LTC Corp (prev. Lion Teck Chiang)

(30-08-2015, 09:30 PM)GFG Wrote:

(30-08-2015, 08:04 PM)opmi Wrote: Cheng family corp gov not very good leh. See parkson IPT.

http://www.theedgemarkets.com/my/article...nit-rm641m

Is this parkson deal related to the LTC acquisition?
I know they are all part of a restructuring in the Lion group, but how else is it related?

LTC acquisition is regarding departmental stores (SOGO) in Malaysia

When one listed company 'rips' out cash from another related listed company by shifting paper, it is red flag for corp gov.

If they can do it to a related company, then can do it to another.
So if the industrial properties at Macpherson are realised, what is the likelihood of the cash proceeds being distributed to ALL shareholders?
What can stop them from buying something and 'transfer' the cash out of the cash-rich company?

(31-08-2015, 12:50 AM)opmi Wrote:

(30-08-2015, 09:30 PM)GFG Wrote:

(30-08-2015, 08:04 PM)opmi Wrote: Cheng family corp gov not very good leh. See parkson IPT.

http://www.theedgemarkets.com/my/article...nit-rm641m

Is this parkson deal related to the LTC acquisition?
I know they are all part of a restructuring in the Lion group, but how else is it related?

LTC acquisition is regarding departmental stores (SOGO) in Malaysia

When one listed company 'rips' out cash from another related listed company by shifting paper, it is red flag for corp gov.

If they can do it to a related company, then can do it to another.
So if the industrial properties at Macpherson are realised, what is the likelihood of the cash proceeds being distributed to ALL shareholders?
What can stop them from buying something and 'transfer' the cash out of the cash-rich company?

Definitely a red flag if this were true. That said surely if the industrial properties are realized, the proceeds should factor into LTC's share price no?

(31-08-2015, 01:52 AM)mulyc Wrote:

(31-08-2015, 12:50 AM)opmi Wrote:

(30-08-2015, 09:30 PM)GFG Wrote:

(30-08-2015, 08:04 PM)opmi Wrote: Cheng family corp gov not very good leh. See parkson IPT.

http://www.theedgemarkets.com/my/article...nit-rm641m

Is this parkson deal related to the LTC acquisition?
I know they are all part of a restructuring in the Lion group, but how else is it related?

LTC acquisition is regarding departmental stores (SOGO) in Malaysia

When one listed company 'rips' out cash from another related listed company by shifting paper, it is red flag for corp gov.

If they can do it to a related company, then can do it to another.
So if the industrial properties at Macpherson are realised, what is the likelihood of the cash proceeds being distributed to ALL shareholders?
What can stop them from buying something and 'transfer' the cash out of the cash-rich company?

Definitely a red flag if this were true. That said surely if the industrial properties are realized, the proceeds should factor into LTC's share price no?

Yes, if it is distributed to ALL shareholders. If only sit in the company to be enjoyed by mgt or major shareholders, what is the use of that to OPMIs. Eg HF, M.

To be fair, Cheng did payout a big dividend after Lion Asiapac disposed Anhui Jianghuai Automobile, although not before minorities KPKB.

The recent Parkson deal was done closed to the last done (depressed) price then, so it's not like Cheng is selling it for a princely valuation. IMHO, the deal should be viewed in context of Lion Corp's debt trouble, having slipped into PN17 status on Bursa.

(31-08-2015, 11:34 AM)lanoitar Wrote: To be fair, Cheng did payout a big dividend after Lion Asiapac disposed Anhui Jianghuai Automobile, although not before minorities KPKB.

The recent Parkson deal was done closed to the last done (depressed) price then, so it's not like Cheng is selling it for a princely valuation. IMHO, the deal should be viewed in context of Lion Corp's debt trouble, having slipped into PN17 status on Bursa.

With department stores going downhill everywhere, fair priced now, may be overpriced in the future.

(31-08-2015, 12:47 PM)opmi Wrote:

(31-08-2015, 11:34 AM)lanoitar Wrote: To be fair, Cheng did payout a big dividend after Lion Asiapac disposed Anhui Jianghuai Automobile, although not before minorities KPKB.

The recent Parkson deal was done closed to the last done (depressed) price then, so it's not like Cheng is selling it for a princely valuation. IMHO, the deal should be viewed in context of Lion Corp's debt trouble, having slipped into PN17 status on Bursa.

