The NAV before the 1st quarter result was 99 sen per unit, after taking into account of the Q1 result, the NAV is 1.02. Why? this is due to forex translation gain (strengthening of Aussie dollar against ringgit) of RM 48 million and this has reduced the accumulated losses in the currency translation reserve. As a result, an improvement of 3 sen in the NAV.

Lets look at what happen if the placement of shares were to take place at the end of 3rd Quarter ending 31/3/2014.

a> Assuming 800 million units place at RM 1, the borrowings will be reduced from RM 1.575 billion to 775 million, this will indirectly bring a saving in interest charges of RM 9.34 million in the last quarter (assuming 1st Quarter interest of RM 18.38 million were to be the same for the rest of the quarters, interest charge for the last quarter will be RM 18.38 x 0.775/1.575 = RM 9.04 million. Hence RM 18.38 - RM 9.04 = RM 9.34 million saving).

b> If dividend payment for the next two quarters is the same as the first quarter, the total dividends received by existing unit-holders shall be 5.75 sen per unit [(RM 25.4 million *3)/1,324 million units). To match the total dividend payments as per last year at 7.38 sen per unit, an addition payment of 1.63 sen shall be paid to the enlarged units in circulation i.e. 2,124 million units which include the additional 800 million units.

The total dividends to be paid in the next three quarters shall be RM 85.3 million [RM 25.4*2 + RM 34.5 million (2.124 million x 1.63 sen)].

c> If there is no improvement in the net profit for the rest of the three quarters, the total net profit for the next remaining 3 quarters shall be RM 42.84 million (RM 14.28 million x 3) and with an interest saving of RM 9.34 million. The best guesstimate for total net profit will be RM 52.18 million. The non-cash item like depreciation charged of RM 12.33 million in the 1st quarter were to add back to cover dividend payment, the extra cash shall be RM 36.99 million. This will bring a total of RM 89.17 million. This is barely enough to cover the RM 85.3 million dividend payment for the remaining 3 quarters.

d> In term of NAV, the RM 800 million extra capital is adding to unit holders funds and the estimated reduction of distribution profit will be around RM 33 million. The NAV will be reduced to RM 99.8 sen from RM 1.02 [(1,353+800-33)/2,124]. This is assuming there are no more forex translation gain or loss.

However, please take note that most of the Malaysian hotels were revalued in May 2011 and the Australia Hotels were done in June 2012. There should be a revaluation done for the Malaysian Hotels before the unit placement. It will increase the NAV before the placement and reduce the total units issue for the fund raising. Revaluation will give rise to fair value adjustments and resulting in unrealized profit in the P/L.

My only worry if the current cash holding RM 132 million will be depleting slowly for hotel upgrading later or to plug the deficit in the dividend payout. The profit from Australia Hotel must improve gradually over the next 3 quarters.

Lets keep our fingers cross and hope for the best. Cheers!

YTL REIT gross distribution per unit is 1.9175 cent which is higher than it’s earning per unit of 1.0921, its distributable income inclusive of non-cash item like depreciation charges is 2.1306.

Hence, in term of cash flow, it is still able to sustain the dividend payment. Since depreciation charge is a provision for future upgrading costs for the Hotels, thus current trend is not desirable if persisted for too long. The current distribution policy in excess of its earning continued to deplete its cash reserve albeit at a slower pace.

To address its high gearing level of 52.5% of its total assets value, YTL REIT has proposed a placement of new units to raise up to RM 800 mil (partial repayment of bank borrowings) of which YTL Corporation, the existing major unit-holder has accepted a conditional invitation for placement units of up to RM 300 mil in value. If successful, the gearing level will drop to 25.8%.

YTL Reit 1st Quarter of FY2014 ending 30/9/13 showed that the Australia Hotels’ revenue (RM 74 mil) for the quarter is more than three times that of Malaysia Hotels (RM 24 mil) but its gross margin is only 30% (RM 22 mil) compared to 95% (RM 23 mil) of Malaysian Hotels. In Aussie Dollar term, it’s Australia Hotels (3 no) revenue was no better off than Malaysia Hotels (9 no) but 3 times less profitable. In term of acquisition costs in Ringgit Malaysia, they are almost the same.

In other words, Its Australia Hotels have to:
a> Improve its occupancy rate without margin compression, which is quite tough for its Sydney and Melbourne Hotels as both have crossed the 80% mark except for Brisbane Hotel.
b> Increase in room rate or cut cost to improve margin. It needs to review its manager’s fees which have more than double from RM 3.3 mil in FY 2012 to RM 7.2 mil in FY 2013. It should tie this to KPIs with weighs in term of revenue and profit. Unless cutting room rate to improve occupancy is a temporary promotional exercise.

