Wednesday, 18 December 2013

Analysis of APTT- Why it is a trap for investors! (2)

I attempted to analyse one of the highest yielding business trust listed in SGX in the previous article "Why APTT is a trap for investors?" on 1 Nov.  Since then, its share price has dropped further down to 0.72 as closing price today. This is a 26% price drop from its IPO price of 0.97.

On the company front, the management had reconfirmed its distribution forecast for 2H2013: 4.13c and FY2014 : 8.25c. (using FY2014 forecast data, its fwd yield is 11.5% at today's closing price: 0.72) Given its business nature (TV and broadband subscription), it is believable that the number can be met if no major unexpected event happens. There is also little reason for the management to over promise to mislead, as it will discredit themselves. However,  the seemingly reassuring commitment could not stop the share price from dropping.  From the technical chart, a clear downward trend line has formed, suggesting to an even lower price target. Macro wise, the impending QE tapering does not help APTT either as it is also leveraged at about 40%.

We need to acknowledge that, for long-term value investors, APTT is in a relatively fragile business, as compared to, for instance, Singtel. Think this way, if Singapore is Ok, Singtel can easily last another hundred years with probably increasing yearly dividend payout.  While for APTT, we never know when Macquarie want to kill this cash cow (whose?) for burger. So if you are a long term value investor, stay far away from the trap!  

As the tech chart shows, the down trend is so strong: there is not even one round of decent bouncing up ( shows how weak is the buying force). This is a good exhibition of the market force: when money decides to leave, it does not care about fundamental value. Besides, APTT is not of that solid fundamentals . We know theory says that yield is to compensate risk. In this case, one can argue that the market obviously perceives that even a yield of 11% is still not good enough for its risk.  The market wants more, 12%, 15%, 20%? We may never guess the bottom.  Market is like a tyranny. So never try to go against market to prove that you are right (even your fundamental analysis is damn right) , because no matter how good your analysis is, it is only theoretical insights, but what market shows you is the reality. Fight against reality? Prepare for an ugly outcome. Sounds like North Korean leaders. :)  

But it is noteworthy that CEO Robert Neale Thorpe entered a position of 65 lots on 27 Nov (daily price range 0.76-0.775). Look at the chart, it happened on the day when the candle stick tried to break its MA. Can we assume that the CEO adventured a small position as he saw the trend is reversing? or just a tactic to show the management's conviction? or perhaps at this price level, values truly emerges? All are possible. But Mr. Market is very naughty. A few days later, the price quickly turned south again. We know that the market tends to overreact especially at the extreme price level. Even so, I still think it is better not to catch this falling knife at this time. The bottom line is this: even though there are some reasons for the price to stop dropping further, there is little reason for the stock price to move up higher. The subsequent bouncing-ups, if any, will be short-lived or ranged. Hence, if you have vested many lots in the high price range, you may wish to look at the entire portfolio and decide if you should salvage some when the price tries to bounce up next time. In any cases, please do not try the "cost averaging-down methods" while the price is still going down, it is a losing strategy. 

How about buy-and-hold? Because eventually the generous dividend will compensate the price loss so investors can finally break even? Possible. But ask yourself does it make a lot of senses to invest for many years in order to break even?  After all, "all investing and speculation is an exercise in attempting to beat time". Buy-and-Hold strategy only works for right stock and works better if you choose the right timing. If you find out you bought a stock at high price level, and the value does not increase while holding and the counter has a risk of disappearing, it is not beating time, but being beaten by time. Again, do not be blinded by high yield alone. The things that can not last will not last for ever. 

Related posts:
1. Analysis of Asian Pay Television Trust (APTT)- Why it is a trap for investors!

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