With department stores going downhill everywhere, fair priced now, may be overpriced in the future.

Chengs don't care one... they already smelly leg for so long liao... nothing new

LTC is an interesting company because it has clear +ves and clear -ves, and the outcome for investors can be quite drastic.

+ve:
Obviously a huge discount to its NAV.
NAV (WB's favourite measure of value) is now 159.23 cents.
It has increased steadily EVERY YEAR over the years:
2009: 89.6cents
2010: 100.72 cents
2011: 109.51 cents
2012: 129.64 cents
2013: 152.54 cents
2014: 154.21 cents
2015: 158.93 cents

As long as nothing drastic happens, one can argue that the share price cannot deviate too far from the NAV. Afterall, this is backed by real, hard valued assets. As it stands now, the price of $0.6-0.7 is actually <0.4 times NAV!
In fact, I wonder why aren't there any groups or PE funds with deep pockets that wont take this private, simply strip or break up the company and sell it off.
My guess is that 1) the Chengs own a large portion and it will be difficult to privatise without their blessings
2) The steel trading business is facing strong headwinds now and it is difficult to manage, much less sell off now.
If I can privatise it, I'd do so because just by doing a sale and leaseback for the Lion Buildings, the price will pay for the entire privatisation costs already, leaving ALL the other assets essentially free! i.e. The Seven crescents bungalows, Malaysia properties, China properties and steel trading business. The property assets are valued annually too and this is recorded in the books (marked to market)

I'd be fair to caution though, the constant and in some years, rapid increase in NAV is largely accounted for by booking in "profits" from the upward revaluation of the properties. So in the event that the value of the properties crashes, the same downward pressure will apply to NAV

Stripping out the extraordinary gains though, here are the true operating earnings (earnings from operations without any revaluation gains):
 2009: 1.55
2010: 5.80
2011: 8.08
2012: 11.36
2013: 15.17
2014: 4.08
2015: 5.90
Generally PER has always been low, <10 even after stripping away extraordinary gains
Free cashflow has also been +ve from 2009 to date. I define FCF as the net cash generated from operating activities - cost to replace PPE

Now for the -ves:
This is probably the biggest: Its steel trading business, which used to enjoy pretty good margins, has been decimated
Profit from the steel division alone:

2011: $6m



2012: $10.9m



2013: $17.5m



2014: $11.4m


2015: $2.4m

As you can see, this crucial division's profits has essentially fallen off a cliff from FY15.
Main reason for this is the way the pricing has been calculated. From what I understand (if I am not wrong), the prices for their sale of rebar steel is now essentially fixed by BCA. (Building and construction authority)
BCA releases some average or guidelines for steel rebar pricing and starting 2015, rebar price contracts are based on this.
Obviously BCA doesn't allow for very fat margins.
Of course, another big factor is that steel prices worldwide has generally fallen off a cliff too. So no surprises that profitability has taken a big hit.
Nobody can predict but such commodity price trends can take a long time to correct. China is not going to start being the hungry steel consumer anytime soon so such secular trends can persist for several years.

So LTC is in a situation where based on its balance sheet, it looks very attractive.
But its highly unattractive based on earnings, and on macro qualitative factors. Low ROEs, unfavourable outlook, earnings have been much lower in the past 2 years.
So the qn is, is this a "Value play", or is it a "value trap"?

My personal verdict:
At current prices ($0.6-0.65), LTC is attractive enough for me to accumulate and hold. Investing is all about odds, and at current valuation, the odds of LTC dropping drastically, is much much lower than it rising rapidly (if steel prices increase, or if some opportunities arise to reduce the discount to book value)
At worst, the share price hovers around this range or rises very slowly over the years.
I wouldn't throw the sink at this, but I'd either buy or hold at this stage.

<vested - 219 lots>

(27-09-2015, 05:09 PM)GFG Wrote: LTC is an interesting company because it has clear +ves and clear -ves, and the outcome for investors can be quite drastic.

