Government schemes for higher productivity in smaller businesses

As an entrepreneur, one must better think of making the best out of our opportunities. Our world, an interconnected world with lots of opportunities, needs to commit the necessary fixed costs while scaling up and exponentiating, so our businesses can be 'cheaper, faster and better' for growth.

To grow our firms in Singapore, where space is a premium and physical resources are limited, we have to consider the capital, labour and entrepreneurship parts of production.

I believe that the Government is doing its best to support smaller businesses. After all, small and medium enterprises make up 99% of our businesses, and they employ 70% of our workforce and half of our economic output. The government defines SMEs eligible for grants and incentives as firms with some local management (at least 30% of total shareholdings) with annual sales turnover of S$100 million OR headcount of 200 workers, or less. Even companies with a hundred or so employees can build a large company, and seek to be leaner and more efficient, with government grants, if needed.

There are a few schemes smaller businesses can benefit from, namely: Productivity and Innovation Credit Scheme (PIC) by Inland Revenue Authority Singapore (IRAS), Innovation and Capability Voucher (ICV), Micro Loan Programme (MLP), SME Talent Programme (STP), Capability Development Grant (CDG) by Spring Singapore,  iSprint by Infocomm Development Authority of Singapore (IDA) and WorkPro by Ministry of Manpower.

PIC is currently used for tax deductions for activities that boost productivity. It can be used for:

- Acquiring and leasing of PIC IT and automation equipment
- Training of employees
- Acquiring and licensing of Intellectual Property rights
- Registration of trademarks, patents, designs and plant varieties for at least one year
- Research and development
- Investment in design projects

ICV is a capability development project that improves the various aspects of a business, from human resources (manpower selection, planning and developing), financial management (budgeting, cash flow control, planning), innovation (customer insights, legal diagnostics, technical feasibility studies) to productivity (quality management, productivity management, service excellence and energy efficiency audit). It can also be used on equipment, renovation and design.

A company can use eight vouchers. Each voucher cannot last more than six months, and applications for new projects are only allowed after the existing project of the company ends.

Never again should we spend time on so much unnecessary physical labour.

For local SMEs with less than 10 employees, they can consider automate and upgrade factory equipment through Micro Loan Programme, or MLP. The maximum loan given out is S$100,000. Interest rate is 5.5% for loan tenures 4 years or below, subject to group restrictions. DBS, UOB, OCBC, Maybank, Hong Leong Finance, Orix Leasing and other institutions can assist further with MLP.

The SME Talent Programme (STP) provides good hires to smaller businesses. It sounds like a win-win situation for all parties in the STP: the student has good education, acquires work experiences and skills; the employer has more certainty in a consistent stream of quality hires, while upholding professionalism in their businesses and expanding their possibilities; and the Government can rely less on big corporations, whose decisions can shake Singapore. Students have to be hired through the different trade associations and chambers.

The Capability Development Grant (CDG) gives 70% funding support to businesses that develop businesses to scale up. Notable areas of support include brand and marketing strategy, something that expands the revenue base of firms, and service excellence, which most front-line firms need for better reputation and customer retention.

iSprint is a scheme that allows firms to scale up with provable sector-specific solutions, with a grant that covers total qualifying costs. It must be new solutions that the applicant companies do not already use. A grant of 70% of total costs that are qualified under IDA guidelines is given.

WorkPro is a scheme where the National Trades Union Congress (NTUC) and Singapore National Employers Federation (SNEF) work together to hire and retain mature and back-to-work workers. It involves an age management grant of up to S$20,000 per company, a job redesign grant of S$150,000 to back-to-work locals and mature employees respectively, a work-life grant of S$40,000 to co-fund 80% of work-life training, 50% for employee infrastructure, and a reward scheme of S$40,000 annually for 3 years.

Only when smaller businesses are nimble enough to make the most out of the assistance the Government gives to offer smaller businesses, while staying focused on their core capabilities, then the smaller businesses can make wonders.

Ascending Down Under

Ascendas REIT

Action: BUY
Target Price: 2.47 (in 3 months)
Entry Price: 2.28
Stop-Loss Price: 2.20

In the Annual General Meeting 2015 on 30 June 2015, Ascendas Real Estate Investment Trust (A-REIT for brevity) stated it will 'explore new investment opportunities in a developed country', confirming a similar statement on the Annual Report. When probed, the CEO, Tan Ser Ping, did not comment further. But in my opinion, Australia is the country to go; high level of demands for industrial property for e-commerce, continued growth in logistics in Australia, and firms acting on counter-cyclical buying opportunities to secure properties below fair value.


Today, it is reported that A-REIT is buying a logistics portfolio from both GIC and Frasers Centrepoint, and that the property is located in the cities with greatest industrial demand: Sydney, Melbourne and Brisbane.

Even with rising interest rates looming by the end of this year and weak international demand in resources, which led Australia's growth in the past 7 years or so; with continued growth in A-REIT's industrial land sector in both Australia and Singapore, its fit into a world with more home office and enterprises in future through its Australian investment, and the slow but sure economic recovery of Australia, I think A-REIT is making the right calls.

Sectors

Sector Review

Oil, gas and mining are good in future when oil prices bottom out, but not now. Regardless of what King Salman of Saudi Arabia does, he will most likely continue to out-compete shale oil to maintain market share for OPEC and hence, his kingdom. For this year, I shall not look at oil, gas and mining.

