2nd Liner Prop Stocks

KSH and Heeton are in 2 deals recently that are worth paying attention to:

1. China deal (with Oxley, Lian Beng, TEE, Zap) – KSH has a 22.5% stake while Heeton has a 7.5% stake. Oxley has a 25% stake. I suspect that KSH’s high stake (vs Oxley, in terms of their relative market capital) is because the land they are going to develop is that which KSH had a few years ago obtained the rights to develop, in Gao Bei Dian, near Beijing. If my guess is correct, this land is huge: nearly 54,000,000 sf of city centre land, in a town which is about half an hour train’s ride to Beijing (according to earlier reports).

2. Cambodian deal (with Lian Beng) – the details are still a bit patchy, and I am also not familiar with Cambodia, but I reckon Oxley could have introduced some Cambodian contacts to the consortium.

As the Singapore market gets overcrowded and sales slow down, developers here have no choice but to venture abroad. It’s still uncertain if these ventures will be profitable, as there are also risks (like oversupply in China) involved. But at least these companies are not sitting around waiting for the Singapore market to serve them their next meal. Hopefully, they will taste success abroad.

Meanwhile, I am looking forward to consistently good profits from KSH the next 2-3 years, as it starts to book profits from KAP, Newest, Cityscape, Sky Green, Boutiq – all projects that sold very well.

I am hoping that the company dishes out a DPS of at least 2ct per year for the next 3 years, if not more.

When will KSH gain wider recognition from investors? The stock is hardly known.

www.nextinsight.net/index.php/story-arch...do-60-sold-at-launch

Lian Beng/ Heeton/ KSH's Cambodian partner, Sear Rithy is chairman of Worldbridge Land, which is Oxley's partner in its 4 Cambodian projects. Oxley probably felt that it had enough exposure to Cambodia, hence it introduced Sear Rithy to its Singapore partners. Maybe it wanted to repay KSH's favour of introducing it to the China deal.

Anyway, the Imperial Hotel site is a sizable 171,000 sq ft prime waterfront site located at Sisowath Quay, a 3km strip lined with hotels, restaurants, bars, cafes and shops. Seems like an excellant redevelopment project.

At Lian Beng's AGM last year, I asked Mr Ong Pang Aik whether it intends to follow Oxley overseas. He said "No...Oxley has $1b of profits so it can bring some overseas to try, but for us, our core business is in construction. Oxley is going to Cambodia you know, that's very risky...". Well, looks like Oxley has convinced its friends that the potential there is too good to ignore.

Prop stocks have in general performed well this year, so far. This is despite the regular negative headline news on slow sales and falling prices and rents, and reminders of impending completion gluts in 2015-17.

I think this is due to the following reasons:

1. Most prop stock bears would have exited by now. In other words, negative news so far has already been discounted, and has mostly little impact on prop stocks. However, to be prudent, we should be prepared for even more nasty surprises, and be on guard for that.

2. Privatisation and insider buying are providing cash flows (for those who sell out) into other prop stocks. Recently, offers were made for Superbowl and SingLand, and insider buying are seen for counters like Ho Bee, CES, etc. Shareholders who exit fully or partially from these stocks may plough their proceeds back to other prop counters, as their belief in the stocks’ undervaluation is reinforced by privatizations and insider buying. Hence, one can see shareholders of Superbowl switching to buying Hiap Hoe shares, leading to the latter’s uptrend. In HH’s latest annual report, Geraldine Tan and Oliver Siah, wife and son of Francis Siah, have entered the top 20 shareholders’ list. Francis’ personal stake could also be hidden in some nominee bank’s account. This is an obvious switch from SB to HH shares.

3. Prop stocks’ charts are showing strength, and this may lead some players to perk up and take a second look at them. Where there is money to be made, attention will follow. Among stocks that have made 52 week highs or are nearly doing so are Oxley, Aspial, Ho Bee, Hiap Hoe, Lian Beng, etc. Even those that were trending down are rebounding smartly: Wheelock, UE, Tuan Sing, UE, etc. Even the heavy weights have found strength recently.

4. Analysts are paying slightly more attention to prop stocks, despite the general tendency to call for “underweight” for the sector. For example, CIMB today issued a report on the prop companies that could be privatized next. The broker lists the following counters as most likely candidates: Ho Bee, Wheelock and Wing Tai. The report cites the huge undervaluation as a main reason for privatization. Unfortunately, the broker has no time to look at smaller cap prop counters, but this is where we can do our own homework and profit from that research void.

For the above reasons, I continue to like and own prop stocks. While not as exciting as the dramatic rise and fall of speculative or earnings-related counters, these stocks have provided good dividend and capital gains while giving me the security of high net asset value. Some, like Oxley, Hiap Hoe and Superbowl, have provided rather good capital gains over the past 6 months.

As a quick summary, I continue to like Oxley for the boss’ ability to provide the excitement of rapid growth, CES for the possible EPS of 30ct for FY 2014, Hiap Hoe for its good discount to RNAV and the Aussie exposure, Fraser Centrepoint for the IPO of its serviced apartments REIT and the regular divestment of its other assets into its other 2 REITs and its Sydney exposure, Ho Bee for insider buying, Roxy-Pac for the agility of management and its impending move overseas, KSH for its consistent earnings going forward and its “China surprise”, Heeton for a hope that it starts to “let go” of its assets, Pollux for its good earnings and under-the-radar obscurity, and Wheelock, HGC and Bonvests for possible privatization, etc. I am sure I missed out some good prop counters; perhaps it’s because there is just so much undervaluation in the sector.

