FYI Phillip Capital research has an unrated report on ChipEngSeng today, valuing its RNAV at $1.49, which is quite close to sumer's estimates of $1.60.

I am not sure how to attach the report, but here is a short write up of it on a blog:

http://alanu6.blogspot.sg/2013/02/chip-eng-seng.html

The main difference I believe might be due to Phillip's report valuing the 4 star Alexandra hotel much more conservatively at $500k per key instead of sumer's $650k.

Park Regis a 4 star hotel at Merchant Road has been put up for sale again and is estimated to be able to fetch $220-230m. CDL HTrust are among the interested parties and there is talk that it will be going for $250m. The hotel has 203 rooms with a 7 storey office tower of 41,452sqf of NLA, and I think that could work out to be about $1m per key, though its located more centrally.

http://www.propertyguru.com.sg/property-management-news/2012/12/34856/park-regis-singapore-back-on-the-market

Oops, didn't realise there were questions asked.

Orchid: yes, future net profits are worked into RNAV, and discounted by a rate one deems suitable. So, profits have an impact.

RNAV should not be the sole reason to buy a stock. Personally, I like to look for catalysts, in addition to using RNAV as an added incentive and cushion should the catalysts not surface. Pure earnings stocks without RNAV to back up can plunge on earnings disappointment or loss of old business, for eg.

As an example, when I looked at CES when it was below 50ct, it was not RNAV per se that made me invest in it, but the string of catalysts listed in my earlier posts (launch of Alexandra shops, PS100, Tower Melbourne). Then, as I add in the future profit stream (lots of its props were already pre-sold), I discovered that its RNAV could surge substantially.

So, if catalysts are lacking, and a co is losing money, again you have to see if it's a one-off loss, or recurrent, etc. And if there are many positive catalysts apart from that lack of earnings, you then have to consider which side the final judgment tilts towards.

Boh Tea: RNAV is about assumptions and estimates, and hence, my estimates were based on certain assumptions, naturally. I think my estimate for HH floats between the co keeping ZP for recurrent income (which would have a low value) and finally selling it off after 2 years (which would give a high value; note I think the 2 year thing is to avoid tax). I then decided on an "in between" kind of figure.

I understand the co is taking up 1 or 2 floors of the office space, but this is insignificant compared to the total GFA of the 2 hotels, retail and office spaces.

COSTs: Sorry, I don't quite understand the part where you talk about cost. RNAV is based on estimates and assumptions, which are necessary for you to arrive at any figure. You have to "stop" somewhere between the most optimistic and most pessimistic scenarios, otherwise you can never arrive at any RNAV. That's why10 other people doing a calculation on RNAV will arrive at 10 different figures, depending on where they "stop" in that scale of scenarios.

For eg, in the case of Heeton, taking The Lumos alone, my estimate is based on a final selling price of $2,000 psf for its remainder units. This is $500 psf lower than the current price the co is trying to sell at, and $1,000 psf below the prices of the units they had already sold. I could "stop" at $2,500 psf, or $1,500 psf, but I chose $2,000 psf, which to me, at this moment, is reasonably "doable", taking into account they did not sell any unit at their current asking price of $2,500-2,700 psf, and also that a stock clearance sale of $1,500 psf would be unnecessarily pessimistic.

erelation: Yes, Heeton is not able to sell any unit at iLiv and the remainder units at Lumos, and that's a negative. I also dislike the fact that they have not monetized Sun Plaza, and has changed plans for El Centro (being rented out again instead of being redeveloped as expected earlier). However, it is exposed like KSH to several projects with retail shops, and these will likely be sold at good margins.

Heeton has also presold a good number of units at The Boutiq, Sky Green and Palacio, allowing some steady stream of profit. At the same time, because there are so few issued shares, the effects of profits and asset value on a per share basis are quite substantial. Also, it turns out that holding Sun Plaza had not been too bad a move considering that retail space prices have gone up a lot.

