Sunday, 19 November 2017

M1 or Starhub??

M1 and Starhub are household names with close to 50% of Singaporeans being their customers.

They are also popular stocks among investors. But we know that the telco sector has seen a bit of shake-up recently, with new players emerging - Circles.Life and TPG.

Are M1 and Starhub still good investments? I studied their latest 3Q earnings to find out more. 

3Q Earnings Snapshot
Figures obtained from M1 and Starhub Q3 FY17 Earnings Results 

M1 managed to eke out a small increase in revenue and EBITDA in 3Q over 2016, with both numbers rising by 1% and 1.3% each. However, Starhub saw a small drop in both: -0.8% and -1.7%.

Both have similar EBITDA margin. 

And based on their closing price on 17 Nov (M1 $1.77, Starhub $2.83), M1 is valued lower at TTM PE of 12.3. M1 also enjoys a higher dividend yield of 6.3% (TTM dividends $0.111), compared to Starhub's 6% (TTM dividend $0.17). 

Both companies continue to face margin erosion due to stiff competition. The 9-mth EBITDA margin for both shows clearly: 
  • M1 9-mth 2017 EBITDA margin: 29.8%; 2016 is 32.1%
  • Starhub 9-mth 2017 EBITDA margin: 29.5%; 2016 is 31.5%
Extent of Mobile Segment Deterioration, and Growth of Enterprise Services
One narrative for future growth of telcos is the Info Communication Technology arising from an increasingly digitalised economy, more online communications and activities among consumers, and a rising demand for cyber security services. 

Besides, I would also like to find out which of their consumer mobile segment, the bread-and-butter business, have fared worse. 

Comparison of Both Companies
Figures obtained from M1 and Starhub Q3 FY17 Earnings Results 

From this table, it is clear that M1's mobile segment has been faring worse in the past 9 mths, with its mobile revenue and mobile ARPU deteriorating. Despite innovative product offerings and better value mobile plans (eg. here, here and here), M1 does not seem to be able to retain customers and defend its mobile revenue. The significant 4.2% drop in mobile ARPU is particularly concerning. 

While its Fixed Services showed a 21% growth, it is still a small portion of the overall revenue. With its small base, Fixed Services has to grow much more to stem off the overall business decline. 

Starhub has a milder drop in mobile segment revenue and ARPU, with its Enterprise Services grew 5% in past 9 months. With less dependence on mobile segment, Starhub should be less impacted by the mobile industry headwinds. 

Dividends Trend
Many investors bought into either companies enticed by the high dividends. As dividends are cash outflow, it is important to find out if the company's earnings and cash generated from its daily operations are sufficient to pay out dividends.

Ideally, dividends paid should be lower than Earnings per Share (EPS) and Free Cash Flow (FCF), as anything above, over a sustained period, means company would need to borrow, or dip into their cash reserves, to sustain dividend payment. 

FCF is defined as Net Operating Cash Flow minus purchase of fixed assets/spectrum rights/plant property and equipment). 

Figures obtained from past Annual Reports

M1's dividend was above its FCF, but below its EPS, until 2016 where it dipped below both FCF and EPS.

Starhub's dividend is higher than both EPS and FCF per share in 2016. Its FCF has also shown a down trend past 3 years.

Do note that both companies have actually reduced their dividends. Starhub has announced intention to pay out $0.04 per quarter instead of the usual $0.05, decreasing its div per share to $0.16. M1 has also been reducing its dividends for the past 3 years: 

Source: M1 corporate website Investor FAQ

Analysis presented here are by no means a thorough and complete assessment, and there are many other areas that could warrant discussion depending on each investors level of confidence and familiarity with the companies. However, as far as investment decisions are concerned, these points are sufficient for me. 

It is a tough choice to make. Business fundamentals wise, both companies are facing a difficult operating environment, caused by new players entering an already matured and competitive industry. Opportunity areas such as ICT and corporate/enterprise services are not seeing sufficient growth to offset the drop in mobile services.

My hunch is to veer towards Starhub. It should have a better chance of surviving the competition, due to its larger size, more diversified operations with less reliance on mobile segment, and a bigger presence in ICT/enterprise services. 

