Kim Eng today issued a pretty long report on the steep discounts 2nd liner property stocks are trading at currently, with special highlight on these companies' unrecognised profits from prop units that are already sold (secured profit). This is probably in view of the great amount of fear among investors that physical prop prices may fall going forward, and that this is reason not to touch prop counters. The figures show in a way that this fear may be well priced into such stocks.
Highlights of the report for a few counters:
The 2 names that topped the list of stocks that have the biggest secured profit as a percentage of share price are Sing Holdings (secured earnings of 23ct vs share price of 34ct) and Hiap Hoe (secured 25ct vs share price of 43ct). Sing Holdings has another 10cts of potential profits (from unsold units) while Hiap Hoe has another 20ct.
In terms of discount to RNAV (taking into consideration only secured profits), the top 6 in the list are:
1. Heeton - stock trades at 45.5ct vs RNAV of $1.03 (56% discount)
2. Koh Brothers (45% discount)
3. Utd Engineers (44%)
4. Sing Holdings (44%)
5. Hor Kew (42%)
6. Hiap Hoe (39%)
However, if RNAV includes profits from unsold units, the discounts are even bigger, and many names trade at more than 40% discount here, including:
Tee Intl (68%), SC Global (71%), Bt Sembawang (59%), Ho Bee (49%), Chip Eng seng (45%), etc. In the above top 6 list, Heeton's discount would be 69%, Koh Bros 56%, and Sing Holdings and Hiap Hoe each 52%.
One point to note is that only profits from projects that are meant to be sold are noted, and hence 2 counters that have hotel/commercial components (which may not be meant for sale, although this is not a given) need to be highlighted:
1. Hiap Hoe. Hiap Hoe has a 50% stake in Zhongshan Park - a hotel/commercial project at Balestier - which when completed in early 2013, could see a value of (based on my estimate) $580 million, way in excess of its cost (land plus construction) of about $260m (Kim Eng's report has not taken this into consideration). That means Hiap Hoe is sitting on an undervaluation of $160m for its stake here. Hiap Hoe's RNAV (taking into consideration sold and unsold residential units) is 91ct, according to Kim Eng's report. Its share of Zhongshan undervaluation is about 34ct per share. Hence, taking Zhongshan into consideration, Hiap Hoe's RNAV will surge to $1.25, way above its current share price of 43ct (ie, discount of 65.6%). This would make Hiap Hoe an even more compelling undervaluation story. It's interesting to note that Hiap Hoe is already 70% owned by one single shareholder, and it would not cost much to privatize the stock by buying up the remainder 30% up. Another brokerage house had earlier this week listed Hiap Hoe as a medium term privatisation possibility.
2. Roxy-Pacific. Kim Eng's report had not taken into consideration the revaluation surplus from its hotel component. The report's RNAV figure for Roxy is 63ct. Add the 26.4ct revaluation surplus (as given in Roxy's annual report), we then get a RNAV of about 90ct for Roxy, compared to its share price of 45ct currently (50% discount).
sumer, this may be a good buying opportunity. things are cheap for a reason -- there is much uncertainty surrounding the eurozone and the US economy, and the market sentiment is weak.
Even attractively priced stocks will get the cold shoulder.
Hi Reck, I agree with your view that there is a lot of uncertainty in the markets right now and that market sentiment is weak.
However, those are macro factors, and would require a whole new thread to discuss it. For eg, on the economy level, we can talk about the worst case scenario of a collapse in not just the Euro currency, but the US dollar as well, or even worse, the distrust of all fiat currencies as overprinting of money makes the whole financial system a joke. We could also talk about whether the US will be the next country to seek IMF help, or about the possible eventual sharp rise in US interest rates as a result of a need to prop up quickly a collapsing US dollar.
On the industry level, for the prop sector we can talk about fears of higher interest rates, huge prop building completion levels in 2012 onwards, govt moves to tweet FT intake and build more HDB flats and release more condo land, etc.
These fears on the economy and industry levels are legitimate and worth being mindful about.
Kim Eng's report, and my additional input, focused more on the micro level; stock specific, and in fact issue specific - that of the big discount on RNAV which could possibly imply that many of the above fears could already be worked into 2nd liner prop stock prices. It is more about the big discounts perhaps making those counters safer bets should one decide to put money in stocks after being comfortable with all the macro issues.
So, yes, there are uncertainties in the market and industry, but there are also stock-specific factors (like the RNAV issue in Kim Eng's report) that are worth looking at. For eg, despite all the macro fears above, Allgreen and Portek are now being offered buyouts at huge premiums to last traded prices while Straits Asia (and a few more stocks I am sure) share price hit a new recent high, etc.
Nevertheless Reck, I agree with you on the macro issues.
After the recent cash offer for Allgreen, investors may be noticing the huge discounts some 2nd liner prop stocks are trading at. There may also be a channelling of money from investors who have sold out of Allgreen to similar big-discount-to-RNAV prop stocks.
Techincally:
Hiap Hoe seems to have broken out of a downward sloping resistance line on heavier than usual volume. RNAV of about $1.25. Substantial shareholder owns 70% of stock.
Heeton seems to see some buying, albeit not quite that substantial. Chartwise, looks like testing a downward slooping resistance line. RNAV of about $1.40 should provide downside support. Substantial shareholder owns 70% of stock.
Roxy-Pac is seeing some quiet accumulation. RNAV is about 90cts.
Ho Bee and SC Global are seeing insider buying, on quite substantial volumes.
Other 2nd liner prop stocks are like are Bt Sembawang, Superbowl, Chip Eng Seng, Sing Hldgs and St Land.
sumer, i am sure you are right about the huge disct to RNAV attracting more investors, esp thos who have cashed out of Allgreen. Nice to see Hiap Hoe doing more than 1 m shares today (which shows that an illiquid stock can become liquid if the demand is there and the value is there). Roxy is obviously being nibbled at also, tho vol hasnt shown a strong pick-up. Who knows.... things could turn red hot one day
Payoff time! Hiap Hoe & Roxy-Pacific have rewarded the patient investors and the value investors. Moving up on strong volume despite a weak market overall. Hiap Hoe seems to have stronger power, now 49.5 cents. Roxy at 48.5 cents.
