The following article was published yesterday on Valuestocks.org and is reproduced with permission
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Views & Question from reader: "Based on FY13 profit of $20 million, and FY12 profit of $93 million for Wee Hur, and assuming profit for FY14 would at least match that of FY12 due to the attainment of a Temporary Occupation Permit (TOP) of Premier @ Kaki Bukit, its profit will go up by approx 362%!!
It is highly likely the stock will move higher, mirroring the action in 2012 when the stock price surged from $0.28 to $0.61 when Harvest @ Woodlands achieved TOP in 2012. The profit for FY14 could exceed $93 million as Premier @ Kaki Bukit is a larger development then Harvest @ Woodlands although Wee Hur only owns a 60% stake.
Based on FY13 press release, Wee Hur had $242 million in cash and cash equivalents, while its market capitalization is currently $331 million. The company is cash rich and it is likely to able to sustain its dividend payout of $0.02 a year (dividend for FY13). Given that its share price is $0.36 (as at 17/4/14). its dividend yield is a respectable 5.56%. However I am unable to find any research report on this stock, so I wonder if you and your team would be interested to look at Wee Hur's balance sheet so that we can learn more about it for the benefits of fellow investors. |
I am back! Guest Blogger TCK here. I am honoured to guest-blog on Henry’s revamped website and on my pet topic - property stocks.
In essence, the reader is asking would the full recognition of profits of Premier@Kaki Bukit have a similar impact on the share price as the recognition of full profits from Harvest@Woodlands in 2013.
Wee Hur (36.5 cents) has a market cap of S$336 million and a trailing PE of 15.8X.
Chart: Bloomberg
In essence, the reader is asking would the full recognition of profits of Premier@Kaki Bukit have a similar impact on the share price as the recognition of full profits from Harvest@Woodlands in 2013.
Wee Hur (36.5 cents) has a market cap of S$336 million and a trailing PE of 15.8X. Chart: Bloomberg
To provide some background on accounting standards, the profits derived from the sale of industrial property is recognised upon the completion of the project. For residential property, the revenue and profits from sales are recognised progressively based on the stage of completion of the project.
From an income statement perspective, this results in lumpy profits, which explains the huge decrease in Wee Hur's profit (from $93 million in FY 2012 to $20 million in FY 2013) due to the absence of profit recognition from Harvest@Woodlands in 2013.
From an income statement perspective, this results in lumpy profits, which explains the huge decrease in Wee Hur's profit (from $93 million in FY 2012 to $20 million in FY 2013) due to the absence of profit recognition from Harvest@Woodlands in 2013.
Will Premier@Kaki Bukit then provide a spike in the share price of Wee Hur?
Taking a step back, I was a bit perplexed over why, upon “realising” there are profits recognised on Wee Hur for Harvest@Woodlands, Mr. Market pushed Wee Hur to a 52 week low of 32 cents from a high of 61 cents?
One would expect the share price to normalise upon digesting such positive information.
As I digged further, I think I found my answer in the conversion of 184,009,398 warrants to ordinary shares progressively during the financial year at an exercise price of $0.25 per share (Refer to pages 50 and 83 of Wee Hur’s 2013 annual report).
This had a significant dilutive impact on existing shareholders considering the share price rose to as high as 61 cents.
This had a significant dilutive impact on existing shareholders considering the share price rose to as high as 61 cents.
Do note the saving grace is that the number of warrants outstanding as at 31 December 2013 is significantly lower at 9,829,161. Hence, any price adjustment due to warrants conversion will be limited in the current year.
So the next question is, has Mr. Market over-reacted to the warrant conversion? Wee Hur might be forming a base since the downtrend is broken.
Let us find out more by analyzing the balance sheet.
Price-to-Book Value not compelling
From a valuation standpoint, I was surprised that Wee Hur is trading above book value (approximately 24 cents book value against 36 cents market value) given that the majority of the property counters are now trading way below book value.
Possible reasons:
So the next question is, has Mr. Market over-reacted to the warrant conversion? Wee Hur might be forming a base since the downtrend is broken.
Let us find out more by analyzing the balance sheet.