RNAV calculation is an art and not a science. So there will always be questions on why this assumption is taken or why another estimate is not chosen. I can only say that the figures given in my table earlier are only "my" estimates of the RNAVs - one of perhaps 100 estimates that can be arrived at by 100 different people. I don't think my estimate is "right" but just "one of many possible estimates".

Finally, do use RNAV in conjunction (perhaps as a support) with your takes on catalysts, theme plays, market timing, new flows, management's trustworthiness and agility, etc. Ultimately, it is demand and supply for a share that affects the share price, not RNAV per se.

Btw, I am currently busy with some personal business, so I may not be able to contribute for the time being.

Thanks Sumer for your sharing. There are a couple of questions from readers posted below your article SUMER: My (conservative) estimate of RNAVs of some property stocks

Could you take a look and respond accordingly? Much appreciated. 

Hi Sumer,

Would like to seek your view on Heeton. RNAV $1.60 - $1.70 look like a good buffer at current price of $0.67

Just checked URA site, can't find any sales record for their Lumos project and Not a single sales for I Liv At Grange outof the 30 units which is not a good single.

Do you happen to have any information on sales for Lumos? Noticed that they have 53 units. Any idea how many were sold?

Regards
Yee

The Lumos, a 53-unit completed condo at Leonie Hill, first came on the market here in 2007. Since then, 18 units have been sold. But the developer halted sales in recent years to wait for the property market to pick up and review marketing strategies. Now, the project is back on the market at what the developers deem more 'attractive' prices.

Source: http://mrproperty.sg/tag/the-lumos/

Hi Joes, hope it's ok that I post a hurriedly written explanation on calculating RNAV of property stocks.

Basically, calculate:

(1) the unbooked earnings from its present and future projects, based on taking selling prices (estimated or actual) less all costs (land, construction, marketing, finance, etc), on a psf basis. (Eg, $1,000 psf selling price minus cost of $800 psf). The difference is the gross profit psf. Then get the GFA (gross floor area) based on (1) brochures or (2) multiplying land area by plot ratio and then add 5-15% more GFA based on your expectations of how much more "free" balcony, garden and roof terrace spaces. Multiply gross profit by GFA and you get the total gross profit for the project.

You can then discount it to present value (pse google what this means), or to skip this step (it's basically an estimate after all), you may choose to estimate more conservative GFA, sales price or higher costs, which will let you have a lower gross profit. For net profit, simply deduct tax from gross profit. Divide net profit by the outstanding shares, and you get the NAV per share for the future earnings (A).

(2) for assets owned or will be owned (eg, a hotel under construction), estimate based on studying similar buildings, room values, etc. For eg, if a co is building a 500 room 4-star hotel, after studying recent hotel transactions, valuation of hotels of listed companies, etc, you may decide that it's worth $600,000 per key. Likewise, for office or retail space owned or under construction - just do your estimation based on researching values and prices in the market. Then, simply do the maths to arrive at a value for the assets. Then take this value and minus the present book value (for an asset already owned) or the total cost of constructing the building (for an asset to be developed and kept) to arrive at the valuation above cost or book value. Divide this by the outstanding shares, and you get an excess NAV per share for the asset (B).

(3) take the NAV per share (C ) already given by the company at the end of each quarter or half year and add (A), (B), (C) up to get your total RNAV.

Above is just my crude method of arriving at RNAV which I find to be reliable enough. Of course there are more refined methods. However, in all methods, a good amount of assumptions and opinions are involved, and these are the variables that affect the final figure, not so much the method of calculation.

For eg, when I bought into SC Global at about $1-$1.20 last year, my estimate of its RNAV was about $3 - $3.50. I remember reading an analyst report setting a target price for the counter at below $1. I was thinking then that a 40% discount to RNAV would be a good target to hold the stock until, ie, at about $1.80-$2.10. I don't think the wide difference in our target price was due to the way we calculated the RNAV of SC Global, but the assumptions and estimates we used in the calculation. I suppose my assumptions must have leaned more towards a neutral scenario rather than a free fall in physical property prices.

thanks a million Sumer! 
Can you share with us how you went about estimating the RNAVs?

