LTC Corp (prev. Lion Teck Chiang)

[mulyc]

The Cheng has been sending the signal , it is up to individual to interpret it. Believe the answer should be very obvious.

More clarity to come during next result announcement. So far 74.5c seems to be a key support.

[GFG]

The Cheng has been sending the signal , it is up to individual to interpret it. Believe the answer should be very obvious.

More clarity to come during next result announcement. So far 74.5c seems to be a key support.

My personal opinion is that he thinks there will be limited/lesser fair value gains in investment properties for FY14.
Since FY10 to FY13, the fair value gains have been 3.8m, 6.3m, 15.8m and 13.1m
With the property cooling measures, the gains will likely be muted, if any at all this year.
EPS may also likely be lower, based on the FY14Q1 results, as the steel division is also seeing lower turnover.
I guess then the question is how low is the EPS, and below what level would it then be no longer attractive from a valuation perspective

[GFG]

The Cheng has been sending the signal , it is up to individual to interpret it. Believe the answer should be very obvious.

More clarity to come during next result announcement. So far 74.5c seems to be a key support.

My personal opinion is that he thinks there will be limited/lesser fair value gains in investment properties for FY14.
Since FY10 to FY13, the fair value gains have been 3.8m, 6.3m, 15.8m and 13.1m
With the property cooling measures, the gains will likely be muted, if any at all this year.
EPS may also likely be lower, based on the FY14Q1 results, as the steel division is also seeing lower turnover.
I guess then the question is how low is the EPS, and below what level would it then be no longer attractive from a valuation perspective

Just want to point out that the EPS, if excluding the fair value gains on properties, from FY10 - FY13 is 5.8 cents, 8.08, 11.36, 15.17

Based on the earnings of 15 cents (for FY13, excluding fair value gains), the PER you get for the share price of $0.75 is only 5.
In other words, if the steel division does the same volume of business as last year and steel prices remain fairly constant, even if the value of the FH properties stagnate this year, at $0.75 it is still very cheap.

[cfa]

The Cheng keep selling like no tomorrow is definitely not a positive sign .They know more than us , retail investors.

[GFG]

The Cheng keep selling like no tomorrow is definitely not a positive sign .They know more than us , retail investors.

Tan sri william Jem has been selling down for over a month from 19 Dec till 14 Jan.
That's always a worrying sign
The only thing I can think of is that there would be lesser fair value gains for the property segment resulting in lower profits at the end of the yr.
I am still holding on to my 240 lots based on the valuations though.

[GFG]

The Cheng keep selling like no tomorrow is definitely not a positive sign .They know more than us , retail investors.

Tan sri william Jem has been selling down for over a month from 19 Dec till 14 Jan.
That's always a worrying sign
The only thing I can think of is that there would be lesser fair value gains for the property segment resulting in lower profits at the end of the yr.
I am still holding on to my 240 lots based on the valuations though.

From JTC report on industrial property:
"In 4Q 2013, prices of all industrial space fell by 3.3% on a quarter-on-quarter basis, as compared to the 2.8% gain in 3Q 2013. During the same period, prices of multiple-user factory and warehouse space dropped by 1.2% and 10.7% respectively, as compared to their respective increases of 0.9% and 10.4% in 3Q 2013."

[shadow]

I've been observing LTC for some time and notice that P/B ratio (based on average closing price during fiscal year) has been hovering between 0.26 - 0.55 over the past 10 years. The only year the P/B ratio is above 0.5 is 2008. It makes me wonder will P/B ratio remains this low for the next 10 years. I'm fine with low P/B ratio as long as the equity and FCF will increase in future years as this will translate into higher share price. Equity and FCF has been increasing over the past 4 years, but is it sustainable? In order to find out the reasons behind the low P/B ratio and to ascertain is this a business that is worth investing, I've decided to derive a range of fair value using EPV. Below is the train of thoughts.