Tourism Australia has signed a three years agreement with China Travel Service in promoting travel Down Under to its rapidly growing middle classes. China is Australia’s fastest growing and highest inbound market, recorded a 17.6% growth annually from May 12 to May 13 and Chinese visitors have spent AUD 4.6billion in the year ending March 2013. Australia tourism strategy is anticipating the market to be worth more than AUD 9billion by 2020, a compounded annual growth of 13.7%.

We will see whether the 2nd Quarter (ending 31/12/2013) result will see a better performance from its Australia Hotels in term of Revenue and Gross Margin. There is still hope for an upside for this counter.

It will be a bonus if the CPO price can stay at RM 2,500 per mt and above. Unfortunately, nothing much plantation players can do to influence the price. It is purely demand & supply dynamic, seasonal factors and price of substitute products like soya oil etc..

The long lead time between plantation establishment and profitability are huge impediments to many plantation owners. As a rule of thumb, the operating cost of oil palm planter is around RM 1,000 per mt and milling cost is another RM 200 per mt but this cost structure depends a lot on FFB production per ha, OER, price of fertilizer and labour costs.

Mr. Koon has estimated the JTiasa FFB production in his article, palm trees typically begin flowering and producing fresh fruit bunches (FFB) after three to four years, with a substantial increase in yield three to four years later. Peak palm oil yields occur when trees are between 7 and 12 years of age, and gradually decline thereafter. As a plantation ages, it also tends to experience declining tree populations as a result of pests and disease. Newly established plantations might have 130-145 trees/ha, whereas an old plantation might be reduced to about 100 trees/ha. Oil palm plantations generally remain profitable for 25 years, after which they need to be replanted.

Plantations in Malaysia are facing shortage of workers; most of them are from Indonesia. This has adversely affected harvests and is creating wage pressures in the industry. Labour costs on plantations estates now account for around 30-40% of total costs (depending on the level of mechanization and location) and are likely to trend higher at a rate of 10-15% annually.

The cost structure of oil palm plantations is made up largely of labour, fertiliser and diesel on a per hectare (ha) basis. Oil palm plantations are extremely labour intensive and are costly to establish and manage. Fertiliser is the largest cost item for an immature estate. Once trees reach maturity, labour takes the No. 1 spot, with fertiliser dropping to No. 2. The price of fertiliser is a significant yield and profit driver.

Although cost is on the uptrend, yields are therefore central to profitability as they impact on the cost of CPO per hectare (or per tonne).

I will try and hope my explanation is clear enough.

The announcement date is when board of directors declares to shareholders and the market as a whole that the company will pay dividend.

The Ex-date or Ex-dividend date is when you purchase a dividend paying stock one day before the ex-date, then you are entitled for dividend payment. Conversely, it you sell a stock and still want to receive the dividend that has been declared, you need to sell on (or after) the ex-date. Ex-date is used to make sure dividend payment go to the right person. The current settlement period is T+3, which means that when you buy a stock, it takes 3 days from the transaction date (T) for the change to be entered into your CDS account.

For example, if you buy on Monday and Tuesday is the Ex-date, and then by Thursday the shares will be entered into your CDS accounts. If you purchase on Thursday with Friday as ex-date, only by Tuesday the shares appear in your CDS accounts.

With CDS and e-dividend payment arrangement, dividends payment will be credited to your bank account on payment date.

Since we can receive dividend by purchasing the shares before the ex-date, can we make more money? It’s not that easy, everyone knows when the dividend is going to be paid, and the market sees the dividend payout as a time when the company is giving out part of its earning and reducing its cash.

The price of the stock will drop approximately by the amount of the dividend on the ex-date. The actual drop in price can be different due to tax considerations or other reasons. The crux of the matter is there is no free lunch on the ex-dividend date.

VOIR business is divided into 3 segments; apparels, footwear & accessories, food & beverage, beauty & wellness.

Its retailing business (apparels, footwear & accessories) revenue increased marginally by 3.5% in 2012 compared to last year but PBT declined by 13%. In 2011, its revenue increased by 8% but PBT also declined by 2.7%. The margin squeeze in this segment is getting worse and top line growth has decelerated.

