Sumer, who is regarded as the resident property guru in the NextInsight forum, posted the following in the 2nd Liner Property Stocks thread yesterday. 

sheratontowers4.14Bonvests' 5-star hotel, sited on freehold land next to Newton MRT station, may be valued at S$1.3-1.5 m per room. Photo: CompanyAS INVESTOR sentiment towards undervalued property plays is aroused by the takeover offer for Hotel Properties, there is one stock that may be worth taking a peek at – Bonvests Holdings.

Bonvests is known mostly for owning Liat Towers and Sheraton Towers (a hotel next to Newton MRT station), although the company has other businesses such as resort hotels in Mauritius, Maldives, Tunisia and Tanzania, and owns 79% of Colex, a listed waste management and contract cleaning company.

Liat Towers is smack next to Wheelock Place, and while only 40,340 sq ft in land size (and 6.2 plot ratio), has an Orchard Road frontage far wider than Wheelock Place’s. 

I would imagine that any redevelopment of Wheelock Place would be much more prestigious if the Liat Towers site forms part of the new project.

Based on a land price of $2,400 psf ppr, land would be valued at $600m. I estimate that Bonvest values Liat Towers at about $450 m at most, leaving a surplus of about $150m.

Liat Towers is a rather old office building with a small retail space, and is not fully utilizing its retail space entitlement, I believe.

In recent years, it also had encountered flood issues (as its shop space is at a lower level than the Orchard Road pedestrian walkway), and could be ripe for redevelopment, especially if it becomes part of a new project that stretches from Wheelock Place to the Anguilla car park.

However, this is not even Bonvests' big prize, which is actually Sheraton Towers, a 420-room 5-star hotel sitting on freehold land next to a MRT station. 

Bonvests “hides” this asset under the fully-owned subsidiary Richvein Pte Ltd, and if I am not wrong, values this subsidiary only at cost, ie, $143.5m. 

This means that each room is only valued at about $340,000! A more accurate value would be in the range of $1.3-$1.5m per room. Assuming just $1.34m per room, we get a revaluation surplus of $1m per room, or $420m!

Bonvest’s NAV now is $1.99, based on 402m shares. If the “revaluation surplus” of $150m and $420m (total $570m) is reasonable, that would mean an additional NAV of $1.41, bringing its RNAV to $3.40! 

This, compared with the current share price of $1.28, means the share price trades at a 62% discount to RNAV!

It is no wonder that among the top 20 shareholders, Morph Investments, which is an astute value investor in various undervalued SGX stocks (including SuperBowl which was recently sold to Hiap Hoe) features as the no. 4 biggest holder, owning 7.4m shares. 

bonvests_chart4.14Bonvests is proposing a 1.5-c final dividend for FY2013 -- the yield is nothing to shout about. Chart: BloombergBonvests’ free float is only 17.2%, and it does not cost much for the major owner to take it private. Even an offer price of $1.80 means a cost of only $124m to the majority shareholder.

Having said that, this counter can be quite illiquid, and sometimes it appears to be stubbornly trapped in a tight trading range (like last year), and no one appears interested in it.

So, lots of patience may be required, and there is a risk of what some call “value trap” – you are at the mercy of the majority shareholders, who may have their own reason for not privatizing the company.

Moreover, in recent years the company had been quite miserly in paying dividend, compared to its earlier years. Also, the stock has risen these few days probably due to the HPL story, so some caution is warranted.

I have never attended Bonvests’ AGMs, so I am not familiar with its owners and CEO. To me, trust in the people that own or run a company is an important consideration in investing.

So, based solely on the figures above, I would say owning a small stake in this stock, and patiently waiting for the prize, does look safe.


Related stories: 
MORPH: A successful value fund manager you haven't heard of

INSIDER BUYING: InnoTek, Bonvests, China Animal Healthcare, Hi-P, etc

See also NextInsight forum thread Bonvests 


0 #1 sumer 2014-04-30 16:43
I have a posting today on 2nd liner prop stocks thread in which I briefly mentioned about the Bonvests AGM which I attended for the first time, and thereafter I have decided not to follow this stock. Nevertheless, the undervaluation of the company's assets in its book remains intact.

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