6.14%
8	CACHE Logistics Trust	10	$1.115	5.79%
9	Plife REIT	4	$1.99	4.13%
10	Suntec REIT	6	$1.26	3.92%
11	First REIT	10	$0.736	3.82%
12	Sabana REIT	6	$1.07	3.33%
13	SATS	1	$3.28	1.72%
14	HPH Trust	3	$1.03	1.60%
15	Mapletree Industrial Trust	2	$1.46	1.52%
16	Neratel	3	$0.63	1%

Total dividends collected (2013)	S$12,666.67
Total Invested Capital	S$198,990
Projected Annual Yield (2013)	6%
Average Monthly Dividends (2013)	S$1, 055
Available funds for investment	S$6,000

Unrealized Paper Gain (S$)

S$50,388

For the month of November, I shall be collecting a total of S$1, 533.94 in dividends. Always nice to see passive income streaming into my bank account regularly. ^^

1. Starhub: S$500
2. CapitaMall Trust: S$179.20
3. Frasers Centrepoint Trust: S$298
4. Suntec REIT: S$137.34
5. First REIT: S$196
6. CACHE Logistics Trust: S$212.60
7. Sabana REIT: S$10.80

All the REITs have reported their results by now. In general, most of them are doing fine except Sabana REIT. It seems the management is having difficulties in securing lease renewals. I may be looking to divest as soon as I find another counter to replace it. 

Since the US government kicked the debt ceiling can down the road until February/March next year, global stock markers have stabilised. However, almost everyone is expecting QE tapering next year. Will another debt ceiling fight and QE tapering combine to wreck havoc on the stock markets next year? Your guess is as good as mine. 

The recent penny stock market carnage has not affected me one bit. I watched in amazement as some of the penny stocks went off a cliff within hours! Well, all I can say is if you play with fire, you risk getting burnt. Live by the sword, Die by the sword.

It is also wildly interesting to observe the various reactions from local punters in the forums. Most of them blamed everyone else except themselves. Do they really expect the penny counters will keep rallying non-stop? Even the experienced brokers and remisiers are blaming SGX. Why did they advice their clients to punt huge amounts of money on penny stocks in the first place? They are supposed to give their clients sound advice. Unfortunately, they chose to encourage punting in order to earn more commissions. The Straits Times even reported a retired punter sinking $120k of his retirement funds into Blumont. What was he thinking? What was his broker doing? o__O

So, the next time your broker recommends a "hot" counter to you, think hard and think twice before taking the plunge into the shark-infested penny stock waters. Come to think of it, do you really need your broker?

I read this article from The Straits Times a few weeks back. Seems like SATS has monopolised the leisure cruise business in Singapore. I love monopolistic businesses! :P



Keep On Rolling,
Dividend Warrior