However, for an even safer value proposition to investors, one could always wait for price drop before buying. Based on 16c dividends, its valued at 5.6% currently. One would recall that back in the good days before fourth telco announcement, Starhub was a favourite among investors with its regularly paid out 6% dividends. 

To have a 6% yield to compensate investors for the additional risks, Starhub would need to fall to $2.66, which is around the low price just few months ago. 

I will look at it again if it goes to $2.6, vis-a-vis its earnings then, to decide whether to start buying its shares. 

*See my profile here. Feel free to contact me if you wish to start share investment, or interested to start personal wealth management to make your money work harder!

Sunday, 5 November 2017

3 Steps to Start Wealth Management

A financial month of a working adult would typically look something like this:
  • receive salary in bank account
  • go around daily necessary expenses eg. food, transport, loan payments
  • have discretionary spending eg movies, shopping, travelling etc. 
  • keep the remaining amount in a bank saving/deposits product
  • wait for next salary
While such approach is a logical one and easiest to embark on, it is not ideal for someone striving towards a secure financial future and comfortable retirement. One needs to take a holistic look at his entire wealth plan and start taking suitable actions.

It is essentially allocating our money to specific wealth management goals, maximising their usage over our working life. 

Here, I offer 3 sequential steps to start managing one's finances better.

Manage Personal Cash Flow
We should all have separate bank accounts for daily expenditure, savings, and investments. Set up automatic funds transfer from the salary-receiving account into savings and investment buckets right after one's pay day. Don't leave it till the middle of the month. Chances are we would compromise on the savings or investment amount given our propensity to spend. 

As I always say, people hate money. Somehow when we see numbers in our bank account, we must quickly get rid of them by exchanging them with things or services. 

However, we can respond to such an innate hatred of money better - by getting them out of sight via transfer to different account and leaving a just-enough-balance for necessary spending and some entertainment in the main account. With our funds in their rightful compartments - for savings and investment, they can be put to good use when time calls for it. 

Get Essential Insurance Coverage
Insurance transfer, or reduce partially, the impact of risks arising from life's catastrophic event. It is done by entering into contracts with insurance companies to grant an agreed amount upon certain unfortunate events taking place. 

This is critical due to the deadly effects of life catastrophic events such as passing on, critically ill or total disability: 
  • potential to deplete one's accumulated assets to deal with the aftermath, and rendering his future earnings capacity zero
  • jeopardising family members' and dependents' livelihood through loss of income and a sudden need to take over debt payment
Insurance should gear towards restoring one's life back to the state before the strike of unfortunate events, as much as possible. Life insurance ensures your dependents have money to fall back on; hospitalisation plan pay for expensive medical and treatment costs, disability insurance payout replaces your last drawn salary. 

With proper insurance in place, the downside risks of life major mishaps are significantly reduced and our base assets protected. We can start investing for wealth growth. 

Invest for Higher Returns
There are many investment products in the market such as shares, exchange traded fund, unit trusts etc., with one common goal - to earn returns.

While each product offer the potential of returns, they always come with differing level of risk of losing money. This is because investment attempts to give you back a larger sum in future even when future is never certain. Herein lies the most fundamental concept of investment risk. And the higher the potential returns, the higher the possibility of losing money (risk).

Another factor to consider is the costs of investment, which is also inversely correlated with returns. Do our investment products have too high a cost that it affects the returns? Could we put in some efforts to learn the ropes of investing, and turn to other less costly instruments?

One should try to have a good mixture of investment products, considering the returns, risks and costs. Start taking a personal financial review to uncover what products are suitable for you, taking into account your risks tolerance and other factors such as age and time horizon. 

While we work hard for a better future, we should also be smart about managing our wealth. Its our hard-earned money, and no one else care about it as much as we do.

There will be time when human beings stop earning, but money can work every single seconds with no down time. Hence, not letting our funds earn a reasonable returns would be a huge disservice and we should start taking actions today.  

*Feel free to contact me at, or fill in the contact form at top right, if you like to start a proper personal wealth plan today. 