The food & beverage segment performance is not well. Though it has 87% top line growth from 2010 to 2011, its losses has widen from RM 78K to RM 199K. In 2012, its revenue dropped by 20% and its losses hit RM 2.3mil. This segment has pulled the overall performance down. It needs to get RM 10.5 mil revenue per annum to break-even.

Finally, VOIR has ventured into beauty & wellness segment in 2012. It managed to get RM 45K revenue and incurred a loss of RM 537K.

In summary, it experience a margin squeeze in its retailing segment, unable to break-even in food & beverage and a big question mark (?) on its beauty & wellness business segment.

From 2010 to 2012, its EPS has reduced by half from 6.41 to 3.24 likewise ROE also slide from 9.71% to 4.38%. Even though its price to book 0.57 (0.415/0.73) as at 30/6/13 look attractive, its business fundamental has deteriorated and unable to perform. Its 2 quarters result ended 30/6/13 has incurred after tax losses of RM 1.2 mil.

If the current trend were to persist, VOIR will face difficulty to expand, pay dividends or even servicing its debts in future.

With Bank Negara clipping on credit debt and personal loans, growth in credit consumption will decelerate. It will be an uphill task for the management of VOIR to rejuvenate the business.

If the free cash flow (net operating cash flow - capex) stay negative for too long. You can forget about dividend payment, JTiasa may have to borrow more to fund the cash deficit. Unless it can monetize some of its assets under its stable.

If JTiasa is at the tail end of capex spending i.e. most of its acreage was planted with palm trees. Then its ability to generate positive economic profit and free cash flow in future will translate into lower gearing, higher dividend payment and its MVA [Market Cap - (equity + loan capital)] will be on an upward trajectory.

JTH needs heavy capex to improve production, its capital commitment in FYE 30/6/13 was RM220 million. It also has a bank loan of RM 455 mil need to be paid next year. Its cash in hand and unit trust investment only come to about RM 205 mil. If we take into account of its estimated RM 220 mil operating cash flow next year. It is still short of RM 250 mil, which in turn need injection of capital or restructure its loans.

Relying on borrowings will increase interest payments and increase in equity option will have dilution impact on EPS.

Unless in the coming years there is no further capex requirement, couple with productivity and cost control measures to improve profit margin. Then investing in JTiasa will be a profitable option. More so if the average CPO price can maintain at an average price of RM 2500 per ton.

If US Fed tapering take place by end of 1st Q of 2014, USD will strengthen against other currencies. This will favor Unchitec. Since its current price is close to historical high, can afford to wait for a better entry price.

The worse case scenario for the past ten years is in FY 2009, where its EPS is around 7 cents a share. If management paid 100% of its earning, the dividend yield should be around 5% at current price of 1.43. More if your entry price is lower.

I can sleep with that as long as the company is able to make profit in adverse economic environment.

I have developed a habit of keeping record of important business developments of those companies that i have invested.

NO, i have invested in Uchitec and tracking its business development and performance through news, analyst, quarterly and annual reports. I also prepared my own analysis on the company financial performance.

Uchitec has strong free cash flow and economic value added (EVA). Its Altman score is three times the safe zone score. Management has been able to balance R&D expenditure and rewarding shareholders with good dividends.

It is normal for businesses to suffer temporary setback but it is also important that its business fundamental is strong enough to withstand the up and down of the economic cycles.

UchiTec art-of-Living products, namely fully-auto coffee machines, contributes approximately 80% to the Group’s revenue. Biotechnology products, on the other hand, consist of high-precision weighing scales contribute approximately 20% to the Group’s revenue.

Its largest export market is Europe, and almost 96% of our total revenue is derived from exports to the region. It has attempted to promote its products in Taiwan and Hong Kong to diversify markets.

100% of its revenue is billed in USD; it has entered into foreign currency forward contracts to mitigate exposure to USD fluctuations.

Its pioneer status for mixed signal microprocessor-based application and system integration products expired on 31 December 2012. Profit generated from such products commencing January 1, 2013 will attract a corporate tax of 25%. This explained its higher PBT but lower PAT in 6/13 quarterly result compared to last year,

It managed to maintain its operating profit margin at 44%, largely due to the effectiveness of its cost-cutting measures that resulted in savings in material consumption that allowed salary hikes. Net operating cash generated in 2012 was RM53.6 million, representing 109.6% of its after tax profit.