I am beginning to think this Tuan Sing (34 cents) will gv a decent return.

Tuan Sing - severely undervalued?

Published March 07, 2014

Who says Tuan Sing is going private?
By lee meixian leemx@sph.com.sg


Mr Liem: 'We are quite confident we are moving in the right direction'


PRIVATISATION is not on Tuan Sing Holdings' cards despite a stock price that some observers say is "severely undervalued" and has been trading at a widening discount to its net asset value (NAV).

Talk sparked that some developer companies may also be taken private after United Industrial Corporation last month took back its subsidiary, Singapore Land, for $761.67 million amid poor market sentiment for the residential property segment.

Tuan Sing is among a number of property development companies trading at huge discounts to their stated values, as investors sell developer stocks in anticipation of a market downturn.

But at a media preview of Tuan Sing's latest condominium, Cluny Park Residence, during its launch yesterday, CEO William Liem said he was not aware that its shareholders had privatisation plans as "there are other benefits to being listed".

"There are many property counters that are trading below NAV (but) we are really one of the more undervalued stocks vis-a-vis some of the other property counters," he said.

The counter has averaged at about 30 cents for the past five years, despite NAV doubling to 64 cents at last count and revenue growing 25-30 per cent annually, chief financial officer Chong Chou Yuen said.

Yesterday, it rose half a cent to finish at 31 cents.
Mr Chong said: "Within this 64 cents, everything is solid. You can see, you can touch. And the assets are all in good locations."

Some of the developer's strongest assets include its recently acquired Robinson Point; its "crown jewel" Robinson Towers which is undergoing redevelopment; and Grand Hyatt Melbourne and Hyatt Regency Perth in Australia.

"On top of it, you look at our balance sheet, there is no secret. We have $200 million cash and our market value is only $350 million," he added.


Mr Chong suggested that lack of communication with shareholders, analysts and the media could have led to ignorance about management's confidence in company projects and even a confused idea about its nature of business.

"I think the investor community doesn't understand what kind of animal we are. Are we in property or trading or manufacturing?"

This is because the company also has substantial stakes in printed circuit board manufacturer Gul Tech; golf products retailer Pan-West; and commodities trading cum car-related products distributor SP Corp.

But in fact, the company board has decided since 2009 to focus on property.

"We are just passive investors in all these entities and at the right time, we are not averse to disposing them at the right price," Mr Chong said.

Tuan Sing is on the lookout for commercial projects and selective residential ones. It is also exploring opportunities in Australia, China and Indonesia.

"(There's) no point for us to say how much we're worth. I think action speaks louder than words. We are quite confident we are moving in the right direction and going forward, people will realise the value of the company," Mr Liem said.

Two offers for property-related SGX counters in one day! Following other takovers/privatization deals (SB, Global Premium, SingLand) recently, CMA and HPL received takeover offers yesterday.

This shows more clearly that the prop sector’s undervaluation is hefty and big insiders are taking advantage of it. Players are also waking up to this, and quite a few prop stocks moved yesterday.

I do not follow CMA but I like and own HPL. At first glance, the offer of $3.50 looks well below the RNAV of $5-$6 that I think the stock has. I suspect many who own this stock will not accept the offer. HPL is the listed company which owns the most land in Orchard – sites that border some of the “richest” areas in Singapore – Tomlinson, Orchard Boulevard, Tanglin, Nassim and Ardmore. It is indeed a rear gem that many will part with only when the price is right.

As more and more property related stocks get spotted and delisted, fewer will remain in the stock market. This is a good thing as one of the reasons why prop counters have such hefty discounts to RNAV is not just because of the negative news and expectations in the physical market, but because of the huge supply of listed prop stocks on SGX.

Remember that stock price is first and foremost a function of demand and supply, and everything else is secondary (ie, fundamentals, speculation, prospects, new deals, etc). So, if a stock has 10% of its 100 million issued shares in free float for example, the supply of “tradable” shares is only 10m. If demand suddenly comes in for one reason or another, say for 30m shares, the stock price cannot but surge; the supply just cannot meet the demand. If, however, another stock has 50% of its 1 billion issued shares in free float, then that means the supply of “tradable” shares is 500m, and it will take a lot of demand to fuel a share price rise, because the supply can amply meet even strong demand.

And that explains why many prop stocks can trade at 3-8 times prospective PEs and/or 50% or more discount to RNAV. Relatively speaking, there is a big supply of prop stocks on SGX. And by supply, it means supply not just of the number of counters and not just of the number of shares of these counters, but the dollar amount of the prop shares that are “tradable” – and this is huge compared to say the tech, medical, retail, oil and gas, commodities sectors, etc. Hence, this huge supply that cannot be met by an equally huge demand, leads to weak share prices, and hence big discounts.

And the reason why there are so many listed prop stocks and so big a supply ($ amount) of scrip is because the prop sector makes up a huge part of the Singapore’s economy. There are only a few hospitals in Singapore, but look at the number of housing units. Developers need to just sell off one project to earn close to $100m – they are in the “big revenues, big profits” business, and its only natural that they form a big part of SGX’s listed companies and market cap. Unfortunately this means ample supply of shares in prop stocks, which demand mostly can’t catch up, leading to weak share prices, and low valuations (a medical stock can command a PE of 30 times vs a prop stock’s 5 times; everything else being equal, it’s mostly due to the rarity of scrip).

And hence, the arising of an anomaly that we can take advantage of, and be patient and wait. Yesterday’s news on CMA and HPL is what the waiting is for. Patience has its prize.