1. Is LTC an economically viable business. Based on the 2013 annual reports, a line of projects is expected to be launched for tender, thus is likely to continue in business. Even if they fail to get any project, its investment properties are still generating rental income. Worst case scenario, the steel trading business goes bankrupt but I'm pretty sure other steel businesses would be keen to acquire its plants and machinery.
2. Does it has any competitive advantage? LTC derives its business from 4 segments: steel trading, property development, property rental and investment holding. It isn't a business that other firms couldn't enter. There're strong steel trading businesses and property developers in the market. The profit margin for steel trading is below 10% for the past 10 years with the exception of 2013. Steel trading and property development contribute about 40% each to net profit margin. I don't foresee steel trading to sustain double digit profits for the next 10 years and with the current property market outlook, property development is likely to be muted.
3. I don't attempt to forecast EBIT for each business segment for the next 5-10yr. For a quick calculation, I would use the average of last 5 years and 10 years EBIT (with removal of fair gain in properties) to derive a reasonable sustainable EBIT. Not sure what does the eliminations refer to. I factor average elimination into the calculation as well. 5yr average is 21,089k, while 10yr average is 15,055k. Adjusted EBIT for 2011, 2012, and 2013 are 18,905k, 28,726k and 39,424k respectively. The 5yr-average adjusted EBIT is between these values. The capital structure for LTC is about 33.9% of interest-bearing loans. Expected return for equity: 20% (I expect higher return since this is a penny stock), cost of debt: 3% (secured bank loans and revolving credit facility is below 2%, I use 3% to be conservative), WACC: 14.2%. After adjusting for differences between maintenance capex and depreciation (which doesn't differ much), deducing 17% taxes , and interest payable based on capital structure of 33.9% interest-bearing debt with 3% interest, fair value for LTC is 0.46 based on 10yr average EBIT and 0.73 based on 5yr average EBIT.


Book value is 1.53/share. Assuming 20% discount to investment properties, PPE and properties under development, book value reduces to 1.27. About 50% of the book value derives from investment properties. Between 1.27, 0.73 and 0.46, I would rather use 0.73 as 5-year average is more reasonable and also factors in financial crisis values. I'm not sure are we heading towards a financial crisis, but factoring these values give me a sense of comfort.

Is LTC able to unlock its value? Draft master plan 2013 doesn't show a change in zoning where the investment properties are sitting. Assuming the EPV calculation is correct, current share price seems to have fairly valued. Based on current price of 0.735 and assuming dividend for 2014 is 0.01, dividend yield is less than 1%. Without good dividend yield to hedge inflation, lack of catalyst to unlock value and lack of margin of safety, I would rather deploy money to other counters.

What do you guys think? Feel free to share your thoughts.

[mulyc]

Bro Shadow,

Thanks for sharing the analysis. It looks quite realistic. IMHO if I might add, given the illiquidity of LTC, I would actually attribute a large part of the recent share decline to the sale of shares by Tan Sri Cheng Hem Jem. Till date he has pared down his stake to 18.78%. I do agree that our ammo is also better deployed in other counters atm.

Vested.

[GFG]

NOTICE IS HEREBY GIVEN that the Transfer Books and Register of Members of the Company will be closed on 22 May 2014 for the purposes of determining Shareholders’ entitlements to the interim dividend.
Duly completed and stamped transfers received by the Company’s Share Registrars, B.A.C.S. Private Limited, 63 Cantonment Road, Singapore 089758 up to 5.00 p.m. on 21 May 2014 will be registered to determine Shareholders’ entitlements to the interim dividend.
Shareholders (being depositors) whose securities accounts with The Central Depository (Pte) Limited are credited with ordinary shares in the capital of the Company as at 5.00 p.m. on 21 May 2014 will be entitled to the interim dividend.
The interim dividend will be paid on 10 June 2014.
By Order of the Board
Lion Teck Chiang Limited
Silvester Bernard

1st time giving an interim dividend of $0.01!
What a pleasant surprise! Totally unexpected, seeing that tan sri william has been selling down for several mths

[opmi]

Maybe they need the money..