Its dividend policy is distributing a minimum of 70% of profit after tax to shareholders. Uchitec paid 12 cents dividend for financial year ended 2012 due to strong net cash position. Based on current share price of RM1.44, the dividend yield is 8.2%. Going forwards, it will be able to maintain 12 cents yearly dividend in the years 2013 & 2014.

Not only with strong cash flow and dividend payout; it also has the potential for growth.
Uncitec growth prospect lied in its R&D capabilities. Approximately RM30 million was invested in UCHItecture and was funded internally. The purpose of this new R&D centre is to enhance customers R&D capabilities and to foster closer working relationships with them.

It has spent 5% of its revenue on R&D. Since 2012, it has 30 new projects in the R&D pipeline and scheduled to launch in 2013 and 2014. It has submitted application for pioneer status for new products but yet to receive approval from the relevant authorities.

UchiTec is one of my favourite counters, its Art-of-Living products, namely fully-auto coffee machines, contributes approximately 80% to the Group’s revenue. Biotechnology products, on the other hand, consist of high-precision weighing scales contribute approximately 20% to the Group’s revenue.

Its largest export market is Europe, and almost 96% of our total revenue is derived from exports to the region. It has attempted to promote its products in Taiwan and Hong Kong to diversify markets.

100% of its revenue is billed in USD; it has entered into foreign currency forward contracts to mitigate exposure to USD fluctuations.

Its pioneer status for mixed signal microprocessor-based application and system integration products expired on 31 December 2012. Profit generated from such products commencing January 1, 2013 will attract a corporate tax of 25%. Its future after tax profit will be lowered.

However, despite wage hike in Malaysia and China, it managed to maintain its operating profit margin at 44%, largely due to the effectiveness of its cost-cutting measures that resulted in savings in material consumption that allowed salary hikes.

Net operating cash generated in 2012 was RM53.6 million, representing 109.6% of its after tax profit.

It has a dividend policy to distribute a minimum of 70% of its profit after tax to shareholders. It has paid 12 cents dividend for financial year ended 2012 due to strong net cash position. Based on current share price of RM1.44, the dividend yield is 8.2%. Going forwards, it will be able to maintain 12 cents yearly dividend in the years 2013 & 2014.

Uchitec not only with strong cash flow and dividend payout; it also has the potential for growth.

Uncitec growth prospect lied in its R&D capabilities. Approximately RM30 million was invested in UCHItecture and was funded internally. The purpose of this new R&D centre is to enhance customers R&D capabilities and to foster closer working relationships with them.

It has spent 5% of its revenue on R&D. Since 2012, it has 30 new projects in the R&D pipeline and scheduled to launch in 2013 and 2014. It has submitted application for pioneer status for new products but yet to receive approval from the relevant authorities.

For a cash cow like CScenic with limited expansion opportunities, its business is durable and still can compete well over the years. It has not make a loss since 2004 and stood the test of time.

Hence, the business must have the capability to generate profit and earning reserve for distribution. In addition, it also must have the ability, cash minus borrowings, to support dividend payment. Finally, most important of all, management must have the intention to reward shareholders with handsome dividend payout.

CScenic EPS of 11 sen per share in 2012 was closed to its historical high. With its current price level, its P/E is at 11.1. Going forward, it will difficult to maintain that pace especially with imminent US tapering move and likelihood of interest rate hike in future. Though Scenic has zero gearing, but investor will demand for higher yield in a high interest rate environment. With limited upside in EPS, then share price has to come down. Though in the short term, management still have the flexibility on increasing the dividend payout ratio to improve the yield.

Sorry, good corporate governance.

Yes, your are right My 101. Starhill Malaysian and Japanese hotels revenue streams are fixed, medium and long term lease income which is insulated from cyclical nature of the hospitality business.

Whereas its Australia hotels have more risks but also have the benefit of potential upside, very much depend on the vibrancy of the tourism in Sydney harbour hotel on Pitt Street, Brisbane Marriot Hotel and Melbourne Marriott Hotel.

For the past 5 years since 12/2008, only in FY 2010 that its dividend paid out (101%) is more than its earning. Its 5 years average paid out ratio is 72%, well below the 75% mark. Its annual Capex looks more like asset replacement rather than for expansion. Its annual net operating cash flow is much stronger than its profit numbers. Since it has zero borrowings, its cash holding per share in FY2012 is 2 times its dividend per share for the same year.

