Money and Me: CICT, Sheng Siong and Micro-Mechanics - income, growth or speculation?

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Best of Live Well ft. Lance Alexander.

It's not just about money, it's about you, money and me. Where wealth meets self-awareness. Only on MONEY FM 89.3.

Lance Alexander (0:19)

When choosing stocks, it helps to ask, which investment adds to your portfolio? Does it provide income?

Does it offer room for growth or carry more risk in pursuit of higher returns? Today, we look at three Singapore listed picks, CapitaLand Integrated Commercial Trust or CICT, a property trust that owns malls and offices, supermarket operator Sheng Siong, as well as Micro Mechanics, which makes tools and precision parts used in producing computer chips. Our guest sees CICT as the core holding, Sheng Siong as the growth component, and Micro Mechanics as the higher risk pick. So let's bring on Chin Hui Leong, co-founder of The Smart Investor. Good morning to you, Hui Leong.

Chin Hui Leong (1:08)

Morning, Lance.

Lance Alexander (1:09)

Nice to have you here this morning. Is this a good time to be looking at Singapore stocks? We have seen some short-term volatility of late.

Chin Hui Leong (1:18)

So I think if you are a dividend investor, obviously you want to have your shopping list ready.

And the most common question we get at The Smart Investor is, what stock should you buy?

But I think the more important question is, what stock do you need? Because I think different people have different needs and different stocks play different roles. So as you mentioned, CICT, I think they are built for a stable, reliable performance. So expecting 20 percent growth out of CICT is a bridge too far. So in The Smart Investor, you like to think of a dividend portfolio similar to that of a pyramid. So take a moment to visualize a picture of a pyramid in your head. At the bottom of the pyramid, where it's the widest, you want to have a strong foundation. And these are companies or REITs which are reliable, that turn up every quarter, every six months, and deliver steady, reliable dividends. These are your workhorses. They don't offer a lot of growth, but they are reliable. And only when you have that stable base, then you can start to layer on some growth on top of this. And this is where you can seek stocks, which provide a bit of growth in their dividends and their top line and bottom line. And this is a designated area where you can put growth ideas to work. And finally, at the very tip, the very smallest bit of that portfolio is where, I call it your testing ground, right? Your speculative is where you let yourself run wild a little bit. It's a very controlled area. You want to be strict about it, but you can indulge in ideas which you are curious about, not so sure about, but keep it small, right? Right at the tip so that it doesn't unbalance the entire pyramid.

Lance Alexander (3:01)

You know, I like the idea of the triangle. So, they also operate in different sectors. So, is it important that when you look at stocks, also look at different sectors? Would you say that's important, too?

Chin Hui Leong (3:10)

Yeah. So, when it comes to diversifying, I believe that you should diversify into the best ideas. And typically, that should bring you into the stocks, which are in different sectors, right? But I wouldn't say that you should force yourself into a sector, which you do not know about, for the sake of diversity. I think that would be a bad idea, because then you're buying into stocks, which you know nothing about.

Lance Alexander (3:34)

Sure. Okay. So, you mentioned CICT as the core holding in this mix.

We know CICT's cash distribution per unit rose some 7.1% in the first half. Is that growth sustainable? Yep.

Chin Hui Leong (3:49)

So, I think the biggest thing I can say about CICT is that it's one of a handful of REITs that has increased its DPU or distribution per unit since 2021

So, like many REITs, it suffered in 2020 due to the social distancing measures, but after that, it has delivered higher DPU like clockwork. Now, this may not sound spectacular, but think about what has happened since then. We had the steep interest rate increases in 2022 and 2023 You had Trump's liberation tariffs. You have the closure of straight-of-hormones. You have the vaccination cycle that was earlier. So, throughout this entire period, they were able to increase their DPU. And interestingly, looking forward, right, there's near-term, mid-term, and long-term plans for how they are going to continue to grow their DPU. So, in the near-term, they have swapped out Asia Square Tower 2, which embodies Paragon instead. So, they have swapped out an asset with lower yield for something with higher yield, and that should help boost the DPU slightly. And in the mid-term, near-to-mid-term, they have five asset enhancement initiatives, that is, I think, the fancy way of saying renovations, lined up until 2028 So, that is worth $250 million for all five AIs, right? And finally, if you look out five years ahead, there's Haogang Central, which carries a development cost of $1.1 billion, and a yield on cost of around 5%.