Peter123: According to the grapevine, Tan Yong Keng called up CES boss and said: "brother, don't worry, I like your company, so I buy your shares for investment. No hostile takeover. You can relax."

 

Dear Rock, Sumer

Thank you for the info provided? Why do you think TYK is buying up so much of CES stocks? Could it be a takeover? Would fair value of CES now be $1.60?

Below is a quick list of prop stocks I own/have owned or monitored. Note that RNAVs are subject to changes as new developments in a company or the prop market surface; so it's not a fixed figure. These RNAVs are only my personal (and adequately prudent, I believe) estimates based on certain assumptions. To me, (1) estimating RNAV as well as (2) attributing a certain discount to a stock's RNAV are both more of an art than science; so differences between my figures and others' are to be expected.

Also note that share prices are a function of demand and supply for a co's shares, and demand and supply can be due to several reasons, of which a company's fundamentals (like RNAV, earnings, etc) is only one of many.

Stocks I still own (but I have reduced some as prices rise):

Stocks that I had owned previously (may own again):

While I like the safety of high RNAVs, it does not mean that I pick stocks based solely on "the bigger the discount the better" (so, at the moment, I do not own the stocks listed in the 2nd table, for eg). I take into consideration management's agility and past records, prospects of monetizing of assets, dividend payout, major shareholders' honesty and care for minority shareholders, immediate catalysts, etc. Then, I decide, for eg, that CES can trade up to 70% of RNAV (ie, 30% discount) before I am concerned.

Again, all these personal targets and views are not stationary. If for eg, the govt comes up with yet another set of measures to curb demand for any type of property, then I will have to relook at the maths and adjust the RNAV discount I am comfortable with.

As stock prices rise, don't forget to take some money off the table; prudence is a good habit and being content is a good guard against greed.

KSH announced last evening that 9M net profit surged 103% to $22.7m. EPS was a good 6.08ct. If full year EPS hits 8cts, PE would be a low 5.1X. NAV is nearly 40ct, but with lots of future earnings coming, my take is RNAV of $1-$1.10. Immediate catalysts are listing of TEE's prop subsidiary (whose bulk of land is same as KSH's) and launch of HL Garden.

Outsig, I will try to get a table on the RNAV of various prop stocks after the CNY as I will be in Iskandar today.

Hi all,

Re CES, Tan Yong Keng is the founder of Kenyon and seems to be a shrewd man. You can google and read about him. He has been accumulating CES shares under Kim Eng Securities (custodian), Kenyon (his co), his wife, his father, his son and his sister, as indicated in SGX reports as deemed interest (not sure if they are buying separately for themselves, as that would also be "deemed interest").

My estimate of CES' RNAV was raised to $1.60-1.70 after it clinched the Yishun site. I understand 100PP is now more than 50% sold.

Re Superbowl, I have not looked into how much profit or loss could be made in Days Hotel's first few months of ops. It is possible that there could be a loss due to start-up costs and lower occupancy rates. However, I bought SB for its underlying asset value rather than profits, and hence I think the profit or loss due do Days Hotel's opening is not significant and probably have only short term effect.

Re Bonvest, I find it hard to give values to its assets because it lumped all its hotel components together, and the co does have overseas hotels (whose values I do not know how to estimate). But it's safe to estimate that the company's RNAV is above $2 at least, and perhaps even close to $2.50. I had held only a small quantity of Bonvest which I have since disposed of, in favor of companies which I can better analyse.

Observing the charts and buying/selling patterns, I detect accumulation at Hiap Hoe (although I am not sure who is buying or if the buyer is strong). SB is probably a follower.

