Thursday, March 28, 2024

[Globe Newswire] Fluence Expands Presence in Asia-Pacific Region, Opens Local Office in Taiwan

This is a collaboration post with Globe Newswire which provides earnings update and salient financial news globally. 

TAIPEI, Taiwan, March 15, 2024 (GLOBE NEWSWIRE) -- Fluence Energy, Inc. (“Fluence”) (NASDAQ: FLNC), a leading global provider of energy storage products, services, and optimization software for renewables and storage, has expanded its presence in the Asia-Pacific region, opening a local office in Taiwan to further engage in the country's energy storage market. According to the Energy Administration, Ministry of Economic Affairs, by the end of 2023, Taiwan's cumulative installed renewable energy capacity had reached 17,916 MW, an increase of 150% from 2019. This consistent year-over-year growth in renewables to meet the country’s ambitious clean energy targets is positioning Taiwan as a prime regional market for energy storage.

“We are proud to announce our expansion in Taiwan, a key market for energy storage in the Asia-Pacific region. Having already successfully collaborated with local partners to complete 10 storage projects in Taiwan, this expansion underscores our long-term commitment to the region,” said Jan Teichmann, SVP & President APAC at Fluence. “Harnessing our cutting-edge energy storage technology and leveraging our extensive field experience, we are committed to enhancing the reliability and stability of Taiwan's power grid. Together with our customers, we aim to accelerate the pace of the energy transition, contributing to a more sustainable and resilient future for the region.”

To date, Fluence has been selected to deliver over 2 GW energy storage projects within the Asia-Pacific region to help enhance grid stability and promote the region’s clean energy transition. Globally, Fluence has deployed and contracted 8.7 GW of energy storage projects.

About Fluence

Fluence Energy, Inc. (Nasdaq: FLNC) is a global market leader in energy storage products and services, and optimization software for renewables and storage. With a presence in 47 markets globally, Fluence provides an ecosystem of offerings to drive the clean energy transition, including modular, scalable energy storage products, comprehensive service offerings, and the Fluence IQ Platform, which delivers AI-enabled digital applications for managing and optimizing renewables and storage from any provider. The company is transforming the way we power our world by helping customers create more resilient and sustainable electric grids.

Full article:

Friday, March 15, 2024

Diageo - the luxury spirits compounder

When we first started out a year ago, we discussed the goal to write one investment idea per month and ultimately getting to 30 ideas. Well time files and we are now at the 15th idea. This is a good one as can be seen in the numbers below (company has FY ending in Jun):

Simple Financials (Jun 2024 estimate, USD)

  • Sales: 21.0bn 
  • EBITDA: 7.2bn 
  • Net income: 4.5bn 
  • FCF: 3.2bn 
  • Debt: 19bn, Mkt Cap 84bn

Financial Ratios

  • ROIC: 13% and ROE: 40%! 
  • EV/EBITDA 13.4x 
  • PER 16.8x 
  • Past margins: OPM 27-31% 
  • FCF yield: 2.4-3.7%

This is another one of the highest quality companies amongst those we have discussed and therefore do not come cheap with average FCF yield in low single digits. It has not traded above 5% FCF yield in the last 10 years and the reason is in the world map below. The company has enjoyed good growth in most geographies (with the exception of North America and Russia), partially supercharged by the pandemic. It also operates in a consumer market segment that has a lot of pricing power as a result of strong brand marketing, the perceived glamour and luxury that comes with the consumption of its products and just strong global demand as the world normalizes from COVID-19.

The company we are discussing today is Diageo (DGE on the London Stock Exchange), the world’s largest spirits maker alongside China’s Kweichow Moutai by revenue but trading at less than half Moutai’s market cap. Diageo owns a few of the most recognizable alcoholic brands such as Johnnie Walker, Guinness, Smirnoff, Tanqueray, Bailey and Casamigos. Share price has compounded nicely over the last 20 years, up more than 4x from GBP6.9 to GBP30.6 today.

In the last few years, Diageo has enjoyed some strange and ironic growth. When the pandemic hit, it was thought that Diageo will be impacted negatively as on-premise drinking died down but revenue grew because people drank more at home! With nothing better to do during covid, they emptied their bottles of whiskies and tequilas and bought some more. Diageo’s revenue skyrocketed.

As air travel resumed, people started moving again and when they roamed the duty free shops at airports with spare foreign currencies they have to spend, they bought more spirits and so Diageo grew some more! Although we are seeing the backlash now and share price has corrected in the recent months.

