Global Investments - Cheap proxy to HK-China?

• Diversified mutual fund with focus on income generation

• Significant exposure to HKChina markets

Trading at 29% discount to NAV; current yield at 10%


Background
Global Investments Limited (GIL) is a mutual fund company incorporated in Bermuda, with a diversified portfolio of different asset classes spanning listed equities, bonds and various securitised loans

The company’s key focus is to deliver a regular stream of dividends and achieve capital growth through the implementation of various strategies which include: 
1) active portfolio management, 

2) financing and risk management and 

3) acquisition growth.

ST Asset Management Ltd (STAM), a wholly owned entity of Temasek Holdings, is the manager of GIL. We met up with GIL’s chairman, Mr Boon Swan Foo, and STAM’s MD, Mr Jason See, to seek a better understanding of the fund’s investment mandate and strategy to navigate today’s volatile markets.

Highlights
Bulk of portfolio in liquid, listed assets. According to GIL’s asset review as of 31 March 2015, listed equities, bonds and cash & other net assets account for around 69% of its total asset portfolio. The total carrying value of these listed-assets is SGD218m, representing 104% of GIL’s market capitalisation (based on 15 June closing price of SGD0.151). The market is essentially ascribing a zero value to its unlisted loan portfolio & securitisation and operating lease (Ascendos) assets, investments which had generated SGD12.1m in dividend and interest income for 2014.

Cheap proxy to HK-China? From 1 April-12 June 2015, both the Shanghai Composite Index (SCI) and Hang Seng Index (HSI) rallied by about 38% and 10%, respectively. GIL’s listed equity portfolio has 18% exposure to the SCI and 51% to the HSI, with a total value of around SGD72m as at 31 March 2015. The company’s opportunistic exposure to these markets stems from management’s optimism of favourable monetary policies being adopted by the Chinese government (such as greater capital liberalisation, etc) to further stoke its financial markets.

Despite the strong performance of global financial markets recently, management remains mindful of the heightened volatility and adopts an active management strategy in a bid to increase shareholder return through generation of alpha.

Unlevered fund that currently yields 10%. GIL’s total dividend distribution increased from SGD3.9m in 2010 to SGD19.6m in 2014, a 4- year CAGR of close to 50%. At 2014’s distribution rate of SGD0.015/share, the stock is yielding 10% based on its latest closing price of SGD0.151. GIL also recently provided dividend guidance of SGD0.0075 for 1H15, to be declared in August 2015. GIL’s investment policy to focus on incomeproducing assets, with an internal KPI of 8% ROA, could indicate cash flow generation of approx. SGD25m if its KPIs are met (> 2014 div payment of SGD19.6m). Its recent performance was achieved on the back of zero leverage, given management’s discomfort to gear up in a volatile market environment.

GIL currently has a scrip dividend scheme in place, with a take-up rate of 70.5% in 2014.

Loan portfolio & securitisation assets sufficiently impaired. GIL’s loan portfolio and securitisation assets which consist of residential mortgage-backed securities (RMBS) and collaterised loan obligations (CLO) have seen cumulative impairment of AUD23.3m (126% of carrying value) and EUR9.4m (73% of carrying value), respectively. Management stated that these assets have been sufficiently impaired to their current realisable value, hence believe its discount to NAV is unwarranted.

The RMBS and CLO assets remain an attractive proposition, in management’s opinion, paying regular cash flows with an attractive yield (ROA of 13%) in the current low interest-rate environment.


Technical Analysis
Daily Chart
Valuation
Based on 2014 earnings of SGD24.3m, the stock is trading at a trailing 2014 PER of 8.6x and PBR of 0.7x. (Read Report)

Source : Daiwa Capital Markets

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