LTC Corp (prev. Lion Teck Chiang)

[opmi]

I think misalignment of interests between minorities and substantial shareholders(SS)/mgt is the biggest cause of value traps. Esp in Asian companies where families control absolute majority >50%. E.g. The interests of SS may be slowly extract value from salary/directors fees for the whole family get rather than to pay dividends. This is a problem in small caps.

About wait how long. Don't know. But I think it is best to get paid while u wait. In form of dividends or incremental growth in NAV. Specifically for LTC, I mentioned why it is very difficult to increase NAV from redevelopment. Additional NAV likely to be from Property revaluations from rental increases or indu prop prices. And also from other SG/MY property devt. Provided the steel-making subsi negate the increases.

Is catalyst important? Yes for me. Coz I don't want to tan ku ku. Long investing holding period affects returns and has opportunity cost. Investment holding period cannot be forever for some stocks. Eg industrial property has decreasing lease and building get old. property cycle will affect the property valuations.

Besides, undervaluation is usually well known by enough knowledgeable investors with money. Why would they bid up the share price ie closing the valuation gap when it is the status quo for foreseeable future. If they don't, how do one unload at a higher mkt price?

[GFG]

LTC management compensation is quite reasonable, and unlike other companies, they don't issue share options to employees which may sometimes indicate management is "milking" the company

The NAV has also been steadily increasing over the past 5 yrs.
To put things in perspective, the investment properties was recorded as $115mil in FY13. In FY10, it was 79.8 mil. So in the last 3yrs, the increase in fair value recognized was 35.2mil.
That's 22.5 cents per share.
So if u exclude ALL the gains since 2010, the NAV would still be about $1.32
How many things u know cost the same in 2010 compared to 2013?

Having said that, I did previously mention one of the risks is that these fair value gains cannot keep rising. Eventually they will reduce, become zero (no gains) or even become fair value write downs if the market turns south
In fact, I think this yr (FY14) the gains will be lesser compared to FY13.
I am just saying based on some simple calculations, the moat is very large currently and unless there are dramatic changes, the NAV is unlikely to fall too much. That supports the share price to an extent.

[opmi]

LTC management compensation is quite reasonable, and unlike other companies, they don't issue share options to employees which may sometimes indicate management is "milking" the company

The NAV has also been steadily increasing over the past 5 yrs.
To put things in perspective, the investment properties was recorded as $115mil in FY13. In FY10, it was 79.8 mil. So in the last 3yrs, the increase in fair value recognized was 35.2mil.
That's 22.5 cents per share.
So if u exclude ALL the gains since 2010, the NAV would still be about $1.32
How many things u know cost the same in 2010 compared to 2013?

Having said that, I did previously mention one of the risks is that these fair value gains cannot keep rising. Eventually they will reduce, become zero (no gains) or even become fair value write downs if the market turns south
In fact, I think this yr (FY14) the gains will be lesser compared to FY13.
I am just saying based on some simple calculations, the moat is very large currently and unless there are dramatic changes, the NAV is unlikely to fall too much. That supports the share price to an extent.

part of the 'moat' is discount due to illiquidity and small caps and no catalyst.

If NAV not increasing or decreasing and same discount to NAV, then how to make money if buy at market price?

[gautam]

Yes, and if the yield was increased to say 4%, I don't think there would be so many disgrunted investors. its this poor dividends and lack of near term catalyst which is holding the price down. nav rise alone might not support price much in the near term.

I think the yield is just too low to keep people waiting in this counter, too low for that opportunity cost of putting cash there. IMO the lion buildings look too new for a total rebuilt, even if the plot ratio were revised. the wait could be a decade or more.

[valueinvestor]

Too many family members in a organization is a contradiction to corporate governance.

[opmi]

Too many family members in a organization is a contradiction to corporate governance.

but Asian companies usually like that. With no threat of being fired. Interests may not be aligned with minority investors.

[GFG]

Yes, and if the yield was increased to say 4%, I don't think there would be so many disgrunted investors. its this poor dividends and lack of near term catalyst which is holding the price down. nav rise alone might not support price much in the near term.

I think the yield is just too low to keep people waiting in this counter, too low for that opportunity cost of putting cash there. IMO the lion buildings look too new for a total rebuilt, even if the plot ratio were revised. the wait could be a decade or more.

I think that's the major bugbear for most investors-the low dividends
If the dividend is increased to 4% tomorrow, I think the share price will go up to over $1 easily.
The reason given by management is that the steel division is capital intensive, and indeed if you look at the figures, the profit from all 3 segments (steel, prop Dev, prop rental) are similar but the bulk of revenue comes from steel. Unfortunately that's the nature of steel trading business. Low margins and capital intensive
If you look at other listed stockist like HG metal and Asia enterprises holdings, it's similar.
The difference is LTC supplies mainly construction in Sg, and there is earnings visibility. Also, they will use their own steel for their own property developments so there is synergy, kinda like moving downstream.

The question then is what would you want the management to do if u view yourself as an owner of the company?
1) raise dividend to 4% but lose future business cos of inadequate capital? Or take on more debt as a result?
2) grow the business but in the meantime dividend is paltry?

I own 236 lots of LTC and the low div yield obviously impacts me, but i m more interested in seeing how they use their capital instead to grow the company.
Also, I never expected any changes to plot ratio etc to begin with. There was never any concrete evidence that would happen, it was all hype

[opmi]

GFG, have you try writing to the company to make known your concerns and suggestions?