1. Fundamentals

We have written about Diageo on the original infosite and the investment thesis has not changed much:

Diageo is a global leading spirits company with 200 brands and footprint in 180 countries that has compounded growth steadily since its inception in 1997. Its strong brands, coupled with good marketing, high market share and strong global distribution has enabled the firm to generate consistent, steady free cashflow (FCF) and high ROIC on the back of both pricing and volume growth. The stock has compounded well in the past and shareholders have benefited from both capital appreciation and dividend growth, an important aspect that management has focused on. Investors can expect Diageo to continue to compound at 5-7% going forward.

In the past, Diageo was synonymous with Johnnie Walker, its largest brand with the most amazing story and heritage. Scotch was c.25% of revenue but closer to 35-40% in terms of profit contribution. There is an old 6 min plus Youtube video taken in one shot casting Robert Carlyle who narrated the Johnnie Walker story brilliantly. Every Diageo current and future investor should watch the video. It is just fascinating! Since then, as depicted in the pic above, Diageo has successfully diversified its portfolio from Scotch over the last few years into other spirits.

Today, Diageo’s revenue breakdown is relatively simple to understand. The following pie chart from its latest annual report provides the breakdown which roughly works out to be 22% Scotch / Johnnie Walker, 18% Beer / Guinness, 16% Vodka / Smirnoff while Tequila, Rum and Gin makes up high single digits. Together, its spirits portfolio is the largest in the world and accounts for 70% of market share based on Diageo’s own measure of market segments it competes in. Of course, if we sliced it differently, the market share might be lower, but still, we cannot deny Diageo is dominant in spirits.

In terms of margins, Scotch enjoys one of the highest margins in the portfolio at 35-40% operating margin alongside Tequila and Vodka while Beer and Ready to drink are lower at 15-20%. Well, alcohol is just good business. As per the usual, let’s discuss the few positives on top of the fundamental thesis:


Growth in TAM via volume and premiumization: According to Diageo, the growth in the spirits addressable market is phenomenal and while Diageo has not grown in its North America region this year, the US market is resilient and I believe it also reflects the global growth opportunity for Diageo as 600m consumers come of age and look to drink better and are willing to pay up for that.

The chart below shows how spirits have grown 6% CAGR by taking share from beer and wine in the US and more importantly how the market has premiumised with the ultra premium and super premium categories growing rapidly. This phenomenon is likely global because as middle class consumers increase their income and spending, they seek out the best offering and will not hesitate to pay up to get. In the world of luxury handbags, our better halves only want the best and the most popular: Hermes and LV. Similarly in watches, it’s Patek and Rolex. In the Singapore food scene, it’s either Michelin star restaurant, or the longest queue in the hawker centre’s bak chor mee (minced pork dry noodle) store or Hainanese chicken rice store.

As such, Diageo, with the most recognizable whisky brand globally and a growing portfolio of desirable spirits and beer brands, has benefitted from having both the best and the most popular choices in the spirits space and will continue to do so. This is perhaps the key reason behind management’s confidence and promise to keep growing 5-7% annually.

Distribution prowess: With its long term track record in distribution prowess starting with ship captains more than 150 years ago to the current footprint in 180 countries, Diageo has insurmountable clout in putting its products across the globe in every imaginable shelf. We see Diageo’s spirits prominently in airports, supermarkets, convenient stores, bars, restaurants and online. Diageo tracks inventory at its distributors religiously and make sure its whole supply chain chugs along and delivers.

Strong Financial Metrics: The third positive for Diageo is reflected in the numbers. We have discussed the high OPMs in the various spirits segments. With scale, Diageo has been able to do businesses with less capex (c.5% capex to sales), generating high ROIC and extraordinarily high ROE. Diageo used to generate GBP1bn in FCF a decade ago but that has bumped up to GBP2-3bn.

Its return metrics are best in class with ROICs averaging teens while ROEs are in the 20-40% range with just modest use of leverage. Capex to sales has creeped up in the last two years to high single digit percentage. On average, this should be a mid single digit capex to sales business. The following shows its FCF generation capabilities and ROICs over the last 5 years.

Similar to Thai Beverage, the other alcoholic company we analyzed, the strengths of companies show through in numbers and Diageo’s margins, free cashflow generation, ROEs and ROICs speak for itself. This is a world class business and a classic compounder.


Diageo was helmed by Ivan Menezes who built the company over the decade to 2023 but he unfortunately passed away this year. His legacy is passed to Debra Crew who was appointed Chief Executive this June and she seemed well-supported by a diversified team with varied experience to lead Diageo to greater heights.