CES chart looks a bit stretched, so I have taken some profit but keeping the bulk of my holding because of the interesting angle of possible hostile bid for the company. CES is the rare 2nd liner property company where the major shareholders does not have a tight hold of its shares (less than 50%) so it's vulnerable.

Someone seems keen on stopping KSH from rising (usually this is not successful if the fundies are intact. eg, I detected the same when CES was below 50ct).

Just my observation and views about possible buying/selling patterns.

Hi Peter123, attach below acticale by Sumer. The sucess of Alexandre projects will increased CES value further.

Below is post by Sumer in: Subject :Re:Guess which SG developer plans to build this Down Under?.. 27-12.2012

I could not get the last msg posted properly. Hope this one breaks it into paragraphs:

Since I last wrote on CES, the stock has outperformed most prop stocks, due mainly to the consistent and aggressive share buybacks.

Perhaps the company finds value in its own shares for the following reasons:

1. Tower Melbourne - Green light has been obtained. This project could potentially yield big profit figures for CES, for the following reasons:

a. For a piece of land that is only 9,827 sq ft, CES is building a structure that has about 380,000 sq ft of net gross floor area (which can be sold). This means a plot ratio of nearly 40 times - a feat not achievable in Singapore.

b. The best thing is that the big plot ratio seems to be "free". It costs CES only A$25.5m to purchase the land, while the potential sales proceeds from the 571 apt units could be as high as A$304 million (based on A$800 psf X 380,000 sq ft).

c. Total cost of the project could be A$170m or higher, depending on what one's assumption is. One Aussie news site mentioned this "cost" figure, without specifying if the A$170m includes land and marketing/other costs. Even if one assumes A$200m total cost, the gross profit margin is A$104 million, which net of 30% tax rate, will mean A$72.8 million, or about S$91.73 million, or 14ct per share! Of course, if A$170m is indeed the total cost, then EPS will rise to 18ct.

2. 100 Pasir Panjang - The launch of this industrial project recently is a pleasant surprise, as I had expected a later date. Net saleable space is 125,596 sq ft, selling price is $1,000-1,200 psf. With land cost of $463 psf, and assuming total cost of $663 psf, I expect about $48m gross profit based on $1,050 ASP. I hear that about 30% of the units are taken up in a short 1-2 weeks.

3. Alexandra hotel shops - The NSA (net saleable area) is much smaller than earlier indicated (though the earlier figure is probably just GFA). Based on available info, the NSA is 50,918 sq ft. Assuming ASP of $5,500 psf, that will mean the retail space has a value of $280m. I am not sure if all or only some of the shops will be sold. Shop space sale could be launched next month.

My estimate of the hotel's value is $292.5m, based on $650k per key for its 450 4-star rooms. Total value of this hotel/retail project (taxation not taken into account) = $572 million vs cost of about $350 million. Surplus valuation = 34.2 ct per share.

Meanwhile, My Manhatten is 95% sold since I last wrote.

My personal estimate of CES' RNAV is now about $1.50, which includes all the profits from its condo and HDB projects but excludes its construction business as its contribution is marginal.

Someone recently said that newspaper reporters are not doing enough investigative work on corporate developments, and the case of CES was highlighted as an example (although not from a positive angle).

I guess it is precisely because analysts and reporters are not digging up enough information that it allows us retail investors to do our own homework and unearth our little gems. Googling, making phone calls to agents, viewing showflats, asking questions at AGMs, etc, are some of the homework we can do to stay ahead of the analysts, reporters and bigger boys. Here, I hope I have shared with you what info I have found on a little gem called Chip Eng Seng.

Hi Peter123, attach below acticale by Sumer. The sucess of Alexandre projects will increased CES value further.

Below is post by Sumer in: Subject :Re:Guess which SG developer plans to build this Down Under?.. 27-12.2012

I could not get the last msg posted properly. Hope this one breaks it into paragraphs:

Since I last wrote on CES, the stock has outperformed most prop stocks, due mainly to the consistent and aggressive share buybacks.

