I think it’s a matter of opinion if the stock has priced in Q4 bumper profit. Personally, I think it has, to a certain extent. But I think other catalysts may support the share price or even nudge the stock a tad higher – perhaps a higher dividend or a bonus issue to celebrate the record annual profit.
Meanwhile, one possible positive catalyst could be the peaceful solution to the Tower Melbourne dispute. There is some talk (on skyscrapercity forum) that demolition works have resumed, though I am not sure how true it is. However, perhaps a more reliable source is a short line found in this article:
Hidden towards the bottom is this:
“Some readers will know that one of the CBD Four, Tower Melbourne, began demolition in excess of a year ago only for CEL Australia to be mired down in legal wrangling with a fellow Singaporean developer controlling the adjoining site. With that matter now settled Tower Melbourne is expected to begin demolition once more shortly.”
I am not very sure about the profit margins of Tower Melbourne, but I think a good guess is a gross profit of at least S$50m, based on an estimated A$100k+ profit per unit. I must add this is quite a wild guess, but I relied on CES’ profit figures in Q3 and Q4 2012, when the co reported its earnings from 33M (together with what appear like “smaller” figures from other projects). In those 2 quarters, the co made a gross profit of $99m. If say half of this came from 33M, then the 388 units would have earned CES about S$146k per unit.
Extrapolating that figure to TM’s 581 units would give a gross profit of S$85m, but to be conservative, I would lower this rather wild guess to just S$50m (I have seen others projecting much higher figures).
It would be good if other readers who are familiar with profit margins of Aussie apartments are able to guide us on this matter.
Share price (like all prices) is a function of demand and supply. Demand and supply is a function of many factors.
On the demand side, buying on any kind of speculation or the large accumulation of a stock by someone who simply falls in love with a counter are as valid a factor as buying based on fundamentals. In other words, fundamentals (like NAV and PE) are only some of the many reasons that lead to demand for a stock.
On the supply side, if a stock is one of only 2 counters listed in a stock exchange that belongs to the same sector, total supply of such stocks is limited, causing them to trade at higher prices, and hence higher valuations.
In my view, many property stocks appear “undervalued” because there are many such counters within this sector. It does not have the “rarity” factor of say, a medical stock. On the demand side, many investors are wary of a prolonged dismal physical property market in Singapore, and hence they may simply decide not to own property counters, irrespective of undervaluation.
That may explain why several property counters trade at half of NAV or RNAV and have a fraction of the PE of stocks in other sectors.
This state of affairs is likely to exist for some time. Our stamina to hold on to these stocks can be helped if a counter pays out good dividend consistently (eg, CES, KSH, FCL), because total returns = dividend received and capital gains. So, we are likely to hold on to an undervalued counter that pays a dividend consistently; otherwise we are tempted to sell an undervalued stock because of our tendency to want some kind of “returns” – if it does not come from dividend it has to come from taking profit.
I do not know when things will change, but for me, owning this basket of stocks have given me reasonably positive returns over the years and lessened the chance of me hitting a lemon stock in the wild wild world of speckies and earnings-growth-turn-sour-overnight stories.