+ve:
Obviously a huge discount to its NAV.
NAV (WB's favourite measure of value) is now 159.23 cents.
It has increased steadily EVERY YEAR over the years:
2009: 89.6cents
2010: 100.72 cents
2011: 109.51 cents
2012: 129.64 cents
2013: 152.54 cents
2014: 154.21 cents
2015: 158.93 cents

As long as nothing drastic happens, one can argue that the share price cannot deviate too far from the NAV. Afterall, this is backed by real, hard valued assets. As it stands now, the price of $0.6-0.7 is actually <0.4 times NAV!
In fact, I wonder why aren't there any groups or PE funds with deep pockets that wont take this private, simply strip or break up the company and sell it off.
My guess is that 1) the Chengs own a large portion and it will be difficult to privatise without their blessings
2) The steel trading business is facing strong headwinds now and it is difficult to manage, much less sell off now.
If I can privatise it, I'd do so because just by doing a sale and leaseback for the Lion Buildings, the price will pay for the entire privatisation costs already, leaving ALL the other assets essentially free! i.e. The Seven crescents bungalows, Malaysia properties, China properties and steel trading business. The property assets are valued annually too and this is recorded in the books (marked to market)

I'd be fair to caution though, the constant and in some years, rapid increase in NAV is largely accounted for by booking in "profits" from the upward revaluation of the properties. So in the event that the value of the properties crashes, the same downward pressure will apply to NAV

Stripping out the extraordinary gains though, here are the true operating earnings (earnings from operations without any revaluation gains):
 2009: 1.55
2010: 5.80
2011: 8.08
2012: 11.36
2013: 15.17
2014: 4.08
2015: 5.90
Generally PER has always been low, <10 even after stripping away extraordinary gains
Free cashflow has also been +ve from 2009 to date. I define FCF as the net cash generated from operating activities - cost to replace PPE

Now for the -ves:
This is probably the biggest: Its steel trading business, which used to enjoy pretty good margins, has been decimated
Profit from the steel division alone:

2011: $6m



2012: $10.9m



2013: $17.5m



2014: $11.4m


2015: $2.4m

As you can see, this crucial division's profits has essentially fallen off a cliff from FY15.
Main reason for this is the way the pricing has been calculated. From what I understand (if I am not wrong), the prices for their sale of rebar steel is now essentially fixed by BCA. (Building and construction authority)
BCA releases some average or guidelines for steel rebar pricing and starting 2015, rebar price contracts are based on this.
Obviously BCA doesn't allow for very fat margins.
Of course, another big factor is that steel prices worldwide has generally fallen off a cliff too. So no surprises that profitability has taken a big hit.
Nobody can predict but such commodity price trends can take a long time to correct. China is not going to start being the hungry steel consumer anytime soon so such secular trends can persist for several years.

So LTC is in a situation where based on its balance sheet, it looks very attractive.
But its highly unattractive based on earnings, and on macro qualitative factors. Low ROEs, unfavourable outlook, earnings have been much lower in the past 2 years.
So the qn is, is this a "Value play", or is it a "value trap"?

My personal verdict:
At current prices ($0.6-0.65), LTC is attractive enough for me to accumulate and hold. Investing is all about odds, and at current valuation, the odds of LTC dropping drastically, is much much lower than it rising rapidly (if steel prices increase, or if some opportunities arise to reduce the discount to book value)
At worst, the share price hovers around this range or rises very slowly over the years.
I wouldn't throw the sink at this, but I'd either buy or hold at this stage.

<vested - 219 lots>

Chengs are proven value freezers and history has proven that they simply have no regards for minorities nevermind about the value that is being locked up.

Odd Lots For More Than A Decade
GG

What are ways that value can be unlocked here?

Actually I am recently vested with them as I think their margin of safety is quite reasonable. Understand they have huge pieces of lands in Malaysia, if any unlock of value is to happen, it will be in another 3 to 4 years time..i guess.. In between, we can only hope their steel business can grow back to how things were.

(01-04-2016, 08:56 AM)TUBInvesting Wrote: What are ways that value can be unlocked here?

Actually I am recently vested with them as I think their margin of safety is quite reasonable. Understand they have huge pieces of lands in Malaysia, if any unlock of value is to happen, it will be in another 3 to 4 years time..i guess.. In between, we can only hope their steel business can grow back to how things were.

Unlock value?
Just sell and leaseback their FH industrial property at Arumugam road and based on the most recent valuation, the proceeds alone will cover the entire market cap of the company!
Everything else, the steel, the seven crescent units that r unsold, the Sogo stores, Malaysia land etc would b all free

Unfortunately, as with deep value situations like these, a catalyst is needed to unlock value.
If a deep pocketed activist could come in, this looks like a v easy situation to be an activist.