Introduction: Danger or Opportunity?
Leong starts by pointing out that BYD's stock price has been
consolidating (moving sideways) for the past three months. This is happening because of a flood of
negative news, which has scared many investors away and caused the stock to crash over 35%. While many people see this as a danger, Leong frames it as a prime opportunity.
The Current Headwinds 
Leong breaks down the two main problems BYD is facing right now:
- Regulatory Crackdowns:
- Price War Halt: Chinese regulators have stepped in to stop the aggressive price-cutting among EV makers. This hurts BYD because its biggest advantage is being the lowest-cost producer. They can't leverage this strength to push competitors out of the market.
- Supply Chain Financing: BYD grew incredibly fast by using its suppliers' money, taking an average of 275 days to pay them. New rules now mandate payment within 60 days. This has "nerfed" BYD's growth "cheat code" and is forcing them to slow down and use their own cash.
- Slowing Growth & Disappointing Results:
- While overseas sales are booming, domestic sales in China have been flat for the last three months.
- This slowdown forced BYD to lower its annual sales target from 5.5 million cars to 4.6 million, a big drop from the expected 30% growth to just about 10%.
- To top it off, their second-quarter profits dropped by 30%, which really spooked investors.
Why It's Still an Opportunity 
Despite the short-term pain, Leong is optimistic for several reasons:
- Market Dominance: While there are about 60 EV brands in China now, Leong believes 50 of them will go bankrupt in the next five years. Fewer competitors will ultimately be a huge benefit for a market leader like BYD.
- Warren Buffett's Exit: Leong isn't worried that Warren Buffett sold his stake. He sees it as simple profit-taking (Buffett made 40 times his money) and a move to avoid geopolitical risks with the US. The fact Buffett invested in the first place validates that BYD is a solid, "real company."
- Future Growth: The overall EV market has massive potential. Leong notes that today, only one in five cars sold is an EV, but he believes that in the future, it will be five out of five. This means the market could grow 5 timesfrom its current size.
- Valuation is Cheap: BYD is trading at one time its annual sales, which is on the very low end of its historical range. Insiders have also been buying shares around the $105 level, suggesting they believe it's undervalued.
Introduction & Initial Thoughts on Fortune REIT
Leong kicks things off by clarifying that
Fortune REIT is not a blue-chip REIT like those in the Hang Seng Index; it's considered a mid-cap. However, it has a strong sponsor in CK Asset, one of Hong Kong's top developers. The discussion highlights its current valuation, noting it's trading at a significant discount with an attractive dividend yield. This sets the stage for a deeper dive into its fundamentals to see if it's a worthwhile investment.
- Notable Statistics: Trading at a 60% discount to its book value and offering a dividend yield of over 7%.
Portfolio Health & Asset Quality
This section examines the REIT's assets, which are primarily 16 neighbourhood shopping malls in Hong Kong. Leong describes them as defensive "heartland malls," similar to Singapore's Frasers Centrepoint Trust, because they are located near transit hubs and cater to essential needs. The tenant mix is strong, focusing on food & beverage, services, and education rather than luxury goods. While the overall portfolio occupancy is very healthy, it's noted that a couple of the older malls are underperforming.
- Notable Quote: "They're basically the Fraser Centerpoint Trust of Singapore but... they are in Hong Kong."
- Notable Statistics: The overall portfolio occupancy rate is a healthy 95%, with 27% of the tenant profile being in services and education.
Financial Performance & Risks
Here, the analysis shifts to the REIT's financial statements. Leong believes the "worst is over" for Hong Kong retail, with negative rental reversions slowing down significantly. While the income statement shows accounting losses due to property devaluations in a high-interest-rate environment, this is a
non-cash item, and the actual rental income remains solid. The balance sheet is considered strong and prudent, with a conservative gearing ratio and decreasing borrowing costs. The main risk highlighted for Singapore-based investors is
foreign exchange (forex) risk, as dividends are paid in Hong Kong dollars.
- Notable Quote: "The Hong Kong REITs are actually more prudent. They use less gearing yet they produce good returns."
- Notable Statistics: The gearing ratio is a conservative 26%, and borrowing costs have decreased from 4% to 3.5%.
Who Should Buy Fortune REIT?
In the final section, Leong offers a personal take and identifies the ideal investor for this REIT. Despite finding it undervalued, he personally prefers blue-chip companies like Link REIT for greater "peace of mind." He positions Fortune REIT as a "
higher risk, higher return" option compared to Link REIT's "lower risk, lower return" profile.
Fortune REIT is deemed suitable for investors, perhaps in their 50s, who are specifically building a
diversified, high-yield dividend portfolio within the Hong Kong market and are comfortable with the associated risks (like forex). It's presented as a solid component of a larger Hong Kong dividend strategy, alongside other companies like ICBC, Ping An, Link REIT, and China Mobile.
- Notable Quote: "If you are building a dividend portfolio in the Hong Kong market, this is a very good pick and you want it in your portfolio."