In view of CScenic high dividend payout ratio and steady earning, its ROE has improved from 8.7% in 12/2008 to 13.2% in 12/2012. This should the way, reward shareholders if the management has no plan to use the surplus cash for expansion. I will give CScenic an "A" for good corporate government. Unlike the other Chinese companies like CSL with huge cash pile but having transactions defied logic. Like getting 0,3% per annum for its cash hoard, then borrowed at 6.5% for capex secured on assets with shareholders' guarantee.

Frankly speaking, my average unit cost on both is around 90 sen. The problem with dividend yield stock is low earning growth (up and down within a range). The good thing is the management willing (in the case of CScenic) to reward shareholders with good dividend payout (ranging from 40%-100% of its earning for the past 5 years).

At RM 1.10, its earning yield (EPS/Share price) is estimated to be 9% and if the 60% payout ratio on earning. Your dividend yield will be 6.4% or lower (because Scenic last 2 Quarters performance is lower) unless management increase the payout ratio.

If you are long term investor and satisfied with a yield of 6% with 3% p.a. sustainable growth rate in the next 5 years. Then go ahead with CScenic.

As for Starhill, there is an added risk element in its Australia investment - forex risk. Australia government is trying to have a weaken Aussie dollar to promote export (almost every government is doing that). The Australia Hotels are new and performance not proven. Better wait for clearer picture before jumping in.

Its business model in Australia is more on hotel operations rather than leasing its hotels to hotel operator for rental income. That why its administration expenses were high.

Its total assets invested in Australia is comparable to the Malaysia side in term of ringgit valuation. Since it has not accounted for the Australia Hotels' full year results, it is difficult to compare the ROI performance.

At the moment, its Australia segment has pulled down the overall performance. if its Australia Hotels poor earning trend still persist for next two years, then its ability to maintain the same level of distribution is questionable. i will consider disposing my holding on this counter.

In the meantime, its distributable realize income (RM 130 million as at 30/6/13) and operating cash flow are sufficient to support the same level dividend payment in the next two years. Let watch how the management can improve the Australia Hotels performance. Need to monitor closely its quarterly announcement for FY 2014.

When you invest in REITs, it has the ability to generate profit and cash flow from operation and disposal of its investment properties. Since 90% of its annual profit is distributed, it is only through borrowings or increase equity size to expand.

Revenue growth of its existing assets can only be achieved through rental hike, expansion of floor space and asset enhancement exercise. So capital appreciation is limited unless good assets are brought in with better earning yield.

As long as the business can generate an annual operating cash flow of RM 200 million or more. It should be able to support a distribution to give a dividend yield in excess of 7% at current price level.

I will hold my position but not buying more as i have a single stock limit set in my high dividend yield stock portfolio - CScenic is also one of them. This portfolio will give a steady stream of dividend income. The growth stock like Zhulian will give lower dividend payout but stronger capital appreciation. So it all depend on what you want.

Starhill REITs has applied to increase the 50% statutory borrowings limits of its total assets to 60% although its unit placement will reduce its limit from current 52% to 26%. Its application to increase the borrowings limit and unit size will require consent from SC and Bursa beside the trustee and unit holders.

Before the restructuring of its portfolio to pure hospitality business, its 2008 and 2009 net operating cash flow mirrored quite closely to its realized profit for distribution which was around RM 81 million.

During 2010 Lot10 and Starhill Gallery were disposed to SG REIT and settled in 2011 partly in cash (RM 625 million) cash and partly SG REIT’s redeemable CPU with distribution rate of 5.65% per annum. Its RM 2b Australia Hotels acquisition in 2012 was satisfied with RM 553 million cash and RM 1.4b borrowings. Starhill FY 2012 operating cash flow is too weak to pay the RM 91 million distributions; this was making possible with its cash proceeds from SG REIT.

Going forwards, Starhill REIT management proposed to raise RM800 million by placement of new units (estimated fund size increased from 1.324 b to max. 2.125b).

Judging from the FY 2013 net operating cash flow of RM 230 million, after deducting interest payment of RM 46 million and distributions of RM 95 million, its still have a comfortable RM 89 million surplus.

The unit placement will reduce its gearing level to around 36% from current 119% (with borrowings reduces by half and an expanding Unitholders’ fund). With this, the interest payment will also reduce substantially.

Barring unforeseen circumstances, it should have no problem to declare the same distribution per unit in future even with the expanded unit size. With the reduction in debt, it will give Starhill flexibility to borrow for yield accretive acquisitions in the future.

If you want to compare year on year performance, it is better used EBITDA (earning before interest, tax, depreciation and amortisation) after adjusting non-recurring profit or loss including unrealized fair value adjustment on investment properties etc.