Diageo exemplifies the future where corporates balance profitability and growth against environmental and social concerns. While selling alcohol, the company also advocates responsible drinking and is focusing on being a responsible employer for its 28,000 global staff.


Most investments have risks. That is how the game works. The only risk free investment is the first idea introduced - invest in Treasury bills which now gives 3.8%. This is risk free, as per textbooks’ definition. But it is predicated on the continuing existence of Singapore and our government. As such, nothing is without risk. For Diageo, two risks are tepid growth into 2024 and its geographical exposures.

Tepid growth: As discussed earlier, Diageo has enjoyed strong growth going into the pandemic and then going out of the pandemic as air travel resumed. Good times will always end and 2024 is now looking weak. We are seeing inventory piling up at its distributors and adjustment may well run a few quarters. Investors are ultimately short term minded and without growth, Diageo’s high valuation is not sustainable and hence we are seeing its share price correcting from its high at c.GBP40 to current GBP30.6 and looks like we may break that psychological barrier of GBP30.

Geographies: While Diageo is a global company, US ultimately drives revenue and earnings. The chart below shows how North America accounts for majority of sales and Operating Profit (OP) and needless to say, recession in the US will negatively impact Diageo. However, as market goes, hiccups in China, Africa and Latam will also affect share price when short-term investors look at large companies with exposures to these geographies and short them on sentiments.

2. Technicals

Diageo share price chart shows the nice compounding curve that we are familiar with and it recently hit its all-time high at GBP40 before correcting to the recent GBP30 level. At the pandemic low, it was at GBP25 which is, as previous ideas, a strong technical support.

The risk reward profile for Diageo as dictated by technicals is therefore 25/30 vs 40/30 which translates to c.20% downside vs c.30% upside. This means there is almost no skew either way which is usually the case for strong consumer names. It is worth noting though Diageo has had larger drawdowns at 25-30%. So it is not inconceivable that it drops closer to GBP18-20, which is the next strong technical support below GBP25. But let’s look at fundamental valuations for a better picture.

3. Valuations

Diageo trades at a slight discount to peers on PE but is right smack in peers’ average on EV/EBITDA and trades at a slight premium on FCF yield. Its OPM (blended at mid 20s) and ROIC (teens according to the company above) are inline with peers while ROE is exceptionally high. Overall, peer valuation comparison does not suggest Diageo is undervalued.

Next we look at Diageo’s valuations based on the usual three metrics: Free cashflow (FCF), EV/EBITDA and Price Earnings Ratio (PER). The Earnings row is simply FCF (GBP 3bn), EBITDA (GBP 6bn) and Net Income (GBP4bn) respectively and if we apply the appropriate multiples, we get to Intrinsic Values (IV) between GBP33.3 to 35.6 which suggest that Diageo has some upside to its IV but not by a whole lot. There is no big margin of safety buying today.

This corroborates with both peer valuation comparison and technicals and hence it may be prudent to wait for a better opportunity to buy, perhaps closer to GBP25. However, this high quality name rarely gives a big open window for investors to buy a lot at the price we want. If we can establish that GBP25 is a screaming buy, so do other investors and hence it won’t get there. One other angle to look at is dividends. Diageo is considered a UK Dividend Aristocrat, a small group of stocks listed on LSE with increasing or stable dividend for the last 10 years. The following bullet points provide more details:

Diageo's dividends 

  • Track record of increasing dividend since 2001 and in the last few years, consistent dividend growth between GBp1.5-3.8 annually 
  • Enhanced shareholder return with further share buybacks 
  • Paid out c.GBP5 in dividends over the last 7 years which accounts 16% of today’s share price 
  • Current dividend yield of GBP 0.8/30.6 = 2.6%

With that in mind, I would ascribe the higher IV of GBP36 for Diageo which implies high teens upside but would look to buy more closer at GBP25.

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

Friday, March 08, 2024

The Property Strategy

There are two topics that dominate social conversations in Singapore. Children’s Education and Real Estate. Nothing else seemed to loom as large.

In one of the earlier post on this substack, we discussed the important pieces of an investment portfolio. But we did not talk about property. Given that this would be a huge monetary outlay for most families, we believe property deserves a separate discussion. This post is an attempt to address this big topic in our lives.

I have to caveat that I have not gotten it very right with Singapore property. All the posts in the original infosite detailed my read about Singapore’s favorite investment topic and how wrong I have been by being somewhat bearish. That said, I have nonetheless benefited through luck, timing and some simple strategies which I do hope to share in the post.

