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26-12-2012, 11:05 AM
No use comparing with Pan Hong. No doubt, the prospect of the property development is very attractive. However, the issues are with its opaque development plans and also execution risks.
There wasn't much revealed regarding its development except through its 2009 Circular that:
"...the Land be developed into a mixed-use development comprising shopping malls (with a cineplex and games centre), soho, offices, condo-hotel, international school, residential units and entertainment hub with restaurants, boutiques, cafes and bars of an international standard."
Seem like they are doing a lot of stuffs! But the constraint is we do not know their development mix. If 80% is meant for shopping malls, then the time frame for the cash flows stream will be much longer and the variables are more than just building and selling it off (i.e. residential). You have to look at ITG's ability to attract good tenants, whether they are leasing or selling off the shops, etc.
Not much is also known for the property location as well except that they are located at the "West of Liantang road, South of Hubei Road and East of Hudong Road" and they are based in the "Liantang Town, Nanchang County of Jiangxi Province". With a little Google mapping, I was able to locate the place, though not at the pinpoint location. Not the prime location which is along the Ganjiang River in Nanchang but it is pretty decently located near to the Chengbi Lake.
Currently, residential properties around the area are selling at RMB 6,500-7,500/sqm and these are the high-mid end kinds. Enlarging the area, other residential properties are selling close to RMB 5,000/sqm. You can get a glimpse of the standard of ITG's property under their 2009 Circular when they mentioned they expects a development cost of around S$150mln which will translate to around RMB1,600/sqm. Of course, these figures could be irrelevant given inflation and changes in the economy now but at least, we can infer it won't be some prime high-end contender but probably average standards.
Another thing is we do not know when their first selling phase will be. All we know is it will be completed by 2016/17. So those who long ITG are actually implying that they believe there won't be any hard crash in the Chinese property market till then. I do not know when the market will crash but my sensitivity analysis shows that (on an assumption of RMB3,000/sqm gross construction cost & an ASP of RMB5,000/sqm) the project cannot tank a hard fall of more than 40% in prices. So, if the market crashes before 2016, ITG perishes. And again, this is just a rough estimate as we do not know their development mix which all the more makes any estimation being unreliable.
Lastly, how is ITG going to finance the development? Even if their estimated development cost is true, it is still around S$150mln. As of now, they have only S$14mln in net cash. It seem like they will be leveraging more and may even issue equity financing means. No doubt, they can build by phases and then use the cash flow earned from the proceeds to finance the next phase and so on but again, the plans are opaque. As of now, equity dilution is still a possibility.
The recent disclosure over the arbitration is perhaps a glimpse of the project uncertainty ahead.
There wasn't much revealed regarding its development except through its 2009 Circular that:
"...the Land be developed into a mixed-use development comprising shopping malls (with a cineplex and games centre), soho, offices, condo-hotel, international school, residential units and entertainment hub with restaurants, boutiques, cafes and bars of an international standard."
Seem like they are doing a lot of stuffs! But the constraint is we do not know their development mix. If 80% is meant for shopping malls, then the time frame for the cash flows stream will be much longer and the variables are more than just building and selling it off (i.e. residential). You have to look at ITG's ability to attract good tenants, whether they are leasing or selling off the shops, etc.
Not much is also known for the property location as well except that they are located at the "West of Liantang road, South of Hubei Road and East of Hudong Road" and they are based in the "Liantang Town, Nanchang County of Jiangxi Province". With a little Google mapping, I was able to locate the place, though not at the pinpoint location. Not the prime location which is along the Ganjiang River in Nanchang but it is pretty decently located near to the Chengbi Lake.
Currently, residential properties around the area are selling at RMB 6,500-7,500/sqm and these are the high-mid end kinds. Enlarging the area, other residential properties are selling close to RMB 5,000/sqm. You can get a glimpse of the standard of ITG's property under their 2009 Circular when they mentioned they expects a development cost of around S$150mln which will translate to around RMB1,600/sqm. Of course, these figures could be irrelevant given inflation and changes in the economy now but at least, we can infer it won't be some prime high-end contender but probably average standards.
Another thing is we do not know when their first selling phase will be. All we know is it will be completed by 2016/17. So those who long ITG are actually implying that they believe there won't be any hard crash in the Chinese property market till then. I do not know when the market will crash but my sensitivity analysis shows that (on an assumption of RMB3,000/sqm gross construction cost & an ASP of RMB5,000/sqm) the project cannot tank a hard fall of more than 40% in prices. So, if the market crashes before 2016, ITG perishes. And again, this is just a rough estimate as we do not know their development mix which all the more makes any estimation being unreliable.
Lastly, how is ITG going to finance the development? Even if their estimated development cost is true, it is still around S$150mln. As of now, they have only S$14mln in net cash. It seem like they will be leveraging more and may even issue equity financing means. No doubt, they can build by phases and then use the cash flow earned from the proceeds to finance the next phase and so on but again, the plans are opaque. As of now, equity dilution is still a possibility.
The recent disclosure over the arbitration is perhaps a glimpse of the project uncertainty ahead.