Minorities must engage the company. If not, they may think no one is looking at what they are doing or not doing.

If I remember correctly, Lion use their property to take loans to fund working capital for their steel trading arm. Steel trading
is low margin and high volume. One wrong move means you lose money and that loss will come from the property value.

One suggestion is to sell the steel trading arm. Capital intensive and risky. Selling it at nominal $1 to Lion Group would be a good catalyst.
But at AGM, Board seems to want to hold onto the steel trading arm. Which has IPT with their parent Lion Group.

[GFG]

GFG, have you try writing to the company to make known your concerns and suggestions?

Minorities must engage the company. If not, they may think no one is looking at what they are doing or not doing.

If I remember correctly, Lion use their property to take loans to fund working capital for their steel trading arm. Steel trading
is low margin and high volume. One wrong move means you lose money and that loss will come from the property value.

One suggestion is to sell the steel trading arm. Capital intensive and risky. Selling it at nominal $1 to Lion Group would be a good catalyst.
But at AGM, Board seems to want to hold onto the steel trading arm. Which has IPT with their parent Lion Group.

I dont quite understand your suggestion. The steel trading arm earned profits of 17.5mil in FY13, 10.9mil in FY12, 6mil in FY 11.
Why would selling it at nominal $1 be a good move?
In fact, why would selling it at all be a good catalyst?

Wow, if board wants to sell the steel trading arm with millions in profits every year consistently (I dont know when was the last yr when it was loss making) for a nominal $1, I think i will be the first to buy from them.

Usually this kind of nominal $1 deals are reserved for loss making businesses where the buyer takes over the loans of the company.
case in point: tony fernandes paid $1 for air asia.

I would write to the companies I invest in, but I have not written to Lion teck chiang because I do not have any suggestion for them. I dont think I will be better at their industry than they are.

There is something that has made me worried though:
"It looks like the debt crisis nightmare of 1999 is returning to haunt Lion Group’s head honcho Tan Sri William Cheng. His Lion Corp Bhd (LCB) slipped into PN17 status last week with its steel subsidiary Megasteel Sdn Bhd being weighed under massive debts. Indications are, Megasteel’s lenders might be prepared to take a haircut to save the giant steelmaker from defaulting on its debts.

Lion Group was once the country’s second largest corporate debtor after Renong Group during the 1997 financial crisis. Lion collectively had to restructure some RM11.65 bil debts in a group-wide restructuring scheme (GWRS) in 1999."

This article came out in a malaysian magazine.
I may query them on how and if Megasteel would affect lion teck chiang, although I think I will probably get a standard non commited answer

*btw correction from previous post: I own 226 lots of LTC. not 236.

[opmi]

GFG, have you try writing to the company to make known your concerns and suggestions?

Minorities must engage the company. If not, they may think no one is looking at what they are doing or not doing.

If I remember correctly, Lion use their property to take loans to fund working capital for their steel trading arm. Steel trading
is low margin and high volume. One wrong move means you lose money and that loss will come from the property value.

One suggestion is to sell the steel trading arm. Capital intensive and risky. Selling it at nominal $1 to Lion Group would be a good catalyst.
But at AGM, Board seems to want to hold onto the steel trading arm. Which has IPT with their parent Lion Group.

I dont quite understand your suggestion. The steel trading arm earned profits of 17.5mil in FY13, 10.9mil in FY12, 6mil in FY 11.
Why would selling it at nominal $1 be a good move?
In fact, why would selling it at all be a good catalyst?

Wow, if board wants to sell the steel trading arm with millions in profits every year consistently (I dont know when was the last yr when it was loss making) for a nominal $1, I think i will be the first to buy from them.

Usually this kind of nominal $1 deals are reserved for loss making businesses where the buyer takes over the loans of the company.
case in point: tony fernandes paid $1 for air asia.

I would write to the companies I invest in, but I have not written to Lion teck chiang because I do not have any suggestion for them. I dont think I will be better at their industry than they are.

There is something that has made me worried though:
"It looks like the debt crisis nightmare of 1999 is returning to haunt Lion Group’s head honcho Tan Sri William Cheng. His Lion Corp Bhd (LCB) slipped into PN17 status last week with its steel subsidiary Megasteel Sdn Bhd being weighed under massive debts. Indications are, Megasteel’s lenders might be prepared to take a haircut to save the giant steelmaker from defaulting on its debts.

Lion Group was once the country’s second largest corporate debtor after Renong Group during the 1997 financial crisis. Lion collectively had to restructure some RM11.65 bil debts in a group-wide restructuring scheme (GWRS) in 1999."

This article came out in a malaysian magazine.
I may query them on how and if Megasteel would affect lion teck chiang, although I think I will probably get a standard non commited answer

*btw correction from previous post: I own 226 lots of LTC. not 236.

the idea is to separate the steel trading and property so that value is recognized respectively than both businesses all intertwined through bank loans.

if you buy at $1, maybe you have the capital to fund the working capital and potential loss on inventory and interest expenses on holding those inventory. OK. $1 nominal is an extreme example. PE 3X-5X is reasonable.

Mmm..their related party Megasteel under huge debt. Thats interesting. have to watch their IPT with LTC for any increase.

Writing to companies and giving suggestions are ways to engage the company. in most cases, minorities will know less than the Company mgt but that should not stop anyone from engaging them.