This discussion is not about predicting where Singapore property will go from here or how the cycle will transpire. Like trying to time the stock market or forecast macro trends, it is just too difficult. Nobody thought property can rally the way it did during and after the pandemic. Just when we think the property sector was too hot and bound to cool, things heated up further in Singapore’s previous swamp site (see below).


A few months ago, we have a crazily popular project launched in Jurong, which was a swamp in the 1950s. People queue hours to ballot for units. When their no.s were called, it was as if they struck lottery. Winners celebrated when they have to write a million dollar check to buy a 99-year lease of a Mickey Mouse condo unit in a former swamp site. Only time will tell if they would actually make money.

I had a chance to look at proprietary data of many property transactions in the past thanks to a good agent friend. Properties that we know today that we thought should had done so well, e.g. The Sail (see below), people have lost their family fortunes. These sad datapoints with a lot of money lost can be seen across almost all condos in Singapore.


The Sail @ Marina Bay had 30 unprofitable transactions and 27 profitable transactions. At the time of writing, the leasehold condominium has 28 unprofitable and 28 profitable transactions over a 12-month period.



So, please remember, it is very difficult to predict anything. Nobody can consistently and successfully predict the markets, nor macro trends (recall that everyone said 2023 will see a recession, but it didn’t happen) nor elections and certainly not property cycles. It is important to invest in ways such that you will never risk the house. I cannot emphasize more on this point. We must be very careful with large % of net worth, with leverage and margins, with savings we cannot afford to lose and needless to say, with property investment due to its size.

This is so important, I feel I must repeat, be very careful with:
  • large percentage of net worth
  • leverage and margin trading / financing
  • savings we cannot afford to lose
  • property investment  
To me, property discussion should also be in different basket because of the sheer size of the investment and how it functions as a life utility rather than financial instrument especially when we are talking about the first property. If we view property more as an investment and lump it in with our other investments, rather than part of our lives, things can get really complicated as we shall discuss.

I have dissected the discussion into the following sub-topics which we will delve into for the rest of the post:
  1. Thoughts on the first property 
  2.  Rent and mortgage 
  3.  Second property in Singapore 
  4.  Overseas properties
1. First property

The first property is not an investment and it is best not to lump this property together with the rest of the investment portfolio. It is difficult because the capital outlay is huge and if we ignore this capital outlay and simply look at what’s left of the investment portfolio plus savings, sometimes it doesn’t make sense intuitively because what is left is too small to matter.

However, it is an important segregation because when we see property as an investment vehicle and less as a shelter over our heads, we might be enticed to make the wrong decisions. The trick could be to buy a property we can afford (i.e. HDB in Singapore). Once we have secured the shelters over our heads, we can think more clearly about investments.

Recently, there was a video where Charlie Munger (RIP Charlie..) spoke about his view on his first property. I think it is very apt to share it here. I have paraphrased it though.


The property you live in also dictates how your family will live and behave. It is not simply an investment or a shelter. So if you see your property as such then the following logic should naturally hold - buy your first property and do not trade it. If you want to upgrade, do so in accordance to the way you want to live your life and always try to upgrade when dollar psf are at lower points (not easy) so that you can buy the bigger house at a relatively lower valuation.

On the flipside, when we do not have a property, we are essentially shorting the property market. As seasoned investors would be reminded, shorting something has unlimited downside. We may end up in a situation where we have to pay rent for years and the market rises and rises. The cost can be unbearably painful.

This is a good segue to talk about rent and mortgage.

2. Rent and Mortgage

I hate paying rent. You pay a significant amount of your salary to someone else and help him pay his mortgage. Shouldn’t we then buy the property and pay the mortgage ourselves? Then at the end of the day, we will own the property vs paying rent which we get nothing ultimately. When we first start out in our careers, it is difficult because the capital outlay is just too big. Yes, it is not an easy discussion. There are times when you cannot help it and you have to pay rent. For example:
  • Working in a foreign city for just a few years
  • Rent is subsidized or has other benefits (e.g. tax)
  • The rent is way lower than mortgage and we can arbitrage rent (i.e. renting out our purchased property and staying somewhere else paying a lower rent)
Otherwise, if things checked out well, we should always strive to buy our first property well and pay mortgage.

We can have a whole debate about mortgage. But going by our logic that we should always treat our first property as a utility, then we should strive to pay down mortgage asap. We can take our time when interest rate is low. But as 2022-23 showed, interest rates can spike rapidly and we might get caught paying 4-5% on mortgage which is ridiculous. So always buy an affordable first home and strive to have a manageable mortgage.