Perhaps the company finds value in its own shares for the following reasons:

1. Tower Melbourne - Green light has been obtained. This project could potentially yield big profit figures for CES, for the following reasons:

a. For a piece of land that is only 9,827 sq ft, CES is building a structure that has about 380,000 sq ft of net gross floor area (which can be sold). This means a plot ratio of nearly 40 times - a feat not achievable in Singapore.

b. The best thing is that the big plot ratio seems to be "free". It costs CES only A$25.5m to purchase the land, while the potential sales proceeds from the 571 apt units could be as high as A$304 million (based on A$800 psf X 380,000 sq ft).

c. Total cost of the project could be A$170m or higher, depending on what one's assumption is. One Aussie news site mentioned this "cost" figure, without specifying if the A$170m includes land and marketing/other costs. Even if one assumes A$200m total cost, the gross profit margin is A$104 million, which net of 30% tax rate, will mean A$72.8 million, or about S$91.73 million, or 14ct per share! Of course, if A$170m is indeed the total cost, then EPS will rise to 18ct.

2. 100 Pasir Panjang - The launch of this industrial project recently is a pleasant surprise, as I had expected a later date. Net saleable space is 125,596 sq ft, selling price is $1,000-1,200 psf. With land cost of $463 psf, and assuming total cost of $663 psf, I expect about $48m gross profit based on $1,050 ASP. I hear that about 30% of the units are taken up in a short 1-2 weeks.

3. Alexandra hotel shops - The NSA (net saleable area) is much smaller than earlier indicated (though the earlier figure is probably just GFA). Based on available info, the NSA is 50,918 sq ft. Assuming ASP of $5,500 psf, that will mean the retail space has a value of $280m. I am not sure if all or only some of the shops will be sold. Shop space sale could be launched next month.

My estimate of the hotel's value is $292.5m, based on $650k per key for its 450 4-star rooms. Total value of this hotel/retail project (taxation not taken into account) = $572 million vs cost of about $350 million. Surplus valuation = 34.2 ct per share.

Meanwhile, My Manhatten is 95% sold since I last wrote.

My personal estimate of CES' RNAV is now about $1.50, which includes all the profits from its condo and HDB projects but excludes its construction business as its contribution is marginal.

Someone recently said that newspaper reporters are not doing enough investigative work on corporate developments, and the case of CES was highlighted as an example (although not from a positive angle).

I guess it is precisely because analysts and reporters are not digging up enough information that it allows us retail investors to do our own homework and unearth our little gems. Googling, making phone calls to agents, viewing showflats, asking questions at AGMs, etc, are some of the homework we can do to stay ahead of the analysts, reporters and bigger boys. Here, I hope I have shared with you what info I have found on a little gem called Chip Eng Seng.

hi peter, rock, etc: Do you know who is Tan Keng Yong? He got so muuch $ to invest? He put so much in 1 stock -- this is overconcentration. When he stops buying CES, will the balloon deflate?

Sumer, Bonvest own 2 district 9 freehold properties: Liat Tower & Sherton Tower. Can you caculate it's potential values.

Tan Yong Keng yesterday bought another 924 lots of Chip Eng Seng shares at 80 cts, increasing his holding to 6.1069%.

There is still more up side to go to it's fair value.

Hi SB, re your question on Hiap Hoe. 
It's simple math.  Just as Sumer calculated for Superbowl, do the same for HH using surplus valuation $269.3m.

U get a surplus valuation on a per share basis by dividing $269.3m by 473 million shares of Hiap Hoe = 57 cents. 

Any more easy questions ask me. Difficult ones, ask Sumer. I have one moderately dififcult one for Sumer: Is he expecting a first year full-year operating loss from Days Hotel & Ramada Hotel?