2nd Liner Prop Stocks

Would appreciate it if you can give your views on Hupsteel. It's increasingly talked about

Hi Big Fish, I hope I presumed correctly your question is meant for me. Yes, I took a look at Hupsteel after someone mentioned it earlier. I think the maths looks ok, with RNAV of about 35-40ct per share due to possible profits from the Kim Chuan development. However, I am not familiar with steel business, and which is Hupsteel’s main story.

It looks like its project at Kim Chuan is a one-off thing, unless its Genting Lane building can also be redeveloped. I also don’t think Hupsteel intends to go into property development. The industrial property market is apparently softening after the past 1-2 years’ surge, and Hupsteel’s slowness in launching the strata units for sale is a bit discomforting.

I prefer purer 2nd liner property companies which are trading at similar or even bigger discounts to RNAV. For eg, Heeton’s RNAV could be as high as $2.20, meaning the current price of 82ct is only 37% of its RNAV. Hupsteel’s price is about 60% of its RNAV.

I also look for stocks with catalysts, and I find that in several 2nd liner prop stocks like Heeton, CES, etc. I am not sure Hupsteel has any catalyst other than the Kim Chuan story.

Having said that, there are share buybacks going on at Hupsteel, and if Kim Chuan is successfully launched and sold, there could be some upside to the counter, especially if the co pays out good dividends from that project’s profit.

regarding Oxley, Heeton, KSH, Lian Beng, etc which are members of a consortium developing Seletar Garden.

They bought at $890 per sq ft per plot ratio (psf ppr). I hear they are selling units in phase 1 at around S$1,400.

Margin doesn't look too fat, does it? Consider also that the buying mood is now more coool.

Hi Big Fish, allow me to share a few figures for Seletar Garden. Land cost is indeed $890psf, but I think your $1,400 psf is only for residential portion. As the project allows 25% commercial, 75% residential, we have to consider the commercial units’ selling price. I assume a conservative estimate of $3,500 psf for such units.

Based on KSH’s corporate presentation recently, Seletar Garden will have a NSA (net saleable area) of 124,000 sf. Although the proportion is 25:75 for comm:resi, I am opting for prudence by assuming that comm space is only 20% due to walkways, etc, and resi side having roof top terraces and ground floor gardens. Hence, out of 124,000 sf, 24,800sf could be comm space available for sale and 99,200 sf resi space for sale.

Assuming, $3,500 psf ASP for comm and $1,400 psf for resi, we then get an average selling price of $1,820 psf based on 20:80 mix.

Assuming $400 psf construction and other costs, then we have a gross margin of $1,820-$1,290 psf = $530 psf gross margin.

That translates to $65.72m profit for the whole project, before tax.

The gross amount accruing to Heeton and KSH is about $8m each. Relatively, Skygreen, Newest and KAP will contribute much more to both coffers. And all 3 have been launched and mostly sold.

But yes, the market is indeed softer. So hopefully Seletar Gdn will be launched soon. KSH has said that it intends to launch 4-5 projects within half a year. That will be a wise rush.

Roxy - Pacific already gone xd 0.77 cent dividend, yet it +3 cents. Surprise! This is a market darling indeed. 71.5 cents currently. Can still chase?

Beware high-end projects where a large % of units has been sold to investors (rather than owner-occupiers). U will find many units unoccupied -- speculators will wait to flip, or overly-rich foreign investors treating the properties as holiday homes. If a condo is half-empty.....