Remember, when you are paying mortgage, the bank owns the house, not you. People talk about using mortgage and financially engineer profits with property’s leverage. I would suggest doing that with a lot of prudence with the first property.

3. Second property in Singapore

When we have the shelter over our head well covered, then we are eligible to think about second properties and how they factor into the investment portfolio. Here we can think about asset allocation and compare returns but property differs largely due to leverage. Based on just equity returns, without leverage, property usually generate mid to high single digits over time. This is not too different from stocks and just a tad higher than T-bills. Therefore, money should be deployed into real estate only if our analysis shows that the equity return on some particular property investment is better than the alternatives. The chart below is enlightening.

In the earlier post, we established that we could 2-4x our money if we can compound the portfolio at a high single digit return over 10-20 years. Property can achieve that because of leverage. However we do require many other elements to work as well. We are talking about good agents (cannot emphasize their importance more here), bank lending, support from family (parents, significant other etc) and legal and tax advice!

In Singapore today (early 2024), we need to do a lot of legal gymnastics because individuals are not allowed to own multiple properties without paying significant amount of taxes. For married couples, we need to “de-couple” legally so that husband and wife can own one property each. For foreigners, unless you have money to burn, it really doesn’t make sense because you need to pay 60% tax on buying the first Singapore property!

As such, investing in second properties in Singapore is not something we can just execute by clicking the buy button on the Interactive Broker platform. It requires a lot more effort.

4. Overseas properties

Overseas properties can be even trickier since we need to handle everything remotely. The biggest barrier is to find the right person / agent on the ground whose interest is aligned. If you have dealt with enough property agents you know that good agents who really have your interest at heart are like unicorns, very rare.

To sum things up: 

  •  Don’t trade your first and only property 
  •  Use mortgage wisely and try to pay down as much and as soon as possible 
  •  Weigh second properties against the investment portfolio well and 
  •  Don’t buy overseas properties

These are my views inherited from very smart people who had successfully navigated life in Singapore with some based on my own experience. 

They are definitely not gospel truths and I would welcome further discussion.

Huat Ah!

Friday, March 01, 2024

Thoughts #33: Negotiating Power

Events in 2023 have prompted some initial thoughts about negotiation and how it affects the situations, our lives and the world. Life is indeed a game of chess, and we need good strategies and there is also timing, environment and our fellow community to help. Or in Chinese, 天时,地力,人和.

The Russia-Ukraine war comes to mind. It was reckless to start the war and reasons back then are no longer relevant today. This is very much like life. The person we were just a few years ago, is actually not us today. Events that has happened just last year may no longer be relevant today. The Russia-Ukraine situation has evolved so much that everything can be now at stake. The following factors provide worrisome boost to a bleak future which may further escalate:

  • If Trump becomes President, US may stop its aid to Ukraine and Russia can win. This was unthinkable just a year ago.
  • The second war in Israel is putting further pressure on US and its allies on resources and political will to fight internal battles.
  • China, its allies and North Korea are run by dictators and can move much faster than the US can.
To not escalate this further, US and Ukraine may need to go to the negotiating table faster and from a position of weakness. Without this, there is a real risk things unravel for the worse and pave the way for WWIII. 

In a similar life situations, one must always understand the dynamics so as to move advantageously.

Position of strengths

  • The situation does not warrant any third party negotiator
  • Options to move in different directions in position of strength (strong offensive power, strong internal defense, strong bargaining chip or chips)
Position of weakness
  • The situation requires a strong third party negotiator especially at a critical juncture
  • Optionality is restricted, there are no catalysts on the horizon (e.g. Biden continues to be President)
  • Nuclear options (literally pressing nuclear button, or more soft approaches like media influence or use of international laws against the enemy)
Shareholders have some negotiating power. Especially in recent years, activists have turned the tables against companies and their management. With just a few percent stake, they can:
  • Demand changes in the board of directors, which can decide the fate of the company's C-suite
  • Use media to drum up support for their cause, rally other shareholders to vote with them
  • Use lawsuits against companies who may do things can give activists the leeway to sue
  • Make public strategic campaigns and propose that management execute them to generate higher returns for shareholders
These are strong tactics that have good track record of successes. Sadly, as a minority retail shareholder, we are always in a position of weakness. We have nothing to fight against management. We can go AGM and make noise but it will not change anything. As such we must always remember, there is only one option which is to sell when things are not looking good. Yet, we tend to hold on to losses for too long.

Therefore it is very important to always look for good businesses and good compounders. Check on the quality of management and simply avoid situations that stack the odds even more against us.

Huat Ah!