Saturday, 21 October 2017

Thoughts on Managing One's Cashflow

In my course of work I come across many people who understand the importance of investing, intend to invest, but are taken aback by the capital required to start.

Indeed, one needs a sum of money to start investing, to earn meaningful returns and diversify their portfolio. But it need not be an insanely large amount, and there are plans and products to lower the entry barrier for beginners, such as regular savings plan and Exchange Traded Fund.

I share my experience of how I accumulate an amount by properly managing my salary, channeling them to the different bank accounts via automated bank transfer, and spend within my means to ensure savings and investment funds are regularly put into good use.

But many people find that a chore, frown at the idea of channeling savings into different accounts and managing them. Some are rather astonished and from their expression, I guessed they find it a daunting task.

I just want to share 3 main points here.

Cashflow Management is The Most Elementary Step of Proper Wealth Planning
This is really the most elementary step. If one is not able to manage his personal cashflow carefully, we cant talk about wealth accumulation and investment.

Ordinary folks have a job that gives them regular salary month after month. This places people in a really advantageous position to invest regularly and grow wealth consistently. It is all the more favourable for certain stable jobs such as civil servant.

Properly managing this cash inflow is ensures that funds are always available when one needs to invest. Buy shares of a good company? Check. Buy more shares to average down? Check. Diversify your portfolio into bonds, Unit Trust, ETF? Check.

If Warren Buffet acquires insurance company to provide stream after stream of investment funds in the form of 'float', salary will be the equivalent of 'float' for a regular retail investor.

Presence of cash gives you an infinitely free hand in deciding the right action to boost your wealth growth when the situation calls for it. If one has spend some effort learning about investment, and avoid suicidal moves and big mistakes he should emerge better end of the day with cash readily available along his wealth journey.

It Does Not Mean One Has to Live Like a Peasant
Apportioning 50% of take home pay to investment, and just maintain a 3 to 6 month worth of expenses as emergency fund may seem very extreme. Most people are put off by the 50% at face value, thinking that they have to live like a peasant deprived of life's basic indulgence.

Well 50% is a level comfortable enough according to my lifestyle standard. There is no hard rule that one has to put aside 50% of salary for investment to achieve financial freedom.

The first step will be examine thoroughly whether one is over-spending on frills; then find practical  ways to reduce these spending. Instead of drinking Starbucks everyday, have it 3 times a week. Instead of meeting friends over restaurants always, try enjoying a meal at one of the new hawker centres, or have potluck at a friend's place.

There is a wide spectrum of choices between living as an absolute peasant/miser, and having the high life with zero savings. Living a happy, meaningful life balanced with prudence spending and sensible wealth planning is possible by viewing it on a scale of degree. It is not a binary choice.

Find an initially slightly uncomfortable spot with a nice saving, investing and spending balance, adjust your lifestyle to that, and stick with it. You will still be able to enjoy life.

It is Largely About The Mental Discipline
There will be temptations and factors pulling you away from your refreshed lifestyle. After all, you have been living in a certain mode for years, and there will be inertia for change, especially the starting. And our society is a capitalist and consumerism one that encourages spending.

Here is the most important point: build mental discipline to stick with your choices.

The straightforward part is to make it harder to touch the funds. For example, automating the transfer process, making the savings/investing account less accessible (CIMB Fast Saver anyone??), or make it a shared goal with your spouse/partner.

The tricky part is to toughen up your mental stance to defend against the urge to spend. There is no shortcut here. It comes easily for minority; but for majority that find this hard, you just have to keep reminding yourself of you goal and push on. Write and paste it somewhere at your work desk, use App to set up blanket budgeting, read more success stories for motivation.

And the good news is, it will just get easier and easier hereon. Studies show that new habits typically take 21 days to form. Such lifestyle adjustment should take longer, but definitely not as tough as one initially expected.

In no time when the habits are ingrained in your lifestyle and you are totally at ease with it, you will be surprised that there is a substantial amount waiting for you to be deployed.

M1 or Starhub??

M1 and Starhub are household names with close to 50% of Singaporeans being their customers. They are also popular stocks among invest...