Saturday, December 3, 2016

The difference between SPH REIT and CMT's response tells a lot

Retail REITS have this huge overhang for years - online shopping. Naturally, REIT managers have to consistently address this "disruption" or risk their business falling behind.

One could simply look at how different REIT managers respond to these questions to tell you if you should be confident about their management skills or not.

SPH REIT recently concluded their AGM and Business Times reported the following:

As for questions on the rise of online shopping and e-commerce, Dr Leong said while this trend is getting more prominent, brick-and-mortar stores are still relevant, given that consumers still prefer to feel and look at the actual product before purchase.

Contrast this with Capitaland Mall Trust's respond back in 2015:

The mall has a two-prong approach: Loyalty program (CAPITASTAR) and testing online delivery platform at Raffles City. 
Also, their redevelopment of Funan is aimed at being a "experiential creative hub in a technology-enabled environment"
Also, the up and coming SingPost Centre by SingPost is not your typical run of the mill mall. 
It will be a mall that combines both online and offline shopping. For instance, a consumer could browse in-store, purchase the product and arrange for delivery of the product directly to their home. The consumer could then continue shopping, watch a movie or have a meal in the mall without having to carry bulky shopping bags. The retailer, on the other hand, could save on storage space in the store as fulfilment would be done at the backend of the warehouse

You could easily tell that which management is still deceptive of the fact that change is real, and which are the ones that accept the challenge, and uses this as an opportunity and not a threat. 

And it's no secret that if I feel that management is not doing as good as a job as they should be, then no matter what moat they might possess is kind of useless.

Good businesses + great management = great businesses to invest and hold.

For example, I blogged about how one company I used to be vested in seems to be in a defensive mode and trying to pacify shareholders instead of owning the issue at hand and tackle it.

Need hints?

Sunday, November 20, 2016

Divested on StarHub as their Management skills are not as strong as before.

I've divested StarHub before their 3Q16 results announcement after considering various points and thought it'll be a good time to do so before their announcement.

Weak outlook on Mobile
Mobile segment outlook is very weak, and especially so for StarHub and M1. This is affirmed by their 3Q announcement vis a vis Singtel's announcement.

Pricing pressure from the impending 4th Telco arrival has took a toll on M1 and StarHub.

Defensive Mode
StarHub's management has been on a defensive mode with regards to their earnings call.

They attributed their fall in Mobile earnings to 

  1. IDD and International Roaming calls (as usual) 
  2. Not pricing pressure from their data upsize point of view. 
An analyst even questioned on their need for such aggressive move on the data front, given that the fall in voice revenue is larger than the data upside.

Management's response was that their move was not aggressive. They even attempted to assured investors by saying that what they're seeing is that consumers are not downgrading their plans but instead, increasing their subscription to the Plus 3 option due to increase in data consumption.

Now, these are all nice to hear. But it's essentially useless if their revenue does not show otherwise.

Singtel, meanwhile, has managed to stabilised their Mobile revenue despite falling voice revenue with strong data growth. They've put their money where their mouth is.

Weak PayTV vs Singtel
StarHub's and Singtel's PayTV subscribers are lowering quarter on quarter. However, the similarity stops here.

Singtel has managed to increase their revenue while StarHub's PayTV revenue is falling together with its smaller subscribers' base.

In response to analysts' question, StarHub is again on the defensive mode saying

  1. Working hard on content
  2. StarHub Go is there
  3. Netflix and other illegal options are there all along
Again, these are nice to hear until your revenue shows otherwise.

Meanwhile, Singtel has somehow managed to increase their PayTV revenue even when excluding BPL subscriptions. 

Also, I remember them saying this on their previous earning calls in response to analysts

  1. Cutting the cord in other countries will not be seen on the same scale here
  2. StarHub has local contents that prevents consumers from cutting cords (as the OTT options do not have significant asian content)
  3. Netflix via VPN is already available long before, together with illegal setup box, and StarHub has been unfazed.
  4. StarHub Go will address the OTT options
Yet now, look at their PayTV segment. They must be eating their words.

Meanwhile, Singtel:
  1. Partnered with Netflix
  2. Has VIU, CAST to countered the OTT options
  3. BPL is really helping their revenue (although their profitability on BPL remains questionable).
Hubbing (their Trump Card) is weakening as well
Even their Hubbing households (which Management has been trumpeting forever, is falling for the second or third quarter).

No competitive advantage left
In summary, why i decided to divest before their 3Q announcement

  1. Unable to stem the falling of their PayTV business (unlike Singtel)
  2. Unable to manage their Mobile revenue fall (unlike Singtel)
  3. Enterprise growth seemed to have stalled
  4. Price points are not the cheapest (vs M1), yet not the most expensive (for investor's benefit).
When you're neither here nor there, and have no clear competitive advantage, I'm not comfortable being your long-term shareholder as I've no confidence in your management skills. 

For now, I'm still closely monitoring M1, and will divest if need be. At least now, they're the "cheapest" in the market.