Price-to-Book Value not compelling
From a valuation standpoint, I was surprised that Wee Hur is trading above book value (approximately 24 cents book value against 36 cents market value) given that the majority of the property counters are now trading way below book value.
Possible reasons:
1) There is limited risk on the balance sheet with Wee Hur in a net cash position of $147 million (cash less financial liabilities). This will insulate Wee Hur from any rise in interest rates.
On the flip side, this also reflects the lack of project pipeline beyond the existing projects.
2) The pipeline of projects for Wee Hur is almost 100% sold -- namely: Urban Residences, Parc Centros and Premier@Kaki Bukit.
My gut feel is that the premium of approximately $100 million to book reflects the profits expected to be recognised by Wee Hur for these projects.
Also, with all projects fully sold, Wee Hur is spared from the Qualifying Charges for having unsold inventories, which is one of the reasons why a number property counters are trading at a hefty discount from book value.
This explains why Wee Hur trade at price to book of 1.5.
For more details of the profit to be recognised by Wee Hur, I have used the following information:
Premier @ Kaki Bukit. Artist's impressionFirstly, the effective GFA for Premier@Kaki Bukit (60% of 74,943sqm = 44,966sqm) is actually lower than Harvest@Woodlands (62,531sqm).
Taking profit after tax of $87 million from its property development business in 2012 (when Harvest@Woodlands was recognised) as a proxy and adjust for GFA of (44,966/62,531), I arrived at approximately $63 million as the profit to be booked for Premier@Kaki Buki in FY14.
I also took profit after tax of $23 million of the property development business in 2013 as a proxy for Parc Centros and Urban Residence profit recognition in FY14 and beyond. Note Parc Centros is expected to be completed only in 2016.
Adding both would approximately give us $86 million of unrecognised profits. From the above guesstimate, it appears that the premium of $100 million above book cannot be fully justified by unrecognised profit.
Hence, to answer the reader’s question, I would not think the recognition of profits from Premier@ Kaki Bukit will result in a spike in the share price of Wee Hur because the impact has already been priced in.
The next catalyst of growth
Goh Yeow Lian, executive chairman of Wee Hur Holdings. NextInsight file photo I was pleasantly surprised to learn about Wee Hur’s next engine for growth.
Unlike other similar property players (such as Chip Eng Seng and Hiap Hoe) whose next engine for growth largely hinges on expanding to other countries such as Australia and UK, Wee Hur seems to be betting heavily on the dormitory business in Singapore.
Wee Hur has a 60% stake in a joint venture at Tuas View Dormitory with 16,800 beds expected to be completed in 2H2014.
It is bigger than any single dormitory operated by Centurion (the company with the most significant dormitory exposure listed on SGX). The total number of beds in Centurion's stable is 27,600 in Singapore.
Using a short cut valuation on Centurion's current market capitalisation of $560 million and applying an effective “bed adjusted valuation”, one would value this business of Wee Hur at approximately $200 million.
Awarded by the Jurong Town Corporation to build and operate in October 2013, the dormitory business will be up and running by 2H2014.
Following the train of thought that the premium over book will largely be compensated by unrecognised profits on existing projects over the next few years, buying at the current price actually gets you the dormitory business for free!
Tuas View Dormitory under construction. Photo by V Sundar
In a nutshell
From a value investing standpoint, Wee Hur's investing appeal is limited given the profit to be recognised has already been “priced in” and the company does not appear to be trading at a discount to its intrinsic value.
However, given Wee Hur’s limited risk to any downside to the property market prices by virtue of its project being fully sold and it being in a net cash position, the Company has effectively transformed itself to the next “Centurion”.
With a strong construction order book resulting from major ongoing infrastructure projects, it might be a smart way to ride the construction boom for the company.
Disclosure: TCK & Henry Tiong are currently not vested in Wee Hur shares.
Also, with all projects fully sold, Wee Hur is spared from the Qualifying Charges for having unsold inventories, which is one of the reasons why a number property counters are trading at a hefty discount from book value.
This explains why Wee Hur trade at price to book of 1.5.