Banking and finance may benefit from rising interest rates (not bailouts) in future, though non-performing loans to oil and gas-related companies may be a concern, so Standard Chartered, HSBC are out for me, but maybe Aviva or Barclays look better with lesser exposure to 'bad markets'. Rationally, they are worth holding.

Telecoms are always stable. In the long run, telecoms stocks may benefit from ecological-friendly innovation, advancement in fiber Internet, particularly Google Fiber in the United States and Broadband Connection Voucher Scheme in the United Kingdom. If they partner with other organizations to create a super-connected economy, even better for them. With substantial capital investment, I expect the telecommunication companies to do even better than most of the other sectors in future, and the most innovative telecom may earn bigger monies. Similarly, engineering stocks that build the future of our economies, especially those that support telecoms' businesses, will grow faster than the average listed company.

Pharmaceuticals are subjected to patent revocation and government policies to 'lift' patents to lower healthcare costs, as seen in India. Also, alternative medicine could lead to some diversion away from chemical drugs, particularly from governmental efforts in China and South Korea. There will be no dominant pharmaceutical firm in the future. I do not favor this sector.

'Sin' stocks as a whole interest me. There will always be great demand in alcohol, tobacco, gambling and, relating to our never-ending desires for more, consumer goods. Demand for this sector is particularly fickle, but there is consolidation here. I do not think we experience the full impact of  restructuring in this sector so far.

Property stocks may hurt from rising interest rates. Those that do not handle decreased market demand well, with worse cash flows, may be hurt in future. However, there are property developers who may use the window of opportunity to snap properties, hence they will grow in future. For now, though, I look at companies that deal with industrial space, and not companies that deal with commercial and especially residential spaces.

Noble Hit Iceberg! Sell It!

Noble Group hits the Iceberg. Today, share prices of Noble Group dropped by 9%, in light of a report by Iceberg Group that Noble is the next Iceberg.

We should have read the signs - actually, I think I did, but who will ask others to sell stocks they do not hold?

I do not understand the world of commodities, and I never will. I do not know the people behind Iceberg Research, who claimed Noble is the next Enron. But I know a few pieces of evidence why Iceberg may be right:

(1) Management-auditor conflict. 'Ernst and Young retire' in Page 76 of their 2013 Company Report. Unless forced by regulators, there is no good reason why a reputable company like EY would not continue do auditing for a listed company.

(2) Higher-than-optimal financing costs. They are at US$400 million, which is almost 1.6 times more than the stated profit of US$238 million. When financing costs are much more than profit, they are really sensitive to various market factors, from the drop in prices of commodities to a rise of interest rates. Both already happen because of the end of quantitative easing and the increase of production by OPEC lately.

(3) Loss of control of Noble in its associates, due to the Difference in scale of the main company and its associates and Joint Ventures (JVs). If Noble's associates have larger losses (associates lose US$107 million) than the main company (with a loss of US$66 million), then I do not know whether Noble really has control over the associates.

Regardless of who is making such statements that Noble is the next Enron, even if s/he may not be credible as we do not know the people behind Iceberg Research, the facts above from its previous company report show that Noble is indeed in deep trouble. 

A Lot has changed - So what?

A lot has changed.

It used to be that one lot of stocks is 1000 shares. From 19 January 2015 onward, it will be 100 shares.

It means for $10,000, you can possibly afford a decent portfolio of 3-6 quality stocks which trade at around $2 to $35. 

To put things in perspective, $10,000 is the monthly ceiling for a HDB flat for families currently (as of January 2015). It is also roughly a year's worth of school fees in Singapore Management University, the best proving ground for those who are passionate in business - your degree in SMU lasts for 4 years. It is probably as much as a month-long trip to the Americas. 

If you have the money to settle down, or invest in yourself in quality education, or even pursue your passions and explore the world, you can invest $10,000!

Regardless of your motivations, you invest to stretch your opportunities in your funds.

And you have opportunities. Not only you have your money, but you also have your social connections, your understanding of different companies' potentials, and you experience a different life from the person next to you.

I do not recommend specific stocks, in general, because everyone's understanding and sensitivity to different stocks are different. The entrance and exit timings and magnitude may be dependent on your daily life and your circumstances, all beyond your control. 

However, as a principle, I recommend investing in stocks that you are most familiar with. If you work in the manufacturing and engineering firms, for example, maybe you will be more aware of stocks in the electronics or construction industries, and less acutely aware of those firms in the retail and maybe land industries. I also do not think it is suitable for those in the finance industry to invest in the 'flavor of the month stocks' based on P/E ratios and technical analysis alone, because there are not just foreign currency, commodities trading and even quantitative financial data at play in stock prices, there are also stories behind every stock that one needs to uncover.

After all, when you buy the shares from the market, you not just earn money from the appreciation of the value of your shares, you actually own the company, and finance the capital the company needs for its operations and future growth. It is imperative, at least for me, to understand what we are in for, if we have ownership over something, particularly those things that could bring us benefits, preferably for the long haul.

Welcome to my blog!

For starters -

I don't know what this blog will be, or what I will turn out to be.

But I know that society doesn't move backwards, and so do the way we make money. We learn from the past and look forward to create possibilities.

Things may change but people do not.

With this in mind,  in general, buy stocks and currencies that build our future for the long run.

On top of my head, I just thought ST Engineering, SIA Engineering and Keppel Corp have sound fundamentals (I.e. prudently managed by its healthy liquidity levels with strong cash flows, but are heading towards the future with projects and expansion, with large-scale capital investments.