For more details of the profit to be recognised by Wee Hur, I have used the following information:
Premier @ Kaki Bukit. Artist's impressionFirstly, the effective GFA for Premier@Kaki Bukit (60% of 74,943sqm = 44,966sqm) is actually lower than Harvest@Woodlands (62,531sqm). Taking profit after tax of $87 million from its property development business in 2012 (when Harvest@Woodlands was recognised) as a proxy and adjust for GFA of (44,966/62,531), I arrived at approximately $63 million as the profit to be booked for Premier@Kaki Buki in FY14.
I also took profit after tax of $23 million of the property development business in 2013 as a proxy for Parc Centros and Urban Residence profit recognition in FY14 and beyond. Note Parc Centros is expected to be completed only in 2016.
Adding both would approximately give us $86 million of unrecognised profits. From the above guesstimate, it appears that the premium of $100 million above book cannot be fully justified by unrecognised profit.
Hence, to answer the reader’s question, I would not think the recognition of profits from Premier@ Kaki Bukit will result in a spike in the share price of Wee Hur because the impact has already been priced in.
The next catalyst of growth
Goh Yeow Lian, executive chairman of Wee Hur Holdings. NextInsight file photo I was pleasantly surprised to learn about Wee Hur’s next engine for growth. Unlike other similar property players (such as Chip Eng Seng and Hiap Hoe) whose next engine for growth largely hinges on expanding to other countries such as Australia and UK, Wee Hur seems to be betting heavily on the dormitory business in Singapore.
Wee Hur has a 60% stake in a joint venture at Tuas View Dormitory with 16,800 beds expected to be completed in 2H2014.
It is bigger than any single dormitory operated by Centurion (the company with the most significant dormitory exposure listed on SGX). The total number of beds in Centurion's stable is 27,600 in Singapore.
Using a short cut valuation on Centurion's current market capitalisation of $560 million and applying an effective “bed adjusted valuation”, one would value this business of Wee Hur at approximately $200 million.
Awarded by the Jurong Town Corporation to build and operate in October 2013, the dormitory business will be up and running by 2H2014.
Following the train of thought that the premium over book will largely be compensated by unrecognised profits on existing projects over the next few years, buying at the current price actually gets you the dormitory business for free!
Tuas View Dormitory under construction. Photo by V SundarIn a nutshell
From a value investing standpoint, Wee Hur's investing appeal is limited given the profit to be recognised has already been “priced in” and the company does not appear to be trading at a discount to its intrinsic value.
However, given Wee Hur’s limited risk to any downside to the property market prices by virtue of its project being fully sold and it being in a net cash position, the Company has effectively transformed itself to the next “Centurion”.
With a strong construction order book resulting from major ongoing infrastructure projects, it might be a smart way to ride the construction boom for the company.
Disclosure: TCK & Henry Tiong are currently not vested in Wee Hur shares.
Comments
Technical BUY with 21.7% potential return
Last price: S$0.39
Target price: S$0.475
Protective stop: S$0.35
We maintain our previous technical BUY and
target price of S$0.66 with protective stops
placed at S$0.525. The stock looks poised to
retest its recent high of S$0.425 in the near
term after the 20-day EMA has hooked up
above the 50-day EMA. Watch if the MACD
indicator could move above the centreline after
forming a bullish crossover.
Expected timeframe: 2 weeks to 2 months
Definitely nowhere near the 40-50% discount that I find in prop counters such as CES, Hiap Hoe, Heeton, etc. However, stock prices do go up for various reasons, so this does not mean that the counter may not be played up for reasons other than valuation.
Their worker dormitory will start operation in August 2014 and per bed rental is $350..but full revenue and profit will be reflect in fy 2015 but the rental $350 is really good...will be able to help weehur to give at least 2 cents dividend per year for the next. 5years...yield will be at least 5.5%. Thanks
I believe the share price slid from 60ct+ is mainly due to the losing of the Thomson View en bloc site due to owners' dispute. The rise in stock had previously been attributed to the expected earnings from a project on this site, and hence the stock had to drop to account for the "loss".
In terms of RNAV too, Wee Hur's is not as attractive as many other property counters'. But it could still get a lift from the "dormitory factor" as well as the overall